July 31, 2015

Potential Emission Leakage Under the Clean Power Plan and a Proposed Solution

The Clean Power Plan is an essential step forward to end unlimited dumping of carbon pollution into our atmosphere from the largest source in the United States — existing power plants. EPA’s proposal (“Proposal”) establishes state-specific emission rate targets for each state based on a technical and economic assessment of the opportunities each state has to reduce emissions from the regulated sources covered by the standard. While there is considerable room for improvement in EPA’s assessment of each building block and the formula used to combine them, EPA’s basic approach — a bottom-up assessment leading to an individualized target for each state — is legally and technically sound.

The differences in emission rate targets among the states, however, could lead to higher overall emissions than anticipated (“emissions leakage”) if states with relatively low emission rate targets increase their electricity imports from states with relatively high targets. (In this context states that elect to implement an environmentally equivalent mass-based target can be treated as having an emission rate standard of 0 lbs/MWh because such a standard does not allow any increase in emissions associated with any increase in generation within such state beyond the level of growth already accounted for in the standard.) Potential differences in how states account for new fossil generation could further erode the projected emissions reductions.

Our analysis finds that these two factors, if left uncorrected in the final rule, could significantly reduce the effectiveness of the proposal. Technically, some states could rely entirely on leakage to demonstrate compliance with the proposal by shifting generation into states with higher rate standards or replacing existing generation with new sources that may emit at a higher rate. Under reasonable economic assumptions and transmission constraints, leakage could eliminate nearly 30% of the expected emissions reductions from the Clean Power Plan.