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May 07, 2015
Associate David Luke Oates Co-Authors Article Examining Economic Effects of Compliance with the EPA’s Proposed Clean Power Plan

Brattle associate David Luke Oates co-authored an article published in the April 2015 issue of The Electricity Journal that examines the economic effects of state cooperation under the Environmental Protection Agency’s (EPA) proposed Clean Power Plan. The article finds that compliance is likely to increase electricity costs, significantly increase net revenues for natural gas combined-cycle units, and reduce net revenues for coal power plants.

Under section 111(d) of the Clean Air Act (CAA), the EPA is regulating CO2 emissions from electricity generating units in the United States. The agency has proposed performance standards in the form of “rates” that must be met on average within each state, or within each group of states if they choose to comply cooperatively. States also have the option to comply with a mass-based performance standard. The article focuses on the effects of two implementation decisions: (1) whether to comply on a mass- or rate-basis, and (2) whether to comply individually or in cooperation with other states.

According to the authors’ analysis, production costs of complying with the CAA decreased with increasing cooperation and with mass-based compliance, compared to rate-based compliance. Of the six compliance scenarios considered in the analysis, production costs were lowest under mass-based compliance with national cooperation and highest under rate-based compliance with no cooperation. Additionally, the authors find that compliance led to increased electricity prices and that these increases were most dramatic under mass-based compliance. The authors suggest that if states decided to use mass-based compliance, they should consider using proceeds from allowance auctions to offset the costs to consumers.

The article, “State Cooperation Under the EPA's Proposed Clean Power Plan,” is co-authored by Professor Paulina Jaramillo of Carnegie Mellon University, and is available to view here.