The Impact of a Fleet Emission Rate Averaging and Trading CO2 Reduction Regulation on Non-Diversified Coal Generation Entities
This white paper examines whether there would be disproportionate financial harm to coal-fired electric generating units (“EGUs”) that are not diversified by fuel type if the U.S. Environmental Protection Agency (“EPA”) adopts greenhouse gas (“GHG”) emission standards for existing sources under Section 111(d) of the Clean Air Act based on emission rate averaging and trading. It is important to assess the impact because nearly 12 percent (40 gigawatts) of coal-fired U.S. generating capacity is non-diversified.
Our analysis finds that an emission rate averaging and trading approach would disproportionally harm certain rural electric cooperatives, municipal electric utilities, and merchant generators.
Our analysis finds that an emission rate averaging and trading approach would disproportionately harm certain rural electric cooperatives, municipal electric utilities, and merchant generators. This is because there are no viable retrofit technologies to reduce emission of carbon dioxide from existing fossil-fuel fired electricity generation stations, and also because non-diversified coal EGUs cannot avail themselves of averaging opportunities. As a result, an emission rate averaging regulatory approach likely would materially increase retail electricity rates and defaults on bond covenants, and reduce the likelihood that investments in other emission reductions technologies would be recovered.
An emissions-averaging regulatory approach would likely result in material increases in retail electricity rates, defaults on bond covenants, and reduced likelihood that investments in emission reductions technologies would be recovered.