Varun Sivaram

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Understanding the EPA Carbon Proposal in Context

by Michael Levi
June 1, 2014


The Wall Street Journal is reporting that the EPA will announce carbon regulations for existing power plants on Monday that seek to reduce U.S. electricity sector emissions by 25 percent from 2005 levels by 2020 and by 30 percent by 2030.

It’s illuminating to compare those figures with EIA estimates of the likely impact of other policies that have been proposed. The table below summarizes several; the year in parentheses is when the estimates were made. The reduction figures are for the power sector only to make them directly comparable with the new EPA proposal.

Proposal Reduction in 2020 (%) Reduction in 2030 (%)
$10 (Rising) CO2 Tax (2014) 24 25
$10 (Rising) CO2 Tax + Abundant Shale Gas (2014) 30 33
$25 (Rising) CO2 Tax (2014) 47 66
Clean Energy Standard Act (2012) 22 33
American Power Act (2010) 21 31
Waxman-Markey (2009) 16 56


Any comparison among these should be made carefully – these are very different sorts of regulatory schemes. But three things jump out:

The 2020 target is relatively deep. It entails lower emissions than the EIA projected would be achieved by the Clean Energy Standard Act of 2012, the American Power Act of 2010 (better known as Kerry-Lieberman), or the ill-fated Waxman-Markey bill of 2009.

The 2020 target also looks relatively easy to achieve. It is consistent with what the EIA estimates would be accomplished with a modest $10 a ton carbon tax starting in 2015 and rising to $13 by 2020. Waxman-Markey, by contrast, envisioned a much-higher carbon price of $32 a ton by 2020. (Relatedly, it also envisioned substantial use of carbon offsets. Those can’t meaningfully be attributed to any sector, so there’s no useful way to fold them into this comparison. The figures for the cap-and-trade schemes in the table are actual projected sectoral emissions reductions, not regulatory targets.)

How could Waxman-Markey have resulted in higher emissions despite having a higher carbon price? Both business-as-usual emissions and the cost of reducing emissions were higher in 2009 than they are today.

The 2030 target is not nearly as aggressive as the 2020 target. The reported target for 2030 is barely more stringent than the 2020 goal. It is less than the EIA projects could be achieved with a $10 a ton tax together with abundant gas. It is far less than the EIA projected would result from a higher tax or Waxman-Markey. It is similar to what the EIA projected for Kerry-Lieberman; my guess is that’s because Kerry-Lieberman’s cost containment provisions were projected to kick in before 2030.

This points to what might be the most important take-away here. The new EPA rules are almost certainly the last major stab at cutting emissions by 2020. But it is better to think of the 2030 goal as a current target that might be ratcheted down in the future. This could happen through new legislation or new regulation under existing law. The year 2030 is still far away.

Post a Comment 3 Comments

  • Posted by Noah Kaufman

    Is this a $10 economy-wide carbon tax that you refer to in the table? Would be interested to see the carbox tax on the electricity sector alone that leads to the same 2020 and 2030 emissions reductions.

  • Posted by Fernando Leanme

    Are you sure the reductions are versus 2005 and not versus 2012? I saw a comment elsewhere which mentioned the years were switched in the proposed regulations as published.

  • Posted by Tomasz Jędryszek POLAND

    In my humble opinion, We should lobbying on the new source of energy and make quicker industry use thermonuclearplant. I look for thermonuclearplant in France wehre is in process of realisation. This is first industry using thermonuclear powerstation in practice. I wait with unpatient on the result. This is vector of possitive growth this sector of industry. I see needness having more fund on this brange of powerplants and grants in sience on this matter of knowing. With kindest regards to |CFR..
    /stay in connect/

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