Making Sense of Energy

Environmental Protection Agency’s Power Emission Plan

In the United States the Obama administration has used the Environmental Protection Agency (EPA) to propose a policy that will limit emissions from power-plants, since about 40 percent of greenhouse gases in the US are a result of energy consumption.

The EPA came through with a proposal which will be under public review until the final rule is submitted next year. 13 economists co-authored an article about this policy in the Science journal this week, one of them was Christopher Knittel, the Will Barton Rogers Professor of Energy Economics at the MIT Sloan School of Management. There are potential benefits of the EPA policy, but how effective will it be?

Knittel was interviewed by MIT News in this article. Here are the highlights:

The plan will call for emission reductions depending on each state focusing on the following areas: increasing power-plant efficiencies, using natural gas instead of coal, increases the use of low-carbon renewable like wind power, and increase of energy efficiency overall within each state.

Each state will be responsible to determine how they are going to achieve reductions using a ratio-based formula: amount of greenhouse gases dived by the amount of electricity consumed.

The downside is that when everyone does their or rate or mass-based standard then you can’t really take advantage of a large efficiency benefit from trading compliant across states. It might cost less in one state than the other and so they lose efficiency by not working together. A giant mass-based standard across the entire country would be more efficient.

The regulation highlights the importance of reduction in energy consumption coming from efficiency investments, but a concern is that actual returns from energy efficiency investments aren’t as large as predicted returns.

States are responsible to tell the EPA what the reduction was from energy efficiency investments; however the state might not have incentive to measure correctly causing oversight.

“I think the biggest issue is that there has to be confirmation of energy efficiencies gained and by an independent party, not the state/province themselves,” commented Chris Vilcsak of Solution 105.

The real benefit, according to Knittel, of this policy is that it will change the dynamic in the upcoming International Climate Summit. Now the US has something they can bring to the table to show they’re doing improvements in electricity for climate change.

“My view is there are a lot of countries out there that aren’t going to do anything unless the U.S. does. This might bring some of those countries on board,” said Knittel.

Maybe this move by the US EPA will get people moving on the Canada and Alberta front!?