EPA Climate Change Regulation Joseph A. Siegel

US EPA Region 2

Conference on Carbon Politics and Finance

October 29, 2010Fordham Graduate School of Business

Center for Research in Contemporary FinanceNew York, New York

Administrator Lisa Jackson Sept. 14, 2010

Remarks on the 40th Anniversary of the Clean Air Act

“The Clean Air Act does not require EPA to act in a reckless and irresponsible manner. We will proceed carefully through [a] series of sensible steps…. I am outlining today five principles that will inform all of our clean air efforts in the months and years ahead. These are the guiding points that will help us confront everything from lingering challenges like smog and mercury, to new challenges like greenhouse gases.”

Obama Administration Climate Change Regulatory Developments

• Motor Vehicles– Final Endangerment Finding-

• Signed Dec. 7, 2009• Response to MA v. EPA

– EPA/NHTSA Final GHG Rule for Light Duty Vehicles

• April 1, 2010

– EPA NHTSA Proposed Heavy Duty Vehicle Rule

• Oct. 25, 2010

– Final Renewable Fuel Standards

• March 26, 2010

– California Waiver Granted• June 30, 2009

• Stationary Sources– Final CAA Tailoring Rule

• May 13, 2010

– Johnson Memo Reconsideration – Final Action March 29, 2010

– Final GHG Reporting Rule• Published 10/30/09

– Proposed Waste Energy Recovery Registry

• July 2009

Final Endangerment Finding

• 2 Findings:– Endangerment Finding: The mix of 6 Key GHGs threaten the

public health and welfare of current and future generations• CO2, CH4, N2O, HFCs, PFCs, SF6

– Cause or Contribute Finding: Combination of 4 GHGs from new motor vehicles and engines contribute to atmospheric concentrations of these GHGs and therefore are a threat

• Co2, CH4, N2O, and HFCs• Sector contributes 4% of global GHG and 23% of US GHG

EPA/NHTSA Final Light Duty Rule

• Covers MY 2012 -2016– Will reach 35.5 mpg by 2016 instead of 2020 under

EISA; Standard of 250 g CO2/mile• Large pickup trucks: 25 mpg

• Compact cars: 41 mpg

Stationary Source Control For GHGs

• March 29, 2010 Final Action– Administrator Jackson announced that regulation begins in 2011– “Johnson Memo Reconsideration”

GHG Tailoring Rule

2011 2012 2013 2014 2015

• Step 1: Source already subject to PSD “anyway” (tpy CO2e) New source: NA Modification: 75,000

• Step 2: Sources already subject to PSD (tpy CO2e)New source: 100,000Modification: 75,000

• Step 3: Implementation of potential additional phase-in and streamlining options

• 5-year study: To examine GHG permitting for smaller sources

• Implementation of rule based on 5-year study

Study Complete

2016

WHAT ABOUT BACT?

• Clean Air Act Advisory Committee Climate Change Workgroup– Formed October 2009– Initial Recommendations Feb. 3, 2010

• EPA Action related to CAAC Recommendations • Next Steps

Renewable Fuel Standard-2 Volumes

0

5

10

15

20

25

30

35

40

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

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Advanced Biofuel: Unspecified

Advanced Biofuel: Biomass-Based Diesel

Advanced Biofuel: Cellulosic Biofuel

Conventional Biofuel

RFS1 – 7.5 bg in 2012

Final GHG Reporting Rule 10/30/09 About 10,000 U.S. Facilities Covered

Total US GHG Emissions & Sources of Abatement

Scenario 1 - Reference & Scenario 8 – Updated H.R. 2454 (ADAGE)

• The reference case for this analysis is based on the March release of AEO 2009. This is the same reference case used in EPA’s analysis of H.R. 2454. The old reference case is from EPA’s S. 2191 analysis and was based on AEO 2006.

• Cumulative 2012-2050 GHG emissions are 14% (51 bmt) lower in the AEO 09 baseline compared to the AEO 06 baseline in ADAGE due to the inclusion of EISA, lower initial (2010) GDP ($13.2 trillion in AEO 09 vs $14.6 trillion in AEO 06), and a lower projected GDP growth rate (2.5% in AEO 09 vs 3.0% in AEO 06).

• Discounted offsets, international forest set-asides, NSPS for landfill and coal mine CH4, and the HFC cap provide additional abatement that does not help to meet the main cap.

Covered GHG Emissions (Net of Offsets)

H.R. 2454 Cap

AEO 2009 Reference Case

HistoricalEmissions

AEO 2006 Reference Case

0

2,000

4,000

6,000

8,000

10,000

12,000

1990 2000 2010 2020 2030 2040 2050

MtC

O2e

CO2 - ElectricityCO2 - TransportationCO2 - Energy Int. ManufacturingCO2 - OtherNonCO2 - CoveredOffsets - DomesticOffsets - InternationalDiscounted OffsetsInt'l Forest Set-AsidesNSPS - CH4HFCs (separate cap)

• The average annual cost of the APA per household is the 2010 through 2050 average of the net present value of the per household consumption loss in “scenario 2 – APA.”

• The net present value of the per household consumption loss is the cost in a particular year discounted back to today.

• The costs above include the effects of higher energy prices, price changes for other goods and services, impacts on wages and returns to capital, and importantly, the the value of emissions allowances returned lump sum to households, which offsets much of the APA’s effect on household consumption. The cost does not include the impacts on leisure.

• This analysis is a cost-effectiveness analysis, not a cost-benefit analysis. As such, the benefits of reducing GHG emissions were not determined in this analysis.

• The $79 - $146 average annual cost per household is the annual cost of achieving the emissions reductions and resulting climate benefits associated with this bill.

• Across all scenarios, the highest average annual NPV cost per household is $350 in ADAGE scenario 7, requested by Senator Voinovich, without international offsets and restricted nuclear, bioelectricity and CCS.

• See Appendix 1 for a discussion of consumption accounting differences between ADAGE and IGEM and of composition of GDP.

• See Appendix 5 for a more detailed discussion of the average annual NPV cost per household calculation, and additional consumption cost metrics.

ConsumptionScenario 1 – Reference & Scenario 2 - APA

Avg. Annual Consumption Growth Rate (2010-2030)

2.51%

2.53%

2.79%

2.81%

0.0% 1.0% 2.0% 3.0%

Scn. 2 - APA

Scn. 1 - Reference

Scn. 2 - APA

Scn. 1 - Reference

IGE

MA

DA

GE

ADAGE 2015 2020 2030 2040 2050% Change -0.14% -0.17% -0.46% -0.68% -0.86%Annual Change / HH -$122 -$169 -$529 -$901 -$1,316NPV of Change / HH -$91 -$99 -$190 -$199 -$178

Average Annual Cost per Household (NPV) -$146Total Cost per Household (2010-2050) (NPV) -$5,985

IGEM 2015 2020 2030 2040 2050% Change 0.00% 0.01% -0.16% -0.72% -1.10%Annual Change / HH -$3 $12 -$153 -$786 -$1,360PV of Change / HH -$2 $7 -$55 -$173 -$184

Average Annual Cost per Household (NPV) -$79Total Cost per Household (2010-2050) (NPV) -$3,225

U.S. Consumption

$0

$5

$10

$15

$20

$25

$30

2015 2020 2030 2040 2050

Tri

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5 $

Scn. 1 - Reference - ADAGEScn. 2 - APA - ADAGEScn. 1 - Reference - IGEMScn. 2 - APA - IGEM

THANK YOU

Joseph A. Siegel

Siegel.joseph@epa.gov

212-637-3208

ADDENDUM

Applicability Tool

• http://www.epa.gov/climatechange/emissions/GHG-calculator/index.html