Clean Energy Policy and the Green Agenda

1. CLEAN ENERGY POLICY
AND THE GREEN AGENDA
William W. Hogan
Mossavar-Rahmani Center for Business and Government
John F. Kennedy School of Government
Harvard University
Cambridge, Massachusetts 02138
Canada-US Climate Policy Forum
Ottawa ON
June 13, 2016

2. 1
CLIMATE AND ENERGY Going Green
The scale of the climate problem is enormous. Obtaining cooperation across sectors and
countries will require transforming the energy system.
(King et al., 2015) (p. 12)

3. 2
CLIMATE AND ENERGY Going Green
The costs of going green present a first-order issue in developing the policy. One argument
implies that the costs will be minimal.
“In remarks on Twitter, Obama said: “This study [“Better Growth, Better Climate”] concludes
that no one has to choose between fighting climate change and growing the economy.” (Barak
Obama, September 16, 2014.)
“This report [“Better Growth, Better Climate”] argues for a new model where economic
growth and climate action are mutually reinforcing – and it shows how we can build it. There
is no time to lose." (Ban Ki Moon, September 16, 2014.)
"It doesn't cost more to deal with climate change; it costs more to ignore it ... and we need to
make that clear to people in this country," Kerry told reporters. (John Kerry, New York, September 23,
2014.)
(Global Commission on the Economy and Climate. (2014). “Better Growth, Better Climate.” Retrieved from http://newclimateeconomy.report/)

4. 3
CLIMATE AND ENERGY Going Green
An alternative argument is that the costs of going green will be significant but worth it.
“I am very well aware that these are not easy choices for any country to make – I know that.
I’ve been in politics for a while. I know the pull and different powerful political forces. Coal
and oil are currently cheap ways to power a society, at least in the near term.” (John Kerry,
Jakarata, February 16, 2014.)
“Doing what is necessary to achieve the United Nations’ target for reducing emissions would
reduce economic growth by about 0.06 percent annually from now through 2100, according
to the I.P.C.C. That sounds trivial, but by the end of the century it means a 5 percent loss of
worldwide economic activity per year.
“And this cost projection assumes optimal conditions — the immediate implementation of a
common global price or tax on carbon dioxide emissions, a significant expansion of nuclear
power and the advent and wide use of new, low-cost technologies to control emissions and
provide cleaner sources of energy.
“If the new technologies we hope will be available aren’t, like one that would enable the
capture and storage of carbon emissions from power plants, the cost estimates more than
double.” (Robert Stavins, NYT, Sep. 20, 2014.)

5. 4
CLIMATE AND ENERGY Going Green
A central debate focuses on policies to deploy clean renewable energy technologies. The German
Enrgiewende is the poster child for this discussion. The case for the success of the Enrgiewende
emphasizes the reduction in costs for future deployment rather than the immediate environmental
benefits.
“The German (and Spanish, and several U.S. states) commitments to solar in the early,
expensive years were not simply to purchase zero-carbon energy: Their main point was to
drive down the price, so that there would be vast amounts of clean energy available at
a reasonable price in the future. Looking back at the Energiewende, the proper question is
not whether the initial tranche of renewable energy was cost-competitive with other
technologies, but whether the investment drove the price down enough to give the world
new, affordable, clean technology options.” (emphasis in original) (Hal Harvey. (2013).”A Tale of Two
Countries: Renewable Energy in Germany.” Energy Innovation LLC.)

6. 5
Clean Energy Innovation

7. 6
CLIMATE AND ENERGY Going Green
The costs of clean technologies are high, but declining. Success stimulating the development of
less expensive will be crucial in achieving the climate goals.
 RE<C. The earlier mantra from Google, where renewable energy (RE) is cheaper than coal (C).
This would make adoption of renewables an easy choice even without considering the environmental
benefits.
 RE<C+Carbon Price. The economic welfare outcome that internalizes the carbon externality.
Renewable energy is expensive, but it is worth it. Climate policy includes a mix of mitigation and
adaptation.
 RE>C+Carbon Price. Renewable energy is too expensive, and climate policy leans heavily towards
adaptation.
It is important to know where we are and where we are going. The policy prescription depends on the
diagnosis. How and how much should we be supporting the development of clean energy technologies?

8. 7
CLIMATE AND ENERGY Going Green
If renewables cost less than coal (RE<C), we could repeat the shale gas miracle with a cleaner
energy technology.
 Technology Innovation. The development stage would include a focus and R&D and small scale
deployment to create and refine the technology.
 Market Deployment. Once the technology crossed the market threshold, deployment could be both
large and rapid.
(MIT Energy Initiative, 2011) (p. 18)
http://energy.gov/fe/science-innovation/oil-gas-research/shale-gas-rd

9. 8
CLEAN ENERGY Social Cost of Carbon
Although there is significant uncertainty, the estimates from the U.S. government imply a
substantial social cost of carbon dioxide ($/ton CO2) that is not internalized in the market.
Regulatory Impact Analysis - Under Executive Interagency Working Group on Social Cost of Carbon. (2013). Technical
Update of the Social Cost of Carbon for Order 12866, (Revised, July 2015), p. 13.

10. 9
CLEAN ENERGY TECHNOLOGIES Innovation and Deployment
The importance of policy in driving renewables deployment is consistent with the construction
history cost in the United States.
(Energy Information Administration, 2016) (p. 10)

11. 10
CLEAN ENERGY TECHNOLOGIES Innovation and Deployment
The importance of policy in driving renewables deployment is consistent with the EIA analysis of
the impact of the Clean Power Plan.
(Energy Information Administration, 2016) (p. 6)

12. 11
CLEAN ENERGY TECHNOLOGIES Innovation and Deployment
The dependence on policy support for renewables implies a question about the proper focus of
that support.
 Upstream Support for Research, Development and Demonstration. The focus would be on
reducing the costs before large scale deployment. This would mimic the shale gas experience.
 Subsidies for Large Scale Deployment. Policy would support deployment to capture the direct
benefits of clean energy technologies and the indirect benefits of reducing the cost of meeting the
long-term requirements of the green agenda.

13. 12
CLEAN ENERGY TECHNOLOGIES Costs
A starting point is an assessment of the current estimates of costs of competing clean energy
supply technologies. There is a wide range of views expressed about the costs and cost trends.
“One popularized myth about [Renewable Electricity] is that it is simply too expensive.”
(Stark, Pless, Logan, Zhou, & Arent, 2015) (p. 7)
“Some world leaders, especially in developing countries like India, have long said it’s hard to
reduce the emissions that are warming the planet because they need to use relatively
inexpensive — but highly carbon-intensive — fuels like coal to keep energy affordable. That
argument is losing its salience as the cost of renewable energy sources like wind and solar
continue to fall. … Despite increased private investment in renewables, the United States
and other industrialized countries have not lived up to their pledge at the Copenhagen
conference in 2009 to provide $100 billion a year to underwrite climate projects in poorer
countries. Negotiators in Paris gave themselves until 2025 to come up with a new financing
goal.”
(NYT Editorial, April 4, 2016)
“There is no shortage of energy on earth. The sun delivers 5000 times more power to the
surface of the earth than humanity needs. The cost of renewables has been falling. But not
fast enough.”
http://www.globalapolloprogram.org/about/
“In short, we need an energy miracle.”
(Bill Gates, https://www.gatesnotes.com/2016-Annual-Letter)

14. 13
CLEAN ENERGY TECHNOLOGIES Cost Benchmarks
The Energy Information Administration provides detailed cost estimates for all major sources of
energy supply. The estimates and assumptions have been vetted in supporting reports, white
papers and conferences. However, the cost and deployment estimates, and the important policy
implications, have been controversial.
“Several articles, papers, and comments over the past year offered critical views regarding
renewable electricity data and projections prepared by the U.S. Energy Information
Administration (EIA). … EIA re-examines a variety of sources for wind and solar costs every
year to ensure that its cost assumptions are as closely aligned with this fast-changing market
as possible.” (Energy Information Administration, 2016) (p. 1 & 7, Figures p. 14 & 23)

15. 14
CLEAN ENERGY TECHNOLOGIES Cost Benchmarks
The EIA analysis provides the backup for adjusting cost estimates to deal with different subsidies,
dispatch requirements and externalities. The levelized cost of energy (LCOE) provides one
benchmark. This is an apples-to-apples comparison based on the assumptions and input data for
the United States.

16. 15
CLEAN ENERGY TECHNOLOGIES Cost Benchmarks
The details of the EIA LCOE components appear in the table.
Author’s analysis based pn Energy Information Administration. (2014c). Levelized Cost and Levelized Avoided Cost of New Generation Resources
in the Annual Energy Outlook 2014 (pp. 1–12). Retrieved from http://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf
Plant Type
Levelized
Capital Cost
Fixed O&M
Variable
O&M
(including
fuel)
Transmission
Investment
Dispatch
Profile
Conventional
Pollutants
CO2@$30/t
Total System
LCOE
Conventional Coal 44.4 4.2 30.3 1.2 0.7 35 24.6 140.6
Coal‐Gasification Combined Cycle (IGCC) 56.3 6.9 31.7 1.2 0.7 2 20.9 119.8
IGCC with CCS 97.8 9.8 38.6 1.2 0.9 2 2.3 152.7
Conventional Gas Combined Cycle 14.3 1.7 49.1 1.2 0 2 10.8 79.2
Advanced Gas Combined Cycle 15.7 2 45.5 1.2 0 2 10.1 76.6
Advanced CC with CCS 30.3 4.2 55.6 1.2 0 2 1.2 94.6
Advanced Nuclear 71.4 11.8 11.8 1.1 1.2 0 0.0 97.3
Geothermal 43.1 12.2 0 1.4 2 2 0.0 60.8
Biomass 57.7 14.5 39.5 1.2 ‐0.4 2 0.0 114.6
Wind 85.4 13 0 3.2 7.2 0 0.0 108.8
Wind – Offshore 231.7 22.8 0 5.8 0.6 0 0.0 260.9
Solar PV 139.6 11.4 0 4.1 ‐10.5 0 0.0 144.6
Solar Thermal 246.5 42.1 0 6 ‐10.4 0 0.0 284.2
Hydroelectric 72.0 4.1 6.4 2 3 0 0.0 87.5
Summary 2019 Levelized Cost of Generation: Year 2019 Entry (2012$/MWh)

17. 16
Clean Power Plan

18. 17
CLEAN ENERGY Clean Power Plan
The estimates of the cost of renewables have important policy implications. Consider the Clean
Power Plan. Under the CPP, states are required to file a State Implementation Plan (SIP) with
interim goals for 2022 and a final goal for 2030, or accept EPA’s Federal Implementation Plan (FIP).
 Rate-Based Plan
o Adopt a program along the lines of the building blocks to demonstrate compliance.
o Compliance measured across multiple years.
o Creates political economy with a bias towards subsidies and mandates.
 Mass-Based Plan
o Equivalent limits on total emissions.
o Special provisions to avoid “leakage” through emissions from new gas units.
o Awards emission allowances assuming maximum emissions feasible under rate-based plan.
 Trading Across Like Plans
o Allows autarky for production but implicit trading of electricity.
o Allows intrastate and interstate trading if proposed by states.
o Allows banking but not borrowing.
The CPP assumes an integrated market with efficient trading in setting its regional standards, but may not
provide the incentives to make efficient trading part of the SIP. It is clear that for the FIP the EPA is leaning
towards a mass-based approach with efficient trading.(Environmental Protection Agency, 2015)

19. 18
CLEAN POWER PLAN Renewable Set-Aside
For mass based plans one option is to provide a 5% set-aside for renewables to overcome the
incentive to build new NGCC plants. EPA bases the required incentive on its optimistic estimates
of the difference in the levelized cost of energy (LCOE) relative to NGCC.

20. 19
CLEAN ENERGY Clean Power Plan
EPA’s Clean Power Plan (CPP) under Sec 111(d) utilizes three building blocks, including changing
the dispatch of Electricity Generating Units (EGUs). There is confusion about what this means.
Strictly speaking, the CPP is not a plan—it is a rule setting standards. The implementation plans
will determine how these standards get translated into action.
Building Blocks create something like a ‘Deemed Cleaner Power Plant (DCPP).’
 Assume that all existing power plants implement incremental improvements in heat rates and
corresponding reduction in emissions.
 Assume all increases in the utilization of existing natural gas units result in reduced utilization of
existing coal plants and correspondingly reduced emissions.
 Assume that all incremental renewables substitute for use of existing coal plants.
Energy efficiency not included in final standard but could be used in an implementation plan.
The building blocks are based on EPA’s judgement about the Best System of Emission Reductions
(BSER). The CPP reaches well beyond the boundaries of individual plants—outside the fence. This raises
an issue that will be a centerpiece of litigation about application of the CAA.
(Environmental Protection Agency, 2015)

21. 20
CLEAN ENERGY Clean Power Plan
The Clean Power Plan is the subject of extensive litigation. The states are divided, but there is
ample opposition. Both sides express confidence in their legal position.
“West Virginia Attorney General Patrick Morrisey told reporters on a call that a petition for
review asking that the Clean Power Plan be found unlawful had already been filed with the DC
Circuit on behalf of a ‘broad, bipartisan coalition of 24 states.’ … ”
“The US Chamber of Commerce is also challenging the fairness and legality of the Clean
Power Plan in a lawsuit that includes 15 business groups.”
(Megawatt Daily, October 26, 2015.)
“Such a claim of authority with no limiting principle will naturally expand over time… One irony
is that even if EPA weren’t rewriting black-letter law to bullrush the CPP, the rewrite itself would
be unconstitutional. ” (WSJ Editorial, “EPA Deserves a Stay,” October 30, 2015)
The Supreme Court, in February 2016, issued an unprecedented stay of implementation, even
before the case was heard at the DC Circuit Court. This was a surprise.
Subsequently, in May 2016, the DC Circuit Court elected to skip the usual three judge panel and
skip directly to an “en banc” review. This was a surprise.
“Clean Power Plan’s legal future ‘a mess’.” (Richard Lazarus, Harvard Gazette, February 26, 2016)

22. 21
IMPLEMENTATION OPTIONS Clean Power Plan
A study by the National Association of Clean Air Agencies addressed options for implementation.

23. 22
IMPLEMENTATION OPTIONS Clean Power Plan
The 465 page study by the National Association of Clean Air Agencies described 26 categories of
implementation options. (National Association of Clean Air Agencies, 2015)
Optimize Power Plant Operations Implement Combined Heat and Power in the Electric Sector
Implement Combined Heat and Power in Other Sectors Improve Coal Quality
Optimize Grid Operations Increase Generation from Low-Emission Resources
Pursue Carbon Capture and Utilization or Sequestration Retire Aging Power Plants
Switch Fuels at Existing Power Plants Reduce Losses in the Transmission and Distribution System
Establish Energy Savings Targets for Utilities Foster New Markets for Energy Efficiency
Pursue Behavioral Efficiency Programs Boost Appliance Efficiency Standards
Boost Building Energy Codes Increase Clean Energy Procurement Requirements
Encourage Clean Distributed Generation Revise Transmission Pricing and Access Policies
Revise Capacity Market Practices and Policies Improve Integration of Renewables into the Grid
Change the Dispatch Order of Power Plants Improve Utility Resource Planning Practices
Improve Demand Response Policies and Programs Adopt Market-Based Emissions Reduction Programs
Tax Carbon Dioxide Emissions Consider Emerging Technologies and Other Important
Policies

24. 23
ELECTRICITY MARKET Environmental Dispatch
EPA’s CPP under Sec 111(d) envisions three building blocks, including changing the dispatch of
Electricity Generating Units (EGUs). There is confusion about what this means.
“Environmental dispatch is a policy in which the system operator explicitly considers environmental criteria
(primarily air pollution emissions) when making dispatch decisions, even if the environmental impacts do not
lead to an actual regulatory compliance cost.” (National Association of Clean Air Agencies, 2015, p. ES-7)
How does EPA address the matter of environmental dispatch?
The Clean Power Plan analysis utilizes EPA’s “Integrated Planning Model (IPM) … a multi-regional,
dynamic, deterministic linear programming model of the U.S. electric power sector. It provides forecasts of
least cost capacity expansion, electricity dispatch, and emission control strategies while meeting energy
demand and environmental, transmission, dispatch, and reliability constraints.” This is a zonal model built
on load duration curves and inter-zonal transmission limits. IPM cannot replicate the impact of
transmission constraints in actual dispatch operations. (http://www.epa.gov/airmarkt/progsregs/epa-ipm/BaseCasev513.html)
“EPA recognizes that the word “dispatch” can be used to describe how balancing authorities conduct real-
time selection of specific generation (supply) to meet load (demand), on an hourly or even 15-minute basis.
In the context of the proposed CPP and in this [Technical Support Document], the word “dispatch” is
intended to refer to broader patterns of generation across different generating technologies over longer
periods of time, in keeping with the compliance flexibilities afforded under this rule (e.g., where emission
performance can be averaged over multiple years).”
U.S. Environmental Protection Agency, Office of Air and Radiation, “Translation of the Clean Power Plan Emission Rate-Based CO2 Goals to Mass-
Based Equivalents,” Technical Support Document (TSD) for Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility
Generating Units, Docket ID No. EPA-HQ-OAR-2013-0602, November 2014, footnote 6.
What does all this mean? Why does it matter?

25. 24
MW
¢
Start up Costs +
Generators
&
Customers
...
Financial
Transmission
T
Dispatch
Commitments
Q
Scheduling
Settlements
P, Q, T
Balancing
Settlements
p, q, Q
kWh $
kWh $
Locational
P, Q
Locational
p, q
Schedule BidsSchedules
Balancing Bids
Contract
$
Q
Q
Excess
Congestion
$
Excess
Congestion
$
T
Imbalance
$
Scheduling Transactions
Balancing Transactions
Settlements
A Structure for Forward Market Scheduling,
Spot Market Dispatch & Settlements
MW
¢
MW
¢
MW
¢
Reliability
Commitments
Rights
ELECTRICITY MARKET A Consistent Framework
The example of successful central coordination, CRT, Regional Transmission Organization (RTO)
Millennium Order (Order 2000) Standard Market Design (SMD) Notice of Proposed Rulemaking
(NOPR), “Successful Market Design” provides a workable market framework that is working in
places like New York, PJM in the Mid-Atlantic Region, New England, the Midwest, California, SPP,
and Texas. This efficient market design is under (constant) attack.
“Locational marginal pricing (LMP) is the electricity spot pricing model that serves as the
benchmark for market design – the textbook ideal that should be the target for policy makers. A
trading arrangement based on LMP takes all relevant generation and transmission costs
appropriately into account and hence supports optimal investments.”(International Energy Agency,
Tackling Investment Challenges in Power Generation in IEA Countries: Energy Market Experience, Paris, 2007, p. 16.)
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
The RTO NOPR Order SMD NOPR "Successful Market Design"
Contains a Consistent Framework
07/05
Bilateral Schedules
Financial Transmission Rights
LicensePlateAccessCharges
Market-DrivenInvestment
at Difference in Nodal Prices
(TCCs, FTRs, FCRs, CRRs, ...)
5/99
12/99
07/02

26. 25
ELECTRICITY MARKET A Consistent Framework
Why is this important? The basic structure of the organized electricity markets depends on the
successful market design framework of economic dispatch and financial transmission rights.
This is the only model that can meet the tests of open access and non-discrimination. Anything that upsets
this design will unravel the wholesale electricity market.
Implementing Open Acess Order 888
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Bilateral Schedules
Financial Transmission Rights
LicensePlateAccessCharges
Market-DrivenInvestment
at Difference in Nodal Prices
(TCCs, FTRs, FCRs, CRRs, ...)
Open Access
Non-Discrimination
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Bilateral Schedules
Financial Transmission Rights
LicensePlateAccessCharges
Market-DrivenInvestment
at Difference in Nodal Prices
(TCCs, FTRs, FCRs, CRRs, ...)
NOT
Successful Market Design Not SMD
CAISO
...
SMD working in
Mid-Atlantic, MISO,
New York,New England.
California, Texas, SPP ...
1997 1998 1999
Failed Zonal
Models

27. 26
ELECTRICITY MARKET A Consistent Framework
Why is this important? The basic model now applies in all the organized markets under regional
Transmission Organizations in the United States. But not yet in Canada.

28. 27
ELECTRICITY MARKET A Consistent Framework
Why is this important? The basic model is expanding through the Energy Imbalance Market in the
western states.
(Guillermo Bautista Alderete, CAISO, “Best Practices in Organized Nodal (LMP) Markets,” Nodal Trading Conference, October 2015.)

29. 28
ELECTRICITY MARKET Environmental Dispatch
Mechanisms that put a price on carbon will change the environmental footprint of economic
dispatch.
 Carbon Tax. The most direct means. The tax becomes part of the marginal cost for carbon emitting
plants. There is a seamless integration with short-run economic dispatch.
 Cap and Trade. An indirect approach. If the cap and trade system allows for banking and borrowing
over any reasonably extended period, the current price of permits operates like a carbon tax. There
can be a seamless integration with economic dispatch.
o Regional Greenhouse Gas Initiative (RGGI).
o CARB and CAISO-Pacificorp Energy Imbalance Market.
EPA acknowledges the importance of pricing carbon: “… there are a number of different ways that
states can design programs that achieve required reductions while working within existing market
mechanisms used to dispatch power effectively in the short term and to ensure adequate capacity in the
long term. These programs and programs for conventional pollutants, such as the Acid Rain Program
under Title IV of the CAA, have demonstrated that compliance with environmental programs can be
monetized such that it is factored into power sector economic decision making in ways that reduce the
cost of controlling pollution, maintain electricity system reliability and work within the least cost
dispatching principles that are key to operation of our electric power grid. The proposal would also
allow states to work together with individual companies on potential specific challenges. These and other
flexibilities are discussed further in Section VIII of the preamble.”
Environmental Protection Agency, “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units; Proposed
Rule,” 40 CFR Part 60, June 18, 2014, p. 34834. (emphasis added)

30. 29
ELECTRICITY MARKET Environmental Dispatch
Pricing carbon is the only way to maintain integrity of the electricity market design. Failure to
acknowledge this reality can lead to mistaken or unintended consequences. The EPA CPP
analysis proceeds as though economic dispatch is not central to the market.
Yet, real dispatch results may be different.
 Improved efficiency for coal plants can result in more CO2 emissions.
 Increased use of gas may substitute for other renewables or nuclear.
 New renewable plants may substitute for other renewables or nuclear.
 Energy efficiency can interact with grid congestion to cause higher CO2 emissions.

31. 30
ELECTRICITY MARKET Organized Electricity Markets
The first responsibility of RTOs is to operate the electricity system to maintain reliability. Within
that mandate is the objective to operate an efficient and open market under the principles of open
access and non-discrimination. RTOs should support initiatives that put an explicit price on
carbon and avoid activities that undermine the basic purposes of RTOs and put them on a slippery
slope towards unravelling the market design. The possible implementation details range from
those consistent with efficient electricity markets to those that would destroy the necessary market
fundamentals. For details, see (Hogan, 2015).
 Good
o Carbon Tax
o Cap-and-Trade
 Bad
o Restricted Offers
o Self-Scheduling
 Ugly
o Cumulative Constrained Dispatch
o Deemed Cost-Adders
o Proliferating Subsidies
o Capacity Market Tranches
o Environmental Dispatch

32. 31
CLEAN ENERGY TECHNOLOGIES Dirty Taxes and Green Subsidies
The EPA analysis implicitly assumes that there is one-for-one substitution between green energy
and fossil fuels. This is not true.
“Subsidies pose a more general problem in this context. They attempt to discourage carbon-
intensive activities by making other activities more attractive. One difficulty with subsidies is
identifying the eligible low-carbon activities. Why subsidize hybrid cars (which we do) and not
biking (which we do not)? Is the answer to subsidize all low carbon activities? Of course, that
is impossible because there are just too many low-carbon activities, and it would prove
astronomically expensive. Another problem is that subsidies are so uneven in their impact.
A recent study by the National Academy of Sciences looked at the impact of several
subsidies on GHG emissions. It found a vast difference in their effectiveness in terms of CO2
removed per dollar of subsidy. None of the subsidies were efficient; some were horribly
inefficient; and others such as the ethanol subsidy were perverse and actually increased
GHG emissions. The net effect of all the subsidies taken together was effectively zero!
So in the end, it is much more effective to penalize carbon emissions than to subsidize
everything else.” (Nordhaus, 2013) (p. 266)

33. 32
ELECTRICITY MARKET State Implementation Plans
The CPP embeds contradictions of the Clean Air Act, carbon policy, and a collision with electricity
market design. States will have to sort out these issues in their implementation plans.
 Wholesale power markets depend on the economic dispatch framework.
 Monetizing carbon is the key to meshing environmental goals and electricity market design.
 National carbon policy rejects a carbon tax (so far).
 EPAs Clean Power Plan does not require monetizing carbon.
 The Clean Power Plan proceeds with CAA supported rate-based standards and new ad hoc “building
blocks” that are only loosely connected to the underlying social cost of carbon or the workings of
electricity markets.
Will state implementation plans thread the needle to meet environmental goals?
Will the necessary electricity market design survive the regulatory gauntlet?
Would implementation plans create perverse outcomes and arbitrage opportunities?
Will the future be the RGGI or CARB-CAISO-Pacificorp models, meshing carbon pricing and
economic dispatch? Or will the future repeat the fiasco of the California-Enron electricity market
design that prohibited economic dispatch? And how will we coordinate with Canada?

34. 33
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Past Performance and Ongoing Enhancements, (March). Retrieved from
http://www.eia.gov/forecasts/aeo/supplement/renewable/pdf/projections.pdf
Environmental Protection Agency. (2015). Clean Power Plan (Carbon Pollution Emission Guidelines for Existing Stationary Sources:
Electric Utility Generating Units). Washington, D.C. Retrieved from http://www2.epa.gov/cleanpowerplan/clean-power-plan-
existing-power-plants#CPP-final
Hogan, W. W. (2015). Electricity Markets and the Clean Power Plan. The Electricity Journal, 28(9), 9–32. Retrieved from
http://www.sciencedirect.com/science/article/pii/S1040619015002006
King, D., Browne, J., Layard, R., Donnell, G. O., Rees, M., Stern, N., & Turner, A. (2015). A Global Apollo Programme To Combat
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National Association of Clean Air Agencies. (2015). Implementing EPA’s Clean Power Plan: A Menu of Options. Retrieved from
http://www.4cleanair.org/sites/default/files/Documents/NACAA_Menu_of_Options_HR.pdf
Nordhaus, W. (2013). The Climate Casino: Risk, Uncertainty, and Economics for a Warming World. New Haven: Yale University
Press. Retrieved from
http://books.google.com/books?hl=en&lr=&id=YfzYAQAAQBAJ&oi=fnd&pg=PT7&dq=The+Climate+Casino:+Risk,+Uncertainty,
+and+Economics+for+a+Warming+World&ots=g2lR0lTh_s&sig=FMS8QxAOSGvw7pfCZugeOwjoX-E
Stark, C., Pless, J., Logan, J., Zhou, E., & Arent, D. J. (2015). Renewable Electricity: Insights for the Coming Decade (No. NREL/TP-
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35. 34
William W. Hogan is the Raymond Plank Professor of Global Energy Policy, John F. Kennedy School of Government, Harvard University. This paper
draws on research for the Harvard Electricity Policy Group and for the Harvard-Japan Project on Energy and the Environment. The author is or has been
a consultant on electric market reform and transmission issues for Allegheny Electric Global Market, American Electric Power, American National Power,
Aquila, Atlantic Wind Connection, Australian Gas Light Company, Avista Corporation, Avista Utilities, Avista Energy, Barclays Bank PLC, Brazil Power
Exchange Administrator (ASMAE), British National Grid Company, California Independent Energy Producers Association, California Independent System
Operator, California Suppliers Group, Calpine Corporation, CAM Energy, Canadian Imperial Bank of Commerce, Centerpoint Energy, Central Maine
Power Company, Chubu Electric Power Company, Citigroup, City Power Marketing LLC, Cobalt Capital Management LLC, Comision Reguladora De
Energia (CRE, Mexico), Commonwealth Edison Company, COMPETE Coalition, Conectiv, Constellation Energy, Constellation Energy Commodities
Group, Constellation Power Source, Coral Power, Credit First Suisse Boston, DC Energy, Detroit Edison Company, Deutsche Bank, Deutsche Bank
Energy Trading LLC, Duquesne Light Company, Dyon LLC, Dynegy, Edison Electric Institute, Edison Mission Energy, Electricity Corporation of New
Zealand, Electric Power Supply Association, El Paso Electric, Energy Endeavors LP, Exelon, Financial Marketers Coalition, FirstEnergy Corporation, FTI
Consulting, GenOn Energy, GPU Inc. (and the Supporting Companies of PJM), GPU PowerNet Pty Ltd., GDF SUEZ Energy Resources NA, Great Bay
Energy LLC, GWF Energy, Independent Energy Producers Assn, ISO New England, Koch Energy Trading, Inc., JP Morgan, LECG LLC, Luz del Sur,
Maine Public Advocate, Maine Public Utilities Commission, Merrill Lynch, Midwest ISO, Mirant Corporation, MIT Grid Study, Monterey Enterprises LLC,
MPS Merchant Services, Inc. (f/k/a Aquila Power Corporation), JP Morgan Ventures Energy Corp., Morgan Stanley Capital Group, Morrison & Foerster
LLP, National Independent Energy Producers, New England Power Company, New York Independent System Operator, New York Power Pool, New
York Utilities Collaborative, Niagara Mohawk Corporation, NRG Energy, Inc., Ontario Attorney General, Ontario IMO, Ontario Ministries of Energy and
Infrastructure, Pepco, Pinpoint Power, PJM Office of Interconnection, PJM Power Provider (P3) Group, Powerex Corp., Powhatan Energy Fund LLC,
PPL Corporation, PPL Montana LLC, PPL EnergyPlus LLC, Public Service Company of Colorado, Public Service Electric & Gas Company, Public
Service New Mexico, PSEG Companies, Red Wolf Energy Trading, Reliant Energy, Rhode Island Public Utilities Commission, Round Rock Energy LP,
San Diego Gas & Electric Company, Secretaría de Energía (SENER, Mexico), Sempra Energy, SESCO LLC, Shell Energy North America (U.S.) L.P.,
SPP, Texas Genco, Texas Utilities Co, Tokyo Electric Power Company, Toronto Dominion Bank, Transalta, TransAlta Energy Marketing (California),
TransAlta Energy Marketing (U.S.) Inc., Transcanada, TransCanada Energy LTD., TransÉnergie, Transpower of New Zealand, Tucson Electric Power,
Twin Cities Power LLC, Vitol Inc., Westbrook Power, Western Power Trading Forum, Williams Energy Group, Wisconsin Electric Power Company, and
XO Energy. The views presented here are not necessarily attributable to any of those mentioned, and any remaining errors are solely the responsibility
of the author. (Related papers can be found on the web at www.whogan.com ).