Center for American Progress Action

NEW REPORT: Power Plant Performance Standard Clearest Path to Cleaner Coal
Press Release

NEW REPORT: Power Plant Performance Standard Clearest Path to Cleaner Coal

Analysis Finds “Bonus Allowances” Much Less Effective

Washington, D.C – The Center for American Progress today released “The Path to Cleaner Coal,” an analysis that determined that an “emission performance standard” that required all new coal-fired plants to capture and store carbon was the most effective method to reduce global warming pollution from these sources. It compared a new plant performance standard under a “cap and trade system” with the “bonus allowance” incentives proposed by the Low Carbon Economy Act, S. 1766, sponsored by Sen. Jeff Bingaman (D-NM). The analysis determined that a performance standard is more effective and less costly than a bonus allowance program.

“As global warming looms larger, the U.S. must employ the most effective method possible to reduce carbon emissions from new coal fired power plants,” said Ken Berlin, co-author of “The Path” and partner at Skaden Arps. [1] “The Clean Air Act requires that new sources meet stricter standards based on new, cleaner technology so that the additional pollution from new plants does not overwhelm efforts to lower emissions from existing sources. With new power plants set to release millions of tons of carbon dioxide, a global warming reduction program should do no less.”

“An emission performance standard for new power plants would provide certainty that new coal plants will employ CCS. This will accelerate innovation and cost-reduction for this essential low-carbon technology,” noted Bob Sussman, co-author of “The Path” and partner at Latham Watkins. [2] “Our analysis found that under S. 1766, a system of bonus allowances could provide windfalls to utilities and enable them to offset emissions from existing sources without ensuring that all new plants capture and store their emissions. In other words, this bill would incur unnecessary costs and delay reductions from existing plants but won’t ensure that new coal plants control their pollution.”

According to Department of Energy data, 27 percent of U.S. carbon dioxide pollution comes from coal-fired electric power plants. Projections indicate these emissions will grow by one-third by 2025 due to plans to build dozens more new coal plants. In order to reduce its emissions and slow global warming, the United States must sharply cut pollution from these new power plants, as well as from existing sources. Many public officials support some form of program to “cap and trade” emissions—limit the amount of total global warming pollution but allow power plants and other industrial sources to either reduce their own emissions or pay some other entity to do so.

An earlier CAP analysis, “Global Warming and the Future of Coal,” also by Berlin and Sussman, compared a new power plant performance standard to other options for prompt deployment of CCS and concluded that a performance standard would be most effective. The report recommended a phase-in process to allow time for further testing and improvement of the technology. It also proposed using the revenues from the auction of allowances to other power plants and pollution sources to offset the additional costs of CCS and protect consumers from rate hikes. “The Path to Cleaner Coal” built on the previous report by comparing the performance standard to the provisions in S. 1766 that would award bonus allowances to new plants to encourage them to capture and store carbon. According to the new analysis, the performance standard has a number of advantages.

· An emission performance standard would assure that all new coal plants would capture and store their pollution. Bonus allowances may or may not be adequate to motivate power companies to do so.

· Bonus allowances must overcome nonprice barriers to building new plants with CCS, including the reluctance of power companies to invest in new technologies. Consequently, the subsidies given under a bonus allowance program would probably be much larger than necessary to close the cost gap between plants with and without CCS.

· The bonus allowance program would shrink the size of the auction pool and reduce allowance allocations to other industrial sectors. Along with the use of these allowance to offset emissions from existing power plants, this would make it more expensive and difficult to reduce emissions overall.

· This and other distortions of the cap and trade system would be avoided if an emission performance standard were the primary tool to deploy CCS at new plants.

“Scientists tell us that we must make an 80 percent reduction in pollution by 2050 to stave off the worst harms from global warming,” said Dr. Kit Batten, Director of Environmental Policy at the Center for American Progress. “We must require all new coal-fired power plants to capture and store their carbon pollution before it’s too late. The bonus allowance system provides too much uncertainty and too many roadblocks to prompt pollution reductions to protect the planet from global warming.”

[1] Position listed for identification purposes only. The views in “The Path to Cleaner Coal” represent those of the authors and the Center for American Progress, and not of the author’s employer.

[2] Position listed for identification purposes only. The views in “The Path to Cleaner Coal” represent those of the authors and the Center for American Progress, and not of the author’s employer.