Academic journal article
By Schwarz, Peter M.
Contemporary Economic Policy , Vol. 23, No. 3
Federal legislation for electricity emissions has become increasingly stringent, as typified by the stricter standards of the U.S. Environmental Protection Agency's (EPA) 1997 New Source Performance Standards (NSPS) as compared to the 1990 Clean Air Act Amendments (CAAA). Electric utilities are among the firms seeking greater regulatory certainty and integrated multipollutant standards in future legislation. Electric utilities support the approach of the federally proposed Clear Skies Initiative, which presents an integrated standard for sulfur dioxide (S[O.sub.2]), nitrogen oxides (N[O.sub.x]), and mercury (Hg) so as to avoid "stranded capital investments from installation of controls that later become obsolete when additional regulations are promulgated." (1)
It is generally recognized that the current "piecemeal" approach, with an uncertain timetable and ratcheting of standards applied to some pollutants without considering the relationships among pollutants, adds excessively to costs. (2) However, there is little evidence on the cost savings and net benefits from less frequent revision of standards and a more integrated multipollutant approach. This article provides such evidence of the savings to firms of crafting legislation that recognizes the relationships among multiple emissions and the advisability of foresight when emissions standards are promulgated.
In 2002, North Carolina passed the Clean Smokestacks Act, an integrated standard calling for coal-fired electric plants to reduce S[O.sub.2] by 73% by 2013 (with an interim reduction of 49% by 2009), as compared to 1998, as well as to reduce N[O.sub.x] by 79% by 2009. The act requires actual reductions, so that emissions trading cannot be used to meet the new standards. This article addresses the costs and benefits of the new North Carolina integrated standard, as compared to the 1990 and 1997 federal standards. The major findings are that firms subject to the 1990 standards that must now meet the 2002 North Carolina standard choose the lowest cost method to do so. But firms that come under the 1997 NSPS choose a different method to comply with the 2002 act that results in higher costs. Results also show that net benefits are positive for the North Carolina standards, but not for the 1997 NSPS. The approach in this article can be extended to include additional emissions, including mercury (Hg), particulate matter (PM), and carbon dioxide (C[O.sub.2]) emissions. (3)
The method used in this article is a detailed simulation of a single coal-fired electric generating plant. Electricity production uses the Integrated Environmental Control Model (IECM), developed by Rubin, Berkenpas, and others at Carnegie Mellon University (CMU) with support from the Department of Energy (DOE) and applied in a series of papers (Rubin et al., 1997, 2001, among others). The IECM is a detailed engineering model of electricity production, including the associated multiple emissions as well as the corresponding production costs.
The IECM can simulate both traditional production, aimed at reducing a single emission, and integrated methods that target multiple emissions. Utilities limiting S[O.sub.2] emissions have switched to low-sulfur coals and added flue gas desulfurization (FGD) scrubbers. To limit N[O.sub.x], utilities have incorporated low-N[O.sub.x] burners and selective catalytic removal (SCR). This article focuses on the costs of complying with environmental controls for S[O.sub.2] and N[O.sub.x], and the possibility that utilities subject to increasingly stringent controls may choose a solution with higher costs than if they had known the later standards at the time when they chose the compliance strategy to meet the initial standard. The IECM contains several integrated technologies that are under development. The most promising from a cost standpoint appears to be the fluidized bed copper oxide (CuO) process. To the extent that regulations encompassed multiple pollutants in a predictable fashion, it is likely that firms would be more willing to invest in research and development (R & D) in integrated technology, leading to earlier development. …