Friday, November 28, 2014

Dissecting the flaws within the EPA's Clean Power Plan

With the public comment period on the EPA's Clean Power Plan closing on December 1 (have you submitted your comments yet?), I thought I'd share the public comment I submitted to the EPA on some of the shortcomings in the plan as they pertain to nuclear energy, particularly as it relates to potentially perverse unintended consequences introduced into the plan (as discovered by my students Remy DeVoe and Justin Knowles).

My comment follows below the break (warning: words ahoy).



Dear Administrator McCarthy,

As an assistant professor of nuclear engineering at the University of Tennessee and a member of the American Nuclear Society, I appreciate this opportunity to provide feedback on the EPA’s rulemaking process. As a nuclear engineering professional, I sincerely believe that nuclear energy can and must play a role helping to produce a sustainable, economical, and reliable domestic energy supply while balancing environmental considerations. 

While I believe that the risks of climate change warrant federal action to limit carbon dioxide releases and that the electric power sector is one of the most efficient places to enact such regulations, I am concerned that several facets of the EPA’s proposed rulemaking, while well-intentioned, may be counterproductive toward the ultimate goals of carbon dioxide emission abatement. 

My chief concerns fall into the following categories regarding nuclear energy in the proposed Baseline System of Emissions Reductions (BSER) formula:
  1. The EPA’s discounting of existing nuclear generating capacity is both inappropriate and limits incentives to preserve and extend the life of existing low-carbon baseload electricity production
  2. The EPA’s inclusion of five proposed, under-construction nuclear units in the state-level emissions fails to credit states and electric utilities for forward-looking actions in anticipation of carbon regulation, in effect acting as a penalty for early action
  3. The EPA needs to produce clear rules covering nuclear generating unit capacity up-rates for the BSER state-level formulas
  4. The EPA BSER formula for state nuclear capacity should reflect a more current baseline to reflect the recent closure and announced closures of several nuclear generating units


Issue 1: Inclusion of only 5.8% of state-level nuclear generating capacity is inappropriate

Proposed remedy: The EPA should consider 100% of state nuclear generating capacity in calculating state-level BSER goals

Explanation:

In the basis for the proposed rulemaking (“Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units” – hereafter referred to the Guidelines), the EPA indicates, “Another way to increase the amount of available nuclear capacity is to preserve existing nuclear EGUs that might otherwise be retired.” In this same section, the EPA notes that an Energy Information Agency (EIA) report indicating 5.7 GW of domestic nuclear generating capacity being, “at-risk.” As this capacity is approximately 5.8% of the U.S. nuclear fleet capacity, the EPA assigns a credit of 5.8% of existing nuclear generating capacity to meeting state-level BSER goals, under the logic that this credit would encourage the preservation of these units (and therefore defer their replacement with more carbon-intensive sources).

However, there are several flaws with this line of reasoning. Given that the retirement of nuclear units is both a discrete event (occurring within a single state’s borders and thus counting only toward that state’s carbon dioxide abatement goal) and given that nuclear units tend to be of relatively large capacities (i.e., generally from 600-1100 MWe in scale), the loss of even one nuclear generating unit constitutes a significant handicap towards carbon abatement, given that the replacement power has almost entirely been made up from natural gas-fired turbines, which emit non-trivial amounts of CO2 in their operations. Yet the current rule as proposed accounts for neither of these factors. 

Distributing the risk of 5.7 GWe of “at-risk” nuclear capacity across 30 states makes little sense, given that at-risk capacity is concentrated within a few states. Rather, the formula should explicitly account for losses of nuclear generating capacity due to both planned and unplanned retirements (i.e., premature closures due to economic and other forces). For the rule to be effective, states that allow (or even encourage) the closure of nuclear units should be compelled to provide for an equivalent zero-carbon electric capacity or subsequent offsets through other reductions in the BSER formula (e.g., demand-side reductions, etc.) 

As currently proposed however, states that retire nuclear units only need to make up 5.8% of the lost capacity, a facet that introduces unanticipated, perverse consequences under the proposed BSER formula. An example of such perverse effects was uncovered by my graduate students, Remy Devoe and Justin Knowles, who undertook a comprehensive evaluation of the effect of premature nuclear plants closures under the Clean Power Plan as-proposed. Their findings – which are based on the provided EPA BSER spreadsheets – indicated that for 15 states, the closure of all nuclear generating units and the subsequent replacement with an equivalent capacity of natural gas-fired units (again, the most likely alternative) would result in a net decrease in calculated emissions under the EPA BSER formula, despite the clear fact that physical CO2 emissions precipitously increase. Similarly, parallel examinations by others have come to the same conclusion.

It is almost certain that the EPA does not intend to reward states for increasing CO2 emissions from the electric power sector; therefore an incentive structure which facilitates just that violates the stated goals of the plan. 

The simplest and most appropriate means of remedying the proposed rule would be for the EPA to consider all electricity generation sources in the BSER formula denominator – i.e., fossil, nuclear, hydro, and renewables. In this sense then, the BSER formula would then roughly correspond to physical carbon intensity from electricity generation. In this sense then the emissions formula in fact becomes far more straightforward; states simply need to tally carbon emissions (i.e., taking a standard CO2 per MWh for fossil sources, multiplied by the MWh produced) in the numerator and then the total state electricity generation in the denominator. Offsets for demand-side reduction can then similarly be taken at the fleet-average carbon intensity; i.e., such reductions should be credited on a per-MWh basis weighted by the average CO2/MWh intensity of the entire electric generating fleet within a state.

The proposed remedy thus encourages states to maintain nuclear generating units as well as other low-carbon electricity sources while also being far simpler and avoiding potentially perverse outcomes. Further, this remedy incentivizes states to consider future, planned retirements of nuclear units as they reach the end of their current round of license extensions to 60 years (beginning around 2020), wherein it is anticipated only a fraction of the current nuclear generating fleet will be awarded additional license extensions to operate for 80 years. Given that these retirements are an entirely foreseeable event, it is entirely prudent that EPA rulemaking also consider these effects within their rulemaking. A rule which considers CO2 abatement on a strictly physical basis (i.e., looking solely at CO2 emissions from the electric power sector over total electric power generation) would easily accommodate this.

Certain stakeholders may object to the rather severe penalty raised by fully crediting the loss of nuclear units against a state’s carbon abatement goals (unless replaced or otherwise offset by zero-carbon sources and other BSER build blocks, like efficiency improvements and demand-side reductions). However, again – the basis of rulemaking should be on the physical abatement of CO2 emissions from the electric power sector, not an “accounting” abatement. The Clean Power Plan should therefore hold states and utilities accountable to maintaining gains in CO2 abatement and avoid “loopholes” that emerge by discounting nuclear power generation and other zero-carbon sources (such as hydropower). 

Finally, in public comments on the rule as proposed, certain stakeholders have expressed opposition to the inclusion of nuclear at all within the EPA BSER formula, giving varied (and dubious) objections to the use of nuclear energy writ large. However, I would argue here that such objections to nuclear energy are well beyond the scope of this issue, which is focused on carbon dioxide emissions abatement. As nuclear energy constitutes a majority of the zero-carbon electric capacity in the United States, the logic for its inclusion in the BSER formula should be obvious: any rule concerning carbon dioxide intensity regulations must appropriately and fully credit the contributions of nuclear electricity generation to this goal.

However, going one step further, given that the ultimate goal of the EPA Clean Power Plan is in the reduction of carbon dioxide emissions, the plan should in principle remain neutral to the technological means used to achieve this end, giving states and stakeholders the flexibility to achieve emissions reductions in the manner that best suits their unique interests. To emphasize; the objective of the proposed rule should be in the reduction of carbon dioxide pollution from the electric power sector and not in setting a de facto national energy policy. In this sense, the appropriate role of the EPA is to set clear, measurable standards – such as carbon intensity targets for the electric power sector – and then measure compliance solely on the basis of performance to this target, rather than attempting to dictate specific emissions reductions strategies through selective application of weighting to particular energy sources.


Issue 2: Inclusion of the five proposed, under-construction nuclear units in setting state-level BSER goals undermines early action on CO2 abatement goals

Proposed remedy: The EPA should only include new nuclear generating capacity in state-level calculations on a “first electrons to the grid” basis

Explanation:

In the Clean Power Plan rule Guidelines, the EPA indicates the following logic behind including these units under construction as counting toward the computation of the state goals as follows:
The EPA believes that since the decisions to construct these units were made prior to this proposal, it is reasonable to view the incremental cost associated with the CO2 emission reductions available from completion of these units as zero for purposes of setting states' CO2 reduction goals (although the EPA acknowledges that the planning for those units likely included consideration of the possibility of future regulation of CO2 emissions from EGUs). Completion of these units therefore represents an opportunity to reduce CO2 emissions from affected fossil fuel-fired EGUs at a very reasonable cost. For this reason, we are proposing that the emission reductions achievable at affected sources based on the generation provided at the identified nuclear units currently under construction should be factored into the state goals for the respective states where these new units are located.

However, the reasoning of this is precisely backwards. Such states have made a choice to build nuclear generating units (in contrast to other available alternatives, most especially natural gas combustion turbines) explicitly upon the anticipation of future carbon dioxide regulations. The rule in effect penalizes these states for taking early action to mitigate carbon dioxide emissions from their respective electricity sectors.

Further, the basis for the decision that the marginal cost is in effect zero and therefore that these should be counted directly toward computation of state-level goals is similarly baffling. It is indeed true that the marginal cost of completing the units, after making the decision to build and raising the appropriate capital, is indeed small – and thus the completion of these units as a carbon abatement strategy makes economic sense. However, it does not follow at all that these states should be given no credit for these units toward meeting their carbon dioxide abatement goals.
For one, any examination of the marginal costs of carbon abatement strategies should be applied solely to whether the rule represents a reasonable burden upon states and utilities; in this case, because the marginal cost is low, the rule indeed can be met with minimal additional economic consequences. However, no electricity has been produced from these plants, and it is further reasonable to assume that the construction of these plants has offset construction of more carbon-intensity generation alternatives (e.g., coal and natural gas). 

Second, the decision to include these plants within state-level goal calculations effectively penalizes these states as being “early movers” and sets a negative precedent for future, forward-thinking action by states and utilities to voluntarily move forward with large, carbon-free electric projects. Numerous interviews with Southern Company executives for example have indicated that the Vogtle units have been partially motivated as a hedge against future carbon dioxide emissions constraints; this kind of forward thinking should be rewarded. Instead, the current rule takes these plants as a given and assigns them no contributions to future carbon abatements under the rule. If the rule stands as-written, it is likely future utilities will defer similar projects not explicitly compelled by regulatory compliance such that their construction is appropriately credited to compliance goals.

Finally, contrary to the assumptions of the EPA rule-making, the completion of these units is not a given; one need look no further than Watts Bar Unit 2, currently being finished by TVA. Construction on Watts Bar Unit 2 was suspended in 1988 due to declines in electricity demand and did not resume until 2007, with an expected completion in 2015. The EPA should not penalize states and utilities that have expressed future ambitions on carbon reduction strategies through nuclear deployments; rather, given the extended timelines for nuclear unit construction, these units should instead be counted toward meeting state-level goals, rather than in computing more stringent goals by assuming their completion.

A fair, appropriate standard that would be simple to implement would be one based on a “first-electrons-to-the-grid” standard, which can be applied to all electric generation units. Per this standard, a unit would not be counted toward state-level compliance until commercial electricity production begins, being credited on a pro-rated basis; for example, a unit which begins operations starting July 1 and continuously supplying power would be credited at half the rated capacity (i.e., assuming it supplies at full rated capacity continuously from July 1-Dec 31). This standard would appropriately incentivize the development of new low-carbon sources while being broadly applicable across a number of generating sources. (A similar rule could likewise be applied to decommissioning of units, such as from the retirement of coal-fired units.)


Critics of this proposal would contend that this allows states to satisfy their mandated carbon abatement goals “too easily” – in effect doing so through the construction of a single nuclear project. However, this should be considered a feature, not a bug; in other words, if the EPA goal is to encourage carbon abatement as early as possible with a minimum of disruptive economic impact, then new nuclear units should be considered a perfectly appropriate way of meeting this goal and regulate accordingly. Further, again; the goal of a properly-structured carbon dioxide emissions constraint should be to set a clear, measurable standard and then allow states and utilities the maximum degree of freedom possible in meeting this target. Thus, whether or not a state meets this goal though planned nuclear construction is entirely irrelevant; the goal should be for the state to meet the abatement standard, not in satisfying a particular vision of energy policy embraced by particular stakeholders or the EPA.



Issue 3: The EPA needs to produce clear rules on nuclear generating unit capacity up-rates

Proposed remedy: The EPA should clearly indicate that nuclear generating unit capacity up-rates will be credited toward building block 3 in the BSER state goals.

Explanation:

Nuclear generating unit capacity up-rates (i.e., increases in operating power from the original licensed operating power) have cumulatively accounted for over 7,000 MW of new electric generating capacity since 1977, the equivalent of building seven new nuclear generating units. Given the substantial electric generating capacity provided by power uprates at existing nuclear plants, it is logical to expect that these capacity uprates will continue for newer plants with the continued development of more sophisticated core designs that allow for less design conservatism. These types of power uprates represent “low-hanging fruit” to states and utilities, as they are typically far more cost-effective to implement than building new plants, especially as nuclear generation has one of the lowest marginal costs of electricity production among all sources. 

Given the historic trend, under a carbon dioxide emissions regime it is likely that continued power uprates will be considered as a means of meeting state-level CO2 abatement goals. The EPA should therefore move to specifically clarify the role of nuclear capacity uprates within the rule, crediting these at 100% of the rated electrical capacity (equivalent to new unit construction) within Block 3 of the BSER.



Issue 4: The EPA BSER formula should reflect a more recent baseline for state nuclear generating capacity

Proposed remedy: The EPA state-level goals should reflect recent closures in nuclear generating capacity through a more recent baseline (such as 2014 or 2015)

Explanation:

Several recent nuclear plant closures (and one announced closure) warrant an updated baseline for EPA evaluations, especially given the relative size of nuclear generating units. These closures include:


Name
State
Closure date
Capacity (MWe)
Crystal River 3 Nuclear Power Plant
FL
2/2013
860
Kewaunee Power Station
WI
5/7/2013
556
San Onofre Nuclear Generating Station (SONGS), Units 2 & 3
CA

6/2/2013
2 x 1127
Vermont Yankee Nuclear Power Plant
VY
12/2014
620
 
Cumulatively, the closure of these units reflect a loss of 4,290 MWe of nuclear generating capacity which will almost certainly be made up through the construction of natural gas-fired capacity, resulting in a net increase in CO2. For some states (such as Vermont, which is exempted from state-level goal calculations as it had no carbon dioxide-emitting plants as of the proposed baseline year), these closures will represent a fundamental shift in the state electricity portfolios and therefore should be reflected in future estimates, especially if additional nuclear units are closed and replaced with carbon-emitting sources such as natural gas turbines.

Conclusion

While I believe that regulatory strategies to mandate carbon dioxide emissions are both justified and necessary by the potential risks of climate change, the EPA Clean Power Plan rule as-proposed contains several flaws in its treatment of nuclear power which arguably work to undermine its goals. A consistent, technology-neutral approach to carbon dioxide emission regulations – such as a mass-based formula for CO2 emissions intensity (i.e., calculating total mass of CO2 emitted by the electric power sector in each state over the total electric power produced from all sources) would eliminate much of the perverse incentives currently present and produce a fairer, more workable rule.

Thank you for your consideration of my comments.

Sincerely,

Steven E. Skutnik, Ph.D.