When EPA releases its much-anticipated final version of the Clean Power Plan (CPP) this summer, regulators and affected industry will shift into high gear as they consider implementation options. While there are many ways to comply, here’s one underlying reality: Given the opportunity, markets will respond. That’s the takeaway from a new report prepared by AEE Institute, based on a review of prior EPA regulations that allowed for market-based compliance. The report predicts that the CPP will spark a robust industry response and unlock a wide array of cost-competitive options – facilitating timely compliance and lowering cost.

Experience under past rules indicates that when regulations allow or encourage market-based compliance, efficient and active markets develop rapidly. While history doesn’t always repeat itself, in this case, it probably will. Given the structure of the proposed CPP and the market for advanced energy technologies and services already established, the report concludes that the CPP is unlikely to buck the decades-long trend of efficient and cost-effective market-based compliance with Clean Air Act (CAA) regulations.

“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 AEE. “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.”

By setting a regulatory signal, EPA rules have initiated the development of active and efficient markets helping 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 (NO_x). These prior regulatory programs offer strong evidence that markets respond rapidly and effectively to regulatory signals set by EPA, enabling the development and delivery of a wide array of compliance solutions at low cost.

Technologies suitable for CPP compliance include a range of advanced energy products and services that are widely available, readily integrated, and cost-competitive today. Furthermore, as we stated in our comments to EPA on the proposed rule, 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.

The report also points to preparations made by state regulators, utilities, regional grid operators, and credit-tracking vendors to adapt existing mechanisms now used in advanced energy markets to support CPP compliance. Given the structure of the proposed rule and the status of existing markets for advanced energy, the report concludes that the creation of robust and active market-based compliance mechanisms is a “probable, if not inevitable, outcome.” 

That will be good for states, utilities, and customers, but also for the advanced energy industry and the economy overall. States the report: “a clear and timely regulatory signal from the CPP will drive further investment and deployment of advanced energy technologies and services, delivering emission reductions while also driving market growth, technology improvement, and associated benefits ranging from grid modernization to job growth.”