Michael Wara at Common Resources:
EPA’s proposed Clean Power Plan uses a rarely used section of the Clean Air Act, Section 111(d) to regulate existing fossil-fired EGUs. This part of the Clean Air Act, like the more familiar provisions governing ambient air quality for more traditional pollutants, gives EPA the task of determining an acceptable target for emissions and leaves it to the states to figure out how to achieve that target. One aspect of EPA’s proposal that’s different from other comprehensive power sector regulations like the NOx Budget Trading Program or the Cross State Air Pollution Rule is that it’s not straightforward to figure out how the Agency set targets for each state. For those rules, EPA, using the Integrated Planning Model (IPM), simulated the impact of a pollution tax that produced an acceptable level of abatement and then allocated responsibility for reductions in states based on their power plants’ responses to the modeled tax. In essence EPA used a price to set the quantity. This approach was recently upheld by the Supreme Court.
For the Clean Power Plan, EPA describes four “Building Blocks” that it says, when combined, determine the target, called the Best System of Emission Reduction or BSER, that each state must meet. Nowhere in the 645 pages of the proposed rule does EPA spell out what marginal abatement cost it had in mind when it set the targets. So I set out to dig into the technical support documents for the rule to figure out how EPA set the goalpost, and if there was a straightforward way to measure the that goal against more familiar cap-and-trade or carbon taxation strategies. Here’s what I found. ...
A lot of this information in the GHG Abatement Measures TSD.
To me, this whole thing is reminiscent of California—lots of shadow carbon prices that are higher and lower than the visible power sector price that’s driving the cost-effective abatement strategy—redispatch. And it makes a fantastic argument for legislative action to implement a simpler and more cost-effective policy. Why can’t we just have a carbon tax and cut my FICA withholding already?