insights on economic impacts of utility mercury and co 2 controls anne smith charles river...
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Insights on Economic Impacts of Utility Mercury and CO2 Controls
Anne SmithCharles River Associates
North Carolina DENR/DAQ Workshopon Mercury and CO2
Raleigh, NCApril 20, 2004
2
Mercury Controls and Costs
3
Mercury Sources and Control Options
Hg comes primarily from coal generation Various retrofit controls are possible
“Co-benefits” from PM, SO2 and NOx control equipment, especially for bituminous (eastern) coals:
CESP removes ~35% of Hg; FF removes 75-90% of Hg Wet FGD + CESP removes 60-70% of Hg SCR with WFGD + CESP removes 85-90% of Hg
Activated carbon injection (ACI) Cheap to install, expensive to operate, for removals of 60-80%
ACI with small baghouse Substantial capital cost, but lower operating costs 85%-90% removal appears possible
All Hg controls still have uncertain removal potentials Co-benefits are likely, but magnitude still speculative ACI still being developed; not “commercialized” yet
4
Hg Controls May Not Increase Projected Electricity Prices Much…But They Will Affect:
Average Costs of GenerationRegulated Electricity RatesAsset Values of Coal-fired Units
Demand
Supply$/kwh
Q of Electricity
Wholesaleprice
Gas
Nuc, HydroCoal
5
~ .5% increasein total
COS
~ 2% increasein total
COS
Annual Costs ($ millions) -- CSA vs. 2.2 #/tBtu MACT
2008 $278
2010 $1,129
2012 $1,083
2015 $1,450
2018 $2,225
CSA 2.2 #/tBtuMACT
2020 $1,425
Source: A Framework for Assessing the Cost-Effectiveness of Electric Power Sector Mercury Control Policies , (# 1005224), EPRI, Palo Alto, California, May 2003
$4,574
$4,016
$3,913
$3,275
$2,002
$394
6
Co-Benefits May Be “Cheap” But Require Flexibility in Timing
0
5
10
15
20
25
30
35
40
45
50
2004 2006 2008 2010 2012 2014 2016 2018 2020
AnnualTons Hg
FromElectricity
Generation
1999 Emissions (ICR-based estimate)
Projected Hg Co-Benefits from Proposed IAQR
Industry
EPA (approx.)
7
Hg Trading Is Very Cost-Effective Compared to Hg Unit-Specific Targets EPA’s proposed MACT would cost 5-10 times more
than its proposed Hg Cap on NPV basis Hg trading is far more cost-effective:
MACT achieves ~32 tons by 2008 Hg Cap achieves 15 tons by 2020 (32 tons at ~2012)
Cost-effectiveness advantages of proposed trading rule would be heightened by technical improvements in Hg control options Timing flexibility gives opportunities for technology to
improve before it must be implemented broadly Trading “places a price” on Hg emissions which also
incentivizes technical improvements better than MACT
8
Hg Trading Tends to Concentrate Reductions on the Largest Sources
CSA Deposition Change
-6%
-4%
-2%
0%
-6% -4% -2% 0%
TX21 WI31
2.2 #/tBtuMACT
Deposition Change
Shaded area:Deposition under
CSA is reduced morethan under 2.2# MACT
Source: A Framework for Assessing the Cost-Effectiveness of Electric Power Sector Mercury Control Policies , (# 1005224), EPRI, Palo Alto, California, May 2003
9
CO2 Controls and Costs
10
CO2 Sources and On-System Control Options
CO2 comes from coal, oil and natural gas generation But coal emits roughly 2x more CO2 per kwh than natural gas
Retrofit controls are the most costly control option Switch coal to gas: ~$30-50/tonne C for first few %(**)
Switch coal to renewables: >$100/tonne C for first few %(**)
Remove CO2 from stack: ~$300/tonne C (large reductions)
On-system controls are expensive even for new generation Build IGCC with C-sequestration: ~$100/tonne C Large reductions possible, but only with decades
of lead-time
(**) See next slide for further explanation
11
Switching from Current Coal Generation Has Very Limited Potential Coal-to-Gas:
A 20% reduction in current coal MWh: Would require a 50% increase in current gas generation Would require even more new gas plants to be built Would drive natural gas prices up (affecting other industry) Would reduce national CO2 emissions <3%
Coal-to-Renewables:A 10% reduction in current coal MWh: Would require >5-fold increase in renewable capacity Would reduce national CO2 emissions <3%
Both would drive $/tonne higher than the estimates on previous slide for “first few %” of reductions
A multi-decade approach is required to achieveon-system reductions at less than $100/tonne C
12
What About “Offsets”?
“Offsets” are reductions in carbon that do not occur on-system
Usually associated with Changes in land use practices Changes in forestry practices Energy demand-reduction projects Projects in other countries that reduce their CO2 baseline
Are currently much cheaper (<$10/tonne C) Issues
Are these real reductions from baseline? Are these permanent reductions? Will they remain cheap once there is a real demand for them?
13
Implications for Electricity Prices
CO2 policy will increases wholesale power prices, as well as raise cost-of-service and reduce asset values
On-system reductions will cause large price increases
This stands in direct contrast to SO2, NOx and Hg control impacts.
Demand
Supply$/kwh
Q of Electricity
Wholesaleprice Gas
Nuc, HydroCoal
14
What Do These Carbon Prices Mean to the Consumer?
$100/tonne C: Cost of coal-fired generation doubles Cost of gas-fired generation increases by 35% Average cost of all generation increases ~60% Average retail electricity rates increase by ~30%
$10/tonne C: Average retail electricity rates increase by ~3%
~ 5-15% Generationemissionsreductions
(2-5% change in national emissions)
~ 0% Generationemissionsreductions
(? change in national emissions)
15
Regional Competitive Impacts Also Need to Be Considered
Unilateral NC State Policy Power may be wheeled in from states without carbon cap Costs of power and costs of gas will rise to NC industry Industry that can move will do so, reducing NC jobs Consumers in NC will face cost-of-living increases National emissions will not be reduced
As part of a unified national carbon policy Inter-regional competitive issues are diminished Concern is competition from international sources Some emissions will still “leak” and reappear elsewhere
globally NC economy appears to face impacts similar to US-wide
average impacts if the policy is nationally applied.
16
Examples of Estimates of CO2 Cap Costs to NC Economy (Kyoto Caps)
1 - Annex B Trade 2 - Annex B Trade w/No Hot Air
3 - No Trade 4 - Global Trade
North Carolina
Source: Charles River Associates’ SIAM Model Simulation
Global Trade
Annex B Trade (2)
Trade only in US
17
Change in GSP in Different States (Scenario: Kyoto with Annex B Trade - No Hot Air)
9 - North Carolina 10 - Tennessee 11 - California
California
North Carolina
Tennessee
Source: Charles River Associates’ SIAM Model Simulation
18
Estimated NC & US GSP Impacts Under McCain-Lieberman Bill (S.139)
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
2005 2015 2025 2035
Gross Regional Product
(% change from baseline)
Phase I only -- NCPhase I only -- US
Phases I & II -- NCPhases I & II -- US
Source: Costs to the State of North Carolina if EPA Regulated Carbon Dioxide Emissions Under the Clean Air Actby P. Bernstein and D. Montgomery, Charles River Associates, November 4, 2003.
19
-12.00
-10.00
-8.00
-6.00
-4.00
-2.00
0.00
2.00
Agriculture EIS Manufacturing Services Electricity
Ind
ust
rial
Ou
tpu
t (%
ch
ang
e fr
om
bas
elin
e)
2010-Amended
2010-Original
2020-Amended
2020-Original
Source: Costs to the State of North Carolina if EPA Regulated Carbon Dioxide Emissions Under the Clean Air Actby P. Bernstein and D. Montgomery, Charles River Associates, November 4, 2003.
Estimated Impacts to NC SectorsUnder McCain-Lieberman Bill (S.139)
North Carolina Sectoral Impacts
Impacts to NC’s economy would be far worse than the preceding estimates if NC were to act on its own.
Boston, Washington DC, Los Angeles, Philadelphia, Berkeley, Palo Alto, Salt Lake City, Austin, Houston
London, Brussels, Toronto, Mexico City, Wellington, Brisbane, Melbourne
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