Prior regulations demonstrate that market-based compliance mechanisms result in robust industry response and cost-effective implementation
[Washington, D.C. — July 9, 2015]: Market-based mechanisms likely to develop under EPA’s proposed Clean Power Plan (CPP) will spark an industry response that makes available a wide array of cost-competitive compliance options, according to a new report prepared by Advanced Energy Economy Institute.
This conclusion is based on a review of prior EPA regulations that allowed for market-based compliance, such as emission reduction credit trading. In every case, an efficient and active market developed rapidly in response to a regulatory signal. Given the structure of the proposed CPP and large existing markets for advanced energy technologies and services that can be used as compliance measures, the report concludes that the CPP will elicit a similarly robust market response.
“Time and again, when there’s a market signal — whether it’s from consumers, from states, or from EPA — markets respond,” said Malcolm Woolf, Senior Vice President for Policy and Government Affairs for Advanced Energy Economy (AEE), a national business association. “There is no reason to think the Clean Power Plan should be any different. With strong markets already in place for advanced energy technologies that can be used for compliance, there is every reason to expect an industry response that will make implementation of the Clean Power Plan easier and cheaper.”
The paper, Markets Drive Innovation: Why History Shows that the Clean Power Plan Will Stimulate a Robust Industry Response, is available for download here.
While some stakeholders have expressed concern that the CPP will involve costly disruptions to current electricity markets, this report shows that such an outcome would be a departure from a decades-long trend in EPA regulations under the Clean Air Act.
In programs to reduce the lead content in gasoline, combat acid rain, and control regional transport of ozone due to emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx), regulatory signals set by EPA rules have led to the development of active and efficient markets. The vitality of these markets is demonstrated by the widespread use of trading by affected entities, the use of credit banking where available, and the lack of volatility in prices for emission allowances.
The creation and use of markets for emission allowances under these programs gave affected entities a range of cost-effective emission reduction measures to choose from. As a result, emissions were reduced more quickly than required, compliance costs were significantly lower than expected, and well-functioning private markets in pollution-reducing technologies evolved rapidly.
Technologies suitable for CPP compliance include a wide range of advanced energy products and services available and cost-competitive in the market today, according to the report. Utilities and power plant operators already engage in a variety of markets to procure advanced energy, from direct purchase or operation of renewable resources, to investment in energy efficiency programs, to trading certificates for the attributes of these resources.
State regulators, utilities, regional grid operators, and credit-tracking vendors have already begun the process of adapting existing mechanisms used in advanced energy markets to support CPP compliance. As a result, the report concludes that development of market-based compliance mechanisms is a “probable, if not inevitable, outcome.”
“The market-readiness of a wide array of compliance measures available to respond to a market signal for emission reductions indicates that compliance under the CPP will likely mirror not only the approach, but also the success of market-based compliance outcomes under prior CAA rulemakings,” the report states. “Robust markets for advanced energy technologies and services, coupled with existing tracking systems customized to meet CPP requirements, together provide a nearly turnkey solution for state compliance needs, ready to deliver emission reductions as soon as the implementation period begins.”
Markets Drive Innovation is the latest in a series of reports from AEE and the AEE Institute on topics related to EPA’s Clean Power Plan. The others include:
Impacts of the Clean Power Plan on U.S. Natural Gas Markets and Pipeline Infrastructure
Competitiveness of Renewable Energy and Energy Efficiency in U.S. Markets
Integrating Renewable Energy into the Electricity Grid, prepared by The Brattle Group
Design Principles for a Rate Based Federal Plan Under EPA’s Clean Power Plan
NERC’s Clean Power Plan “Phase I” Reliability Assessment: A Critique
Assessing Virginia’s Energy Future: Employment Impacts of Clean Power Plan Compliance Scenarios, prepared by Meister Consultants Group for the AEE Institute and Virginia Advanced Energy Industries Coalition
EPA’s Clean Power Plan and Reliability: Assessing NERC’s Initial Reliability Review, prepared by The Brattle Group
About Advanced Energy Economy and the Advanced Energy Economy Institute
Advanced Energy Economy (AEE) is a national association of businesses that are making the energy we use secure, clean, and affordable. AEE’s mission is to transform public policy to enable the rapid growth of advanced energy companies. The Advanced Energy Economy Institute is a nonprofit educational and charitable organization whose mission is to raise awareness of the public benefits and opportunities of advanced energy.
Media Contact
Monique Hanis, AEE, 202-391-0884, mhanis@aee.net
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