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Fossil Fuel Politics: How the New Congress Might Change the Mix

How the New Congress Might Change the Mix
Fortnightly Magazine - February 15 2003

The initiative did not propose limiting CO 2 emissions, which distinguished it from the competing Democratic legislation.

The Republican Senate majority in the 108th Congress greatly reduces the likelihood that a four-pollutant bill will be the starting point for consideration of multi-pollutant legislation in the new Congress. Instead, Clear Skies or a similar three-pollutant bill, will likely be the starting place for the legislative debate in the 108th Congress.

In 2001, members of Congress requested a series of Energy Information Administration (EIA) analyses concerning how new multi-pollutant limits could affect the electric generation fuel mix and electricity pricing. The responses to these inquiries provide a starting point for contrasting how a three-pollutant bill versus a four-pollutant bill might affect fuel choice and the cost of electricity.

In a four-pollutant scenario roughly equivalent to the Jeffords bill, EIA forecasted dramatic shifts in gas-fired and coal-fired generation, and not insignificant increases in the price of electricity. Under the assumption that CO 2 emissions limits were implemented by 2007 and held to 1990 levels, EIA forecasted that the price of electricity would increase from 6.1 cents per kilowatt-hour to 8.0 cents per kilowatt-hour by 2010. 11 EIA also forecasted that, compared to its baseline assumption, natural gas-fired generation would increase by almost 70 percent, from 826 billion kilowatt-hours to 1,395 billion kilowatt-hours, and that coal-fired generation would decrease by more than 40 percent, from 2,238 billion kilowatt-hours to 1,276 billion kilowatt-hours. 12

One of the congressional inquiries requested that EIA examine the effect that a renewable portfolio standard (RPS) might have on electricity prices and the electric generation fuel mix under a four-pollutant scenario. In response, EIA forecasted that a mandatory RPS reaching 20 percent by 2020 would increase the overall cost of compliance with CO 2 caps by $21 million. Electricity prices would be 0.1 cents per kilowatt-hour higher in 2010 due to the additional cost of constructing renewable energy facilities instead of gas-fired facilities. Electricity prices in 2020, however, would be 0.6 cents per kilowatt-hour lower with an RPS, because increased reliance on renewable energy would decrease demand for natural gas and carbon allowances, thereby offsetting the price impact of high-cost renewable energy. 13 When compared to the four-pollutant scenario capping CO 2 emissions at 1990 levels without an RPS, the introduction of an RPS eliminates an additional 356 billion kilowatt-hours of coal-fired generation and eliminates 395 billion kilowatt-hours of the increase in gas-fired generation that would have occurred otherwise. 14

In response to another request, EIA looked at the differences between three-pollutant and four-pollutant scenarios. In particular, EIA was asked to examine alternative three-pollutant scenarios, where NO X, SO 2, and mercury emissions were reduced by 50, 65, and 75 percent by 2012.15 EIA also was asked to examine the additive effect of requiring electric generators to acquire offsets for any increase in CO 2 emissions that occur beyond the level expected in 2008.

In the three-pollutant scenarios, coal-fired generation declined slightly, while gas-fired generation increased roughly in lockstep with the decline in coal-fired generation 16 . In contrast to