New EPA standards will impact Michigan’s energy portfolio
State might be better positioned than others to make the transition from coal.
Earlier this month, the Environmental Protection Agency, at the direction of President Barack Obama, released the Clean Power Plan proposal, which for the first time calls for cuts to carbon pollution from existing power plants, the single largest source of carbon pollution in the United States, according to the EPA.
The new standard calls for a 30 percent reduction in carbon dioxide emissions by 2030.
“This is probably the second major EPA standard change,” said Todd Yarbrough, assistant professor of economics at Aquinas College. “The first one came on new fossil fuel plants. … Now the EPA has said existing power plants in states need to cut carbon emissions.”
The EPA noted many states are already taking measures to cut carbon emissions.
“With the Clean Power Plan, EPA is proposing guidelines that build on trends already underway in states and the power sector to cut carbon pollution from existing power plants, making them more efficient and less polluting,” the EPA’s announcement said.
Yarbrough said Michigan is already well positioned to handle the call for a 30 percent reduction. He said, to begin with, only 49 percent of Michigan’s total energy generation comes from coal.
“This is quite low compared to a lot of other states,” he said. “Some states get almost two-thirds of their entire energy generation from coal. The actual amount Michigan would have to reduce is around 400 to 500 pounds per kilowatt hour; it’s a little smaller than some other states.”
He noted the EPA recognized approximately two-dozen plants in Michigan that would have to reduce emissions by 2030 to meet the new standard.
That is in part because Michigan has already begun moving toward natural gas production, which Yarbrough said accounts for about 20 percent of the state’s energy portfolio.
He expects to see natural gas production accelerated based on the new standard.
“Michigan will most likely further incentivize the exploration of extraction of natural gas,” he said.
“Since there is so much infrastructure in Michigan with respect to natural gas — especially with Consumers Energy sort of situating themselves with respect to natural gas — I think we’ll see more of that.”
Natural gas will not be an easy way forward for the state, however, because extraction of natural gas occurs through hydraulic fracturing, also known as fracking, which has become a controversial and politically charged issue.
“That will be, perhaps, a battleground that will need to be fought,” Yarbrough said.
He expects the state could ease the path to increased use of natural gas by passing regulations on the extraction process.
“The state could make sure the oversight is stronger, that the wells are being drilled properly, that natural gas is being extracted in a safe way,” he said.
Overall, he expects natural gas will win out in Michigan.
“It’s a politically popular form of energy, with the exception of the fracking issues,” he said. “The switch to natural gas will keep rates mostly the same because natural gas is a cheaper form of energy and less carbon-emitting.”
In addition to an increase in natural gas, Yarbrough expects to see an increased emphasis on renewable energy, such as solar and wind. He noted Michigan has already taken a significant step toward increasing its renewable energy by enacting a renewable energy standard.
“From an energy perspective, Michigan has done quite well, and we will see this in terms of Michigan’s ability to react to the new standard,” he said. “I think Michigan will find it easier than a lot of states because of the steps already taken.”
The EPA has given states a lot of opportunity to identify their own path to achieve carbon emission reductions.
“The proposal provides guidelines for states to develop plans to meet state-specific goals to reduce carbon pollution and gives them the flexibility to design a program that makes the most sense for their unique situation,” the EPA said. “States can choose the right mix of generation using diverse fuels, energy efficiency and demand-side management to meet the goals and their own needs. It allows them to work alone to develop individual plans or to work together with other states to develop multi-state plans.”
Yarbrough said the opportunity for regional partnerships is promising.
“States can come together as regional areas to reduce their emissions,” Yarbrough explained. “Michigan, Illinois, Indiana and Wisconsin could come together and figure out a way to regionally reduce their emissions, which opens up the option for regional tradable permit systems, where power plants can actually trade carbon permits between each other, and this is a cost-effective way to reduce emissions.”
Tradable permits allow the more cost-effective energy firms to reduce emissions more drastically while letting the least cost-effective firms purchase permits to pay for their pollution.
Yarbrough said tradable permits get at the underlying issue: Getting businesses and individuals to understand the true cost of energy includes pollution. “Not just what you are paying at the pump or for the energy at home, but also paying for the pollution that is caused by that,” Yarbrough said.
Yarbrough prefers tradable permits or a carbon tax to an EPA standard, but said he isn’t surprised the president and EPA are moving forward in this way.
“There has been so much political inaction (on the issue),” he said.
He noted the move sends an important message to the rest of the world, one he hopes other developed nations will begin to follow.
In response to the EPA announcement, Consumers Energy released a statement that noted it is “Michigan’s leading supplier of renewable energy and is committed to serving customers with a balanced energy portfolio.”