There are two regulatory agencies that have significant influence over the US electric industry. One is the Federal Energy Regulatory Commission, which has shaped US electric markets. The other is the Environmental Protection Agency, which has and is affecting how the industry generates electricity. Possibly the most important federal law empowering the EPA's ability to regulate the electric industry is the Clean Air Act. And in particular, the Clean Air Act amendments of 1970 and 1990. In fact, the EPA was created to centralize federal enforcement of the 1970 amendment, which expanded the Clean Air Act to include comprehensive regulation of stationary as well as mobile pollution sources. It is the stationary or industrial pollution sources covered by the act that affects the electric industry. The 1990 amendment to the Clean Air Act updated the law to also address acid rain, ozone depletion and toxic air pollution. The Clean Air Act and its amendments seek to limit the amount of toxins and criteria pollutants produced by industrial and transportation activities that end up in the air. The toxins include heavy metals like arsenic and mercury, and harmful organic chemical compounds like benzine. The criteria pollutants are ozone, particulate matter, carbon monoxide, nitrogen oxides, sulfur dioxide and lead. These two sets of pollutants are regulated in two major ways. One is through the National Ambient Air Quality Standards, which place limits on the concentration levels of the pollutants in the air. The other is through emission rate standards, which limit the rate that the pollutants can be admitted into the atmosphere, often in flue gases from burning fossil fuels. The second of these regulation approaches, the emissions rates standards, come in three forms. One is the new source review standards, which apply to the construction and operation of new and modified stationary sources, to ensure attainment of national ambient air quality standards. A second is the new source performance standards, which are uniform national EPA air emission standards that limit the amount of pollution allowed from new sources or from modified existing sources. And the third is maximum available control technology standards, which require maximum reduction of hazardous emissions based on the best performing 12% of existing sources in a particular industry or utility category. Over the past couple of years, there has been a push by the EPA to further reduce the release of toxic and criteria pollutants into the atmosphere, by tightening existing standards. The following figures show what effect this would have on the economic competitiveness of coal versus natural gas plants. Both types of plants typically include emission control systems to reduce the release of pollutant in their flue gases, to EPA standards or lower. However, since natural gas is a relatively clean burning fuel, natural gas plants only require a control system to reduce nitrogen oxide emissions. Burning coal, on the other hand, releases other pollutants besides NOx, including particulate matter, sulfur dioxide, and heavy metals that are in the coal. Thus coal plants must have additional control systems to reduce one or more of these emissions depending on when the plant was built. The plot shown here depicts the dispatch order of all coal and natural gas plants in the US with a rated capacity of greater then 50 megawatts based on one, coal and natural gas prices in February 2012. Two, each plant's heat rate, and three, the cost to operate each plant's emission control systems. Note that while existing coal plants tend to be cheaper to operate than existing natural gas plants, this is not uniformly true at the February 2012 fuel prices. In other words, there are many natural gas plants that are as cheap or cheaper to run than a number of coal plants. This next set of graphs shows how this dispatch order would change if the tighter toxic and criteria pollutant thresholds proposed by the EPA were to come into force. The dispatch curves move upward because many of the plants would have to invest in new emission control systems to meet the tighter proposed standards. But also note that the tighter standards would now lead to a majority of natural gas plants being cheaper to run than the coal plants. This again is because the coal plants would have to upgrade a number of emission control systems in order to achieve emissions as natural gas plants which only have to upgrade their NOx systems. Many of the proposed stiffer standards for toxic and criteria pollutants included in the analysis are being challenged in federal court, and so have not yet been implemented as of summer 2015. However, in the year before, in 2014, the EPA proposed regulating greenhouse gas emissions from stationary sources. And in essence, regulating CO2 emissions from electric power plants. Through a proposed update to the new source performance standards under the emission rate regulations of the Clean Air Act. These proposed updated standards have now been established for new power plants, and limit greenhouse gas emissions from any new electric power plant to those produced by the current state-of-the-art natural gas compliance cycle plant. The EPA will next release proposed updated standards for existing power plants, again, under the new source performance standards. If ultimately approved, these updates will make continued electric power generation from coal fueled steam plants prohibitively expensive unless a cost effective way of capturing and storing CO2 emissions for geologic periods of time can be implemented. And at some point, natural gas plants may face constraints on greenhouse gas emissions as well. Thus, in its efforts to enforce the Clean Air Act, the EPA continues to exert a significant influence on the future of electric energy generation.
