Environmental Protection

ICF: Power Sector Will Bear Burden for Reducing GHGs

With consensus building among the Obama administration, members of Congress and industry to support a long-term, economy-wide greenhouse gas (GHG) reduction goal of 80 percent, all stakeholders must assess the impact that proposed emission reduction requirements will have on the energy and allowance markets.

In its recently released "U.S. Emission and Fuel Markets Outlook, 2009 edition," ICF International of Fairfax, Va., a leading energy and environmental analysis firm, projects that adoption of these measures could place the burden for two-thirds of the required reductions squarely on the electric power sector. The report is available for a fee. The cost and market impacts of such a program depend largely on the design of the program and the cost and availability of new technology and emission offsets, which are examined through multiple scenarios in the report.

The report examines the U.S. energy and environmental market dynamics of conventional air regulations and GHG emission control programs and their impacts on the power, transportation, residential, commercial, and industrial sectors. It is designed to help industry and government decision-makers understand new market fundamentals in the context of increasingly complex energy markets from both supply and demand perspectives. The study is based on the firm’s 30 years of forecasting experience and intimate knowledge of energy and power markets, as well as insights gained through use of the company’s own proprietary modeling tools.

Most congressional and industry recommendations for GHG regulation, including those proposed by Sens. Lieberman and Warner, Reps. Dingell and Boucher, the U.S. Climate Action Partnership (USCAP), and the Edison Electric Institute (EEI), call for multi-sector cap-and-trade programs to achieve GHG reductions. Cap-and-trade programs are designed to allow companies to make emissions reductions in the most cost-effective manner while still meeting environmental goals. Over time, the legal limits become tighter, allowing fewer emissions, until reduction goals are finally met. ICF anticipates that emissions "offsets," emissions reductions that take place outside of the capped sectors, will play a critical role in reducing the cost to capped industries as a whole.

Although there is growing consensus regarding the need for these reductions, there are constraints to achieving them. "Electric power providers are locked into capacity that was built long before the development of GHG regulation," said Steve Fine, ICF vice president. "It takes time to develop, site, and build new lower emitting plants as well as retrofit existing ones. Offset reductions from both domestic and international sources are critical compliance tools but are limited by the availability of quality offsets and by the competing demand from other countries, many of which have already implemented GHG reduction requirements."

The report provides a comprehensive, integrated view of coal, natural gas, and U.S. allowance markets across all sectors of the economy. "By providing an integrated analysis, 'Outlook' provides a comprehensive picture of the impact of carbon policy on gas and coal markets, all crucial factors in understanding the economics of power generation going forward," stated Chris MacCracken, ICF senior manager.

ICF’s "Outlook" also examines alternative requirements for sulfur dioxide (SO2), nitrogen oxides (NOx), and mercury reductions. Last year, the U.S. Court of Appeals for the D.C. Circuit vacated the U.S. Environmental Protection Agency’s Clean Air Interstate and Clean Air Mercury rules, throwing the SO2 and NOx markets into disarray and wiping out the nascent mercury market. The study forecasts the impacts on SO2 and NOx allowance prices and control decisions of a number of possible outcomes, including a more stringent second phase cap on SO2 and NOx, as well as the possibility of a command and control regulatory regime.

Further information on the U.S. Emission and Fuel Markets Outlook, 2009 edition, is now available at http://www.icfi.com/emissions.

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