By Todd Snitchler, president and CEO, Electric Power Supply Association
Congratulations America, We Did It!
The Carbon Tax Center (CTC) recently shared great news: emissions from the U.S. power sector fell below the targets set in the Obama Administration’s ambitious Clean Power Plan (CPP). What is even more impressive is that emissions dropped 33% from 2005 levels a decade sooner than required by the CPP. This is a significant achievement—and it occurred despite changing political circumstances. The power sector followed market forces that drove progress even though the Environmental Protection Agency repealed the CPP in June 2019 to adopt the Trump Administration’s Affordable Clean Energy Plan.
Thank Markets, Coal-to-Gas Switching, for Emissions Wins
As political winds shift, consistent market rules will transcend changing priorities.
Meeting what at the time were thought to be extreme targets a decade ahead of schedule is something to be applauded, but we can’t rest on our laurels—any victory needs a post-game analysis. We must examine what drove swift emissions reductions—particularly the dynamic force of competitive power markets, which if properly designed provide a clear, fair playing field for power providers to unlock even greater emissions reductions at the lowest cost. As political winds shift, consistent market rules will transcend changing priorities.
The CTC report intentionally minimizes the role low cost, lower-emitting natural gas played in reducing emissions compared to the author’s sweeping definition of “clean electricity,” which he says accounts for 62% of reductions. The overly broad definition of “clean electricity” lumps efficiency factors in with renewable power production. To be sure, deploying cost-effective renewable resources had an impact, but only 21% of the identified emissions savings from 2005-2019 are attributed to increased wind and solar generation.
The bulk of emissions reductions from actual power generating operations, 38%, came from natural gas-fired generation replacing higher emitting coal-fired generation.
Meanwhile, efficiency measures and structural changes leading to reduced power usage account for 41% of the reductions according to this analysis. In the end, it is EPSA’s view that any ton of CO2 emissions avoided should count as much as the next, regardless of the technology deployed to achieve those reductions. Market mechanisms, such as a price on carbon (supported by the CTC), that allow all resources to compete to reduce emissions will yield the best outcomes.
In restructured competitive markets, the low cost of natural gas and the deployment of new resources exerted economic pressure on older, higher emitting resources. This in turn led to the retirement of those resources. Efficient entry and exit from the market delivered the results that government policies mandated and consumers want. The CTC report notes that coal-to-gas switching continued—even accelerated—during President Trump’s first three years. The author cites a Politico analysis concluding the transition was driven by rising coal prices and cheap, cleaner natural gas and renewables—independent of climate policy.
Clear Rules Needed to Build Clean Energy
Power companies need certainty to continue clean energy progress.
Competitive power suppliers are now building even more efficient, cleaner natural gas plants and increasing amounts of cost-effective renewable electricity capacity and battery storage. EPSA member companies are building the largest battery storage facility in the world and the largest wind project in Idaho. They have partnered with the City of Houston to go 100% renewable and even invest in electric vehicle charging stations. But companies need certainty to continue that progress.
Clear guidelines must be a fundamental building block for any policy design—ensuring objectives and rules do not drastically change with the political winds. The CTC report demonstrates that given a reasonable degree of certainty, investments, in the billions of dollars, will be made in existing and new resources as long as the owner can reasonably expect to be profitable in its operations.
Let’s look to Ohio for an example. In Ohio, emissions have dropped 41% compared to 2005 levels according to EIA data and 13,000MW of coal fired generation have retired since 2011. And, since 2008, at least 8,000MW of new, competitive natural gas fired generation has been constructed or is currently under development, with no risk to utility customers. Emissions are down, consumers are paying less for power, and new projects are being built thanks to market signals.
However, the inverse is also true. That is, if markets are perpetually distorted and the government selects winners and losers, cost-effective investments will not be made. Instead, politically powerful incumbent interests will agree to implement whatever policy is mandated, so long as they can put the financial risk back on the families and businesses they serve. This approach abandons the more effective and proven market-based approach in favor of a path that is more costly and may even fail to ensure the policy goals are met.
Finally, all this good news still suggests the need for a word of caution. During the decade it took to successfully make this massive change in resources to reduce emissions, the goalposts keep moving. The CPP was touted as a tremendous environmental win in 2008; today is not even recognized as states and advocates press for ever higher, ever more stringent goals.
Bottom Line: Choose Markets, Not Mandates
The power generation industry has proven it can rise to meet challenges. The crucial lesson, however, is that applying market-based approaches at the national or regional level is the best way to achieve policy goals. We should allow the market to reward innovators for putting new, cleaner resources in place without exposing customers to investment risks through taxpayer-funded subsidies and ratepayer pass-throughs to favored companies. When government applies this winning formula, consumers come out on top—economically and environmentally—and dramatic change can occur in short order.