THE ENVIRONMENTAL PROTECTION AGENCY HAS PROPOSED wide-ranging regulations that will increase the cost of electricity production, particularly at the nation's lowest-cost, coal-fired generators.
Despite a doubling of electricity generation since 1970, atmospheric concentrations of sulfur dioxide and nitrogen oxide have declined. Title IV acid rain provisions of the Clean Air Act Amendments of 1990 will result in even greater reductions over the next few years. EPA has nevertheless charted a course to reduce utility emissions of these pollutants even further.
Under Title I of the CAAA, EPA has issued new ambient air quality standards for ozone and fine particulate matter of less than 2.5 microns in size (PM2.5) and has issued proposed new standards for regional ozone transport and haze at Class 1 areas (e.g., national parks and other wilderness areas). SO2 has been identified as a contributor to regional haze and PM2.5 formation, while NOx has been identified as a precursor to ozone, ozone transport, and, to varying degrees, PM2.5.
A recent RDI study, Energy, Economics & the Environment, analyzed the potential impacts of the new and proposed regulations on asset valuations, utility profitability and wholesale electricity prices. Complex gas and electric market simulation models were run to forecast gas and electricity prices and plant dispatch levels, assuming no new NOx or PM2.5 regulations. The risk and compliance options for every power plant in the country were then assessed individually. A least-cost compliance option was selected for each plant. These compliance options were fed back into the market simulation models to analyze the impacts of compliance on gas and electric markets.