by Brianna Crandall — July 29, 2015—Market-based mechanisms likely to develop under the U.S. Environmental Protection Agency’s (EPA) proposed Clean Power Plan (CPP) will spark an industry response that makes available a wide array of cost-competitive compliance options, according to a new report prepared by the Advanced Energy Economy Institute, the nonprofit educational arm of the Advanced Energy Economy (AEE), which is a national association of advanced energy businesses.
This conclusion is based on a review of prior EPA regulations that allowed for market-based compliance, such as emission reduction credit trading. In every case, an efficient and active market developed rapidly in response to a regulatory signal. Given the structure of the proposed CPP and large existing markets for advanced energy technologies and services that can be used as compliance measures, the report concludes that the CPP will elicit a similarly robust market response.
While some stakeholders have expressed concern that the Clean Power Plan will involve costly disruptions to current electricity markets, this report shows that such an outcome would be a departure from a decades-long trend in EPA regulations under the Clean Air Act.
In programs to reduce the lead content in gasoline, combat acid rain, and control regional transport of ozone, regulatory signals set by EPA rules have led to the development of active and efficient markets, according to the report. The vitality of these markets is demonstrated by the widespread use of trading by affected entities, the use of credit banking where available, and the lack of volatility in prices for emission allowances.
The creation and use of markets for emission allowances under these programs gave affected entities a range of cost-effective emission reduction measures to choose from, notes the report. As a result, emissions were reduced more quickly than required, compliance costs were significantly lower than expected, and well-functioning private markets in pollution-reducing technologies evolved rapidly.
Technologies suitable for CPP compliance include a wide range of advanced energy products and services available and cost-competitive in the market today, according to the report. Utilities and power plant operators already engage in a variety of markets to procure advanced energy, from direct purchase or operation of renewable resources, to investment in energy efficiency programs, to trading certificates for the attributes of these resources.
State regulators, utilities, regional grid operators, and credit-tracking vendors have already begun the process of adapting existing mechanisms used in advanced energy markets to support CPP compliance. As a result, the report concludes that development of market-based compliance mechanisms is a “probable, if not inevitable, outcome.”
The executive summary or the full report, Markets Drive Innovation: Why History Shows that the Clean Power Plan Will Stimulate a Robust Industry Response, is available for download from the AEE Web site.
