The US Energy Information Administration’s (EIA) newly released analysis of the impacts of the EPA’s proposed Clean Power Plan finds a mixture of technology, market forces and policy could result in a significant carbon emissions reductions if the rule is ultimately passed. The rule is intended to reduce CO2 emissions from existing fossil fuel power generation units through a regulatory framework that mandates US power plants to reduce GHG emissions 30 per cent by 2030 relative to their 2005 baseline.

Individual states are given the flexibility to determine their preferred strategy of complying with those regulatory requirements. The following chart shows CO2 emissions from the electric power sector falling to about 1,500 million metric tons per year by 2025 in the so-called ‘Base Policy’ case, according to the EIA.

This significant drop below the ‘Reference’ case around 2025 is mainly explained by the increased use of existing natural gas-fired capacity, the transition to lower-carbon technologies, heat rate improvements at existing power plants and, above all, by “introducing new or expanded demand-side energy efficiency programs that reduce electricity sales.”

Read additional Breaking Energy coverage of the CPP here.

Given that the Clean Power Plan will affect power generation capacity as well as the feul mix in general, electricity prices will inevitably be impacted on some level. The EIA analysis details the projected impact on retail electricity prices:

“Retail electricity prices increase most in the early 2020s, in response to initial compliance measures. Increased investment in new generating capacity as well as increased use of natural gas for generation lead to electricity prices that are 3% to 7% higher on average from 2020-25 in the Clean Power Plan cases, versus the respective baseline cases (Figure 14). While prices return to near-baseline levels by 2030 in many regions, prices remain at elevated levels in some parts of the country. In Florida and the Southeast, the Southern Plains, and the Southwest regions the projected electricity prices in 2030 are roughly 10% above baseline in the Base Policy case (CPP). (…) By 2040, total electricity expenditures in the CPP case are slightly below those in the AEO2015 Reference case, as decreases in demand more than offset the price increases.”

So the salient point – as the new EIA analysis seems to suggest – is that electricity “expenditure changes are smaller in percentage terms than price changes as the combination of energy-efficiency programs pursued for compliance purposes and higher electricity prices tends to reduce electricity consumption relative to baseline.”

In this context, Craig Morris, the lead author of German Energy Transition, compared German and US electricity bills in this recent post. He highlights that “Germans consume only a third as much electricity as Americans do” making the German average power bill a relatively small portion of household expenses. He adds that this applies even if unfavorably higher exchange rates are used for the calculation.

Interestingly, Craig Morris identifies air-conditioning as the biggest difference between the two countries – a significant and geography-dependent power bill-driving factor, which needs to be controlled for in any comparison. Other differences between the countries deemed less meaningful include the number of appliances used in respective countries’ households as well as the home size.

The following chart by Thomas Gerke comparing US and German electricity bills illustrates at least two crucial points. First, it basically confirms what the EIA projected above; namely, that energy-efficiency programs combined with higher electricity prices tend to drive down electricity consumption. Note, the German average price per kWh is about three times the price in the US, while German average monthly consumption is significantly trailing the US by a factor of three.

Consequently, there is some room for the US to improve on the electricity consumption side and implement efficiency measures. Note, average electricity prices will not even come close to comparatively high German electricity prices if for no other reason than expanded natural gas use at comparatively inexpensive Henry Hub prices. Second, the share of air conditioning in the US power bill is poised to significantly increase as a direct result of the effects of climate change. Overall, this chart depicts Germany already in a “transition” state the US could eventually reach with full implementation of the Clean Power Plan in its current form. However, this will occur with fewer efficiency gains and at significantly lower electricity prices given the different composition of the US energy mix – particularly the abundant natural gas supplies unlocked by shale development.

Source: German Energy Transition / Graphic by Thomas Gerke