Last week, we scratched the surface of demons in the Clean Power Plan (CPP) details. Let’s see what lies on the second layer below.
There are two methods for counting, scoring, and achieving compliance in the plan: mass based and rate-based plans. To recap, mass based is the simpler of the two. For starters, it includes one metric: tons of CO2 emissions from stationary power suppliers. The second is, I believe, far more complicated. Why? Glad you asked.
The rate based approach would appear to be an itty bit more complicated, like steaming broccoli versus steaming carrots. The only difference would seem to be dividing tons of carbon dioxide by electrical energy produced in MWh.
My interpretation of the rule is that if a state chooses to build a wall around itself and not trade credits or allowances, it would be as simple as steaming broccoli versus steaming carrots. The problem comes in the trading.
Recall last week that emission rate credits and emission allowances can be traded, but they are not interchangeable, like diesel fuel and gasoline are not interchangeable. They are both very similar in terms of weight and energy density in Btu/gallon, but one absolutely does not work when fueling the wrong engine type.
The problems with the rate based approach are that (1) emission rate credits are essentially like trading savings and (2) it involves verification of those savings to certify them for trading.
Why is trading important? Because like every other government program, there are winners and losers. The losers are going to need to buy allowances or credits from the winners, and the winners will enjoy taking the losers’ money. If anyone wants to argue with that, be my guest, but it is absolutely the case.
If the CPP were a diet, would you rather buy the fact that someone deprived themselves of a Snickers bar, or would you rather buy the Snickers bar? Somebody has to make sure the starving seller of the Snickers credit didn’t jam one down their face in the bathroom stall when no one was looking. I rest my case.
Thinking Twice about the Rate-Based Approach
As mentioned last week, the mass approach has some nominal economic growth built into the formula. I have not verified this, but it is supposed to permit some increase in emission allowances for economic growth, which we all know can be soooo precisely predicted.
The decision for states to choose the rate approach versus the mass approach is similar to preferences for decoupling or not decoupling. That is, if my utility serves a vibrant region of economic growth, I don’t want decoupling. I don’t want my revenue held constant and decoupled from sales. I want my revenue pegged to sales. If my utility is facing declining sales for whatever reason, sure, decoupling sounds great!
Similarly, if my state is friendly to business, and I think it is going to outperform whatever the EPA uses for a baseline growth rate, I might be interested in the torturous rate method.
Measurement and Verification
One thing I must say about the CPP is that it doesn’t include any hokeyness involving the counterfactual or what would have happened without the CPP. In other words, nobody, not even the EPA, cares about why or how emissions are reduced.
However, for trading rate-based approach, the savings must be certified by measurement and verification. The problem is, this does not mesh well with today’s status quo evaluation, measurement and verification, which requires soothsayer estimates of what energy users would otherwise do – the attribution racket.
The physics of climate change don’t care about what would have happened.
Trashing the Status Quo
Quite possibly another good thing about the CPP is that maybe states, to reduce cost and for simplification, will align with the concrete realities of energy efficiency and the physical world. I already mentioned last week that the CPP will blow up (smithereens) the equity issue because, to least expensively comply, energy users served by “dirty power” supplies will get the attention first (see winners and losers above). Additionally, state A will pay state B for credits or allowances (winners and losers). Since this is going to happen in a major way, maybe we can trash the foolish fuel switching sacred cow.
If utilities want to get creative, they can shift their loads to customer sites, beyond the fence line of the power plant. For instance, electric water heaters powered from within the fence line could be replaced with natural gas-fired water heaters.
Last Word on M&V
Energy efficiency may not need M&V by rule for the mass option, but it would be a wise thing to do. If states are going to pour money into energy efficiency, they need to make sure they know what is happening so it shows up at the meter – or in this case, the exhaust stack.