Additional Context for this Report

Modeling Considerations

The Reference Case used in this report includes final regulatory action under existing laws. However, consistent with standard EIA practice requiring policy neutrality in baseline projections, it does not include pending or proposed actions, such as the maximum achievable control technology (MACT) standards for mercury emissions from power plants. The implementation of such actions could affect emissions, generator costs, and electricity prices during the projection period even if there is no new legislation.

Uncertainties

As with any projection, especially those that look out beyond a few years, there are considerable uncertainties. It is impossible to predict how existing generation or e missions control technologies might evolve in cost and performance or what currently unknown technologies might emerge to play unexpectedly important roles in the marke t. Of particular concern in this analysis are the cost and performance of technologies to remove mercury and the availability and cost of greenhouse gas offsets.

In recent years, substantial information has been gathered on the factors influencing mercury emissions at existing plants, i.e., the mercury content of coal, coal rank, coal chlorine content, power plant particulate, SO2 and NOx control systems, etc., but significant uncertainty remains. Experts at the EPA and the U.S. Department of Energy have different views on the mercury removal rates that should be assigned to particular plant configurations using various coals. Often their analyses use the sam e data sources, but because of variability in the data an d their interpretation, reach different conclusions. The understanding of what contributes to mercury emissions will likely improve in coming years as research efforts continue, but the outcome of these efforts is unknown.

One particular area of uncertainty concerns the roll that NOx control devices, SCRs, play in removing mercury from lower rank coals (subbituminous and lignite). Evidence suggests that when combined with a wet scrubber for SO2 removal, they do enhance mercury removal in plants using bituminous coals. The same has not been found to be true for the lower rank coals, but research is ongoing. In this analysis, SCRs are not assumed to enhance mercury removal at plants using subbituminous or lignite coals. The outcome of this research will be important because power plants are expected to inves t in SCRs to meet the NOx emissions caps in the Clear Skies and Carper bills. If these investments also contribute to removing mercury emissions, they could lower the incremental costs of meeting the mercury emissions caps.

Another area of uncertainty is the cost and performance of mercury removal systems. Supplemental fabric filter systems using activated carbon injection, ACI, are expected to be a key technology in removing mercury. Tests of such systems have demonstrated their ability to remove mercury from bituminous coals, but full-scale tests on subbituminous and lignite coals have not been performed. This analysis assumes these systems will be equally effective on the lower rank coals and be able to achieve removal rates as high as 90 percent. However, experts at the Department of Energy believe that the lower chlorine content typically found in subbituminous and lignite coals may limit the ability of ACI fabric filter systems to remove mercury from them. There is also uncertainty on the cost of these systems. Based on information from the National Energy Technology Laboratory, this analysis assumes these systems will typically cost just over $50 per kilowatt of capacity on a 500-megawatt unit. Experts at the Department of energy have indicated that the test units from which these costs were developed may have been undersized, presenting unacceptable maintenance problems. Their current estimate of the cost of an appropriately sized system is nearly $80 per kilowatt for a 500-megawatt unit, a 60-percent increase from earlier estimates. Again, more research is needed to confirm these findings.

There is also uncertainty about the cost of SCR systems. In the 1990s various estimates typically put  the costs of these systems at $70 to $90 per kilowatt of capacity.²³ However, many power companies are now installing these systems to comply with summer NOx emission limits that take affect in 2004. Reported costs for these retrofits are higher than the previously estimated costs, ranging from $80 per kilowatt to $160 per kilowatt.²⁴ This analysis assumes that retrofitting a SCR on a 500-megawatt unit will cost just under $100 per kilowatt. This is within the range of the recent costs, but a higher cost may be justified if reported costs continue to exceed them.

The potential availability and cost of CO2 offsets are also very uncertain. There is uncertainty in what offsets might actually cost and what rules and regulations the independent review board (IRB) called for in the Carper bill might establish for acceptable international trading programs and offset projects. The marginal abatement curves used here were developed by the EPA using engineering cost analysis. The curves suggest that there are many low cost - some actually with negative costs (i.e., a company could increase its profits by taking the modeled actions) - opportunities for reducing greenhouse gas emissions. More work is needed to determine whether these curves accurately reflect the costs faced by the various industries studied, especially those where the curves suggest a large number of profitable investments are being overlooked. While beyond the scope of this report, there is substantial debate about the existence of a large amount of “negative-cost” greenhouse gas reduction options.²⁵ These curves likely oversimplify the invention, innovation, and market diffusion process that new technologies generally follow and may understate the costs involved in achieving the reductions.

The IRB established in the Carper bill will have to establish measurement, verification, and enforcement procedures for acceptable international programs and offset projects. The procedures established will impact the availability and cost of offsets. For exa mple, if the IRB requires strict measurement and verification pro cedures, many projects such as th ose in agriculture and forestry may find the costs of compliance make their projects uneconomical. The actual greenhouse gas savings from projects in these areas are difficult to measure and verify. On the other hand, the IRB could establish simple protocols for such projects, making it relatively easy to submit estimated savings and receive extra CO2 allowances. However, in this case program regulators woul d never accurately know how much greenhouse gases were actually being reduced.

Scope of this Report