The claims and counterclaims about EPA’s proposed carbon pollution standards have filled the air: It will boost nuclear. It will expand renewables. It promotes energy efficiency. It will kill coal. It changes everything. It accomplishes almost nothing.
Evaluating the impact of the so-called Clean Power Plan requires a clear view of how the new rule will work. The plan centers on performance standards, which have yielded effective outcomes in other energy areas—such as appliance efficiency standards and fuel economy standards for light-duty vehicles. It sets a moderate, mid-term target for carbon reductions, but allows for flexibility because it does not dictate the use of specific technologies or products. States are allowed to design programs in response to local conditions.
The EPA plan picks a loser: coal. It does not, however, pick winners among the low-carbon options available. It does not offer much in the way of sweeteners for any specific technology. Assuming that states generally adhere to the prime directive of public utility resource acquisition—choosing the lowest-cost approach—the proposed rule will not alter the dismal prospects of nuclear power, which will therefore play no role in the reduction of carbon emissions from power plants.
EPA’s analysis of the proposed carbon pollution guidelines reflects this reality. EPA forecasts for nuclear power are flat-lined, which means that other resources—including energy efficiency, natural gas, wind, and solar—will carry the full weight of carbon reductions.
It is unlikely that the states will act irrationally enough to make the EPA analysis miss the mark by a wide margin. The marketplace and 48 of the 50 states have declined to embrace nuclear energy during the past decade, despite the incentives included in the Energy Policy Act of 2005.
New nuclear capacity would be expensive. The day before the EPA carbon plan was proposed, efficiency was the least costly way to meet the need for electricity. Gas and onshore wind were next. The cost of solar was dropping like a rock, and load factors for wind and solar—the so-called intermittent resources—were rising dramatically, due to technological improvements, the rapidly falling cost of energy storage, and information and control technologies that make it possible to manage fluctuating energy sources on a minute-by-minute basis. The EPA plan does nothing to change the fundamental economics of low-carbon resources in the mid- and long term.
As a result of this economic reality, a boatload of independent analysts—including Lazard, Citi, Credit Suisse, McKinsey & Company, Sanford C. Bernstein, The Motley Fool, Morningstar, and Barclays—not only had concluded that efficiency, renewables, and natural gas would account for the vast majority of resources deployed to meet the need for electricity over the next decade, but also that the model of the electric utility that dominated the 20th century has become obsolete.
The adoption of the climate change rule is likely to reinforce the pressure to modernize the electricity system and, to the extent that it requires more low-carbon resources, it will accelerate this process. In the short term, this might have the effect of raising the cost of electricity slightly, because resources with slightly higher costs will be pulled into the market. On the other hand, because many of the alternative energy sources have not been dominant in the past, accelerating their adoption might actually lower electricity costs, because these energy sources are still at the stage of development where innovation, learning by doing, and increases in economies of scale are dramatically cutting the price.
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