Emissions and Allowance Prices

Sulfur Dioxide

As might be expected, the respective allowance prices are projected to increase as the emissions caps are tightened. For example, under Clear Skies, national SO2 emissions are projected to decline from approximately 10.6 million tons in 2001 to between 4.0 and 4.3 million tons in 2025 in the 2-P and 3-P cases (Figure 21). The differences in 2025 reflect slight differences in emissions banking patterns in the three cases. Note that because of emission banking, SO2 emissions are not expected to reach the 3-million-ton target specified for 2018, even by 2025.

SO2 allowance prices under Clear Skies are projected to range from $554 per ton to $681 per ton in 2010 and from $1008 per ton to $1211 per ton in 2025 (Figure 22). Because actions taken to reduce mercury emissions can also reduce SO2 emissions, SO2 allowance prices are projected to be lower in the Clear Skies 3-P cases. That is, in the Clear Skies 2-P case, SO2 scrubbers are added to reduce SO2, while in the Clear Skies 3-P cases they are added to reduce both SO2 and mercury.

The pattern of SO2 emissions and allowance prices is similar in the Carper 2-P and 3-P cases, though projected allowance prices are higher due to the lower emissions limits. In the Carper 2-P and 3-P cases, national SO2 emissions are projected to decline from approximately 10.6 million tons in 2001 to between 3.3 million tons and 3.5 million tons in 2025 in the 2-P and 3-P cases (Figure 23). Again, the differences in 2025 reflect slight differences in emissions banking patterns in the two cases. Also, as is projected to occur u nder Clear Skies, because of emission banking, SO2 emissions are not expected to reach the 2.25-million-ton target specified for 2016, even by 2025.

SO2 allowance prices in the Carper 2-P and 3-P cases are projected to range from $877 p er ton to $1160 per ton in 2010 and from $1454 per ton to $1680 per ton in 2025, much higher than in the comparable Clear Skies cases (Figure 24). Again, because actions taken to reduce mercury emissions can also reduce SO2 emissions, SO2 allowance prices are projected to be lower in the Carper 3-P case than in the Carper 2-P case. Generally, in the Carper 4-P cases, SO2 allowance prices are lower than in the Carper 2-P case, especially in the Carper 4-P No Offset case where much lower projected coal use makes meeting the SO2 target easier. In the Carper 4-P High Offset and Carper 4-P Mid Offset cases, SO2 allowances prices are higher than in the Carper 3-P cases because the CO2 allowance price reduces the additions of new relatively clean coal plants which would have displaced some of the generation from older coal plants. In other words, without the newer, cleaner coal plants, power generators must take higher-cost actions at older plants.

Nitrogen Oxides

In the Clear Skies and Carper 2-P and 3-P cases, NOx emissions are projected to fall from just over 5 million tons in 2000 to the 1.7 million ton target by 2020. In the Carper 4-P cases, particularly the Carper 4-P Mid and No Offset cases, NOx emissions in the later years are actually projected to fall under the 1.7 million ton target as the use of older coal plants declines.

NOx allowance prices under Clear Skies are projected to be higher in the East than in the West (Figures 25 and 26). Generally, eastern region NOx allowance prices under Clear Skies are expected to be in the $2400 per ton to $2600 per ton range across all years. In contrast, western region NOx allowance prices under Clear Skies are expected to be in the $1700 per ton to $1900 per ton range. NOx allowance prices in the West are lower because the western region NOx emissions cap does not require plants to reduce their emission rates as much as in the East. As was discussed with SO2 allowance prices, NOx allowance prices are expected to be lower in the Clear Skies 3-P cases than in the 2-P case, because efforts to reduce mercury emissions also contribute to reducing NOx emissions.

NOx allowances prices in the Carper 2-P and 3-P cases are expected to be similar to those p rojected in the comparable Clear Skies cases. For example in 2020, NOx allowance prices in the Carper 2-P and 3-P cases range from $1935 per ton to $2237 per ton, roughly in the middle of the eastern and western region pr ojections for Clear Skies. NOx a llowance prices in the Carper 4-P cases are projected to be lower, especially in the case without offsets. In this case, NOx allowance prices are projected to fall to zero in the later years of the projections because of the reduced use of existing coal plants.

Mercury

Mercury emissions are projected to be below the Reference case level in all of the Clear Skies cases, even in the 2-P case that does not have a mercury emissions cap (Figure 27). In the Reference case, mercury emissions are expected to increase to approximately 53 tons in 2010 as existing coal plants are used more intensively. However, in the Clear Skies 2-P case, 2010 mercury emissions are projected to be only 45 tons because equipment added to reduce NOx and SO2 emissions also reduces mercury emissions. In the Clear Skies 3-P case, mercury emissions are not projected to reach the 2010 or 2018 cap levels because of the mercury safety valve. In 2010 they are expected to be 31 tons, while in 2025 they are 29 tons.

In the Carper 2-P and 3-P cases, the pattern of mercury emissions is similar though lower because of the tighter mercury and SO2 emissions caps. For example, in the Carper 2-P case, mercury emissions are projected to be 42 tons in 2010, much lower than the 53 ton s projected in the Reference case (Figure 28). As in the Clear Skies 2-P case, equipment added to reduce NOx and SO2 emissions in this case also reduces mercury emission s. In the Carper 3-P and 4-P cases, the requirement that all plants remove a minimum of 70 percent of the mercury in the coal they use drives mercury emissions to between 17 tons and 18 tons in 2010, well below the 24-ton cap.¹⁴

In the Clear Skies 3-P case, mercury allowance prices are expected to be limited by the $35,000-per-pound safety valve (Figure 29). When the safety valve is removed, the mercury allowance price is projected rise from approximately $49,000 per pound in 2010 to $68,000 per pound in 2020 and $120,000 per pound in 2025.

In the Carper 3-P and 4-P cases, mercury allowance prices in 2010 are projected to be zero because the 70-percent minimum removal requirement leads to mercury emissions that are below the 24-ton emissions cap. Positive mercury allowance prices are projected for 2013 and beyond when the mercury emissions cap falls to 10 tons (Figure 30). However, the mercury allowance prices are projected to be much lower than under Clear Skies because of the actions taken by plants to comply with the 70-percent removal requirement. For example, in the Carper 3-P case, the mercury allowance price in 2020 is projected to be nearly $30,000 per pound even though the emissions cap is 5 tons lower than the Clear Skies cap.

Carbon Dioxide

The small shift from coal to natural gas generation under Clear Skies is projected to result in a slight decline in CO2 emissions. In 2020 CO2 emissions in the 2-P and 3-P Clear Skies cases are projected to be between 24 million metric tons carbon equivalent (3 percent) and 36 million metric tons carbon equivalent (4 percent), respectively, below the Reference case level, but more than 154 million metric tons above the final CO2
emissions cap set in the Carper bill.

The projected change in CO2 emissions in the Carper 2-P and 3-P cases is similar to the change in the comparable Clear Skies cases. In the Carper 4-P cases, the change in CO2 emissions varies, depending on the availability and cost of offsets (Figure 31). In the Carper 4-P High Offset case, power companies are projected to rely primarily on offsets rather than direct emissions reductions to meet the CO2 cap. CO2 emissions in the power sector in that case are projected to remain 134 million metric tons carbon equivalent above the target level in 2020. Across the three Carper 4-P cases, offsets are projected to account for between 0 percent and 71 percent of the reductions needed to comply w ith the CO2 cap in 2020.

CO2 allowance prices are also projected to vary significantly across the Carper 4-P cases (Figure 32). In 2010, CO2 allowance prices are projected to range from $4 to $66 per metric ton carbon equivalent, while in 2025 the range widens to between $26 and $135 per metric ton carbon equivalent. The higher values represent projected allowance costs if the power sector were required to reduce its emissions to the target level without relying on offsets.

Regional Emissions

The NEMS model reports regional results for the electric power sector based on reliability council regions and subregions (Figure 33). Under Clear Skies, NOx, SO2, and Hg emissions are projected to fall in all regions of the country, but the largest change s are in regions where coal supplies a large share of the generation (Figures 34 through 36).¹⁵ Large heavily coal-based regions such as ECAR and SERC are projected to show the largest reductions in NOx, SO2, and Hg emissions under Clear Skies. The regional decline in mercury emissions is dampened by the safety valve in the Clear Skies 3-P, but reductions are still projected to occur in all regions of the country.

In the Carper cases NOx, SO2, and Hg emissions are also projected to fall in all regions of the country. Because of the tighter emissions caps and earlier reduction schedule the regional emissions in 2020 are generally a little lower than under Clear Skies. As under Clear Skies, the largest changes are in regions where coal supplies a large share of the generation (Figures 37 through 39) specifically ECAR and SERC.

Graphs 21 - 39