Regulatory Impact Analysis for the Review of the Clean Power Plan: Proposal [This page intentionally left blank] EPA-XX/R-XX-XXXX October 2017 ii Regulatory Impact Analysis for the Review of the Clean Power Plan: Proposal U.S. Environmental Protection Agency Office of Air and Radiation Office of Air Quality Planning and Standards Research Triangle Park, NC 27711 iii CONTACT INFORMATION This document has been prepared by staff from the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy of the U.S. Environmental Protection Agency. Questions related to this document should be addressed to Alexander Macpherson, U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, North Carolina 27711 (email: [email protected]). iv TABLE OF CONTENTS TABLE OF CONTENTS .................................................................................................................................. v LIST OF TABLES ........................................................................................................................................ viii LIST OF FIGURES ...................................................................................................................................... xiv 1. Executive Summary ......................................................................................................................... 1 1.1. Introduction .................................................................................................................................. 1 1.2. Avoided Compliance Costs using the 2015 RIA Results ............................................................. 3 1.3. Forgone Emissions Reductions from the 2015 RIA ..................................................................... 4 1.4. Forgone Climate, Energy Efficiency, and Health Benefits using the 2015 RIA Results ............. 5 1.5. Net Benefits of the Proposed Repeal of the CPP ........................................................................ 11 1.6. Alternative Emissions Reductions, Compliance Cost, and Benefit Estimates from 2017 Annual Energy Outlook ....................................................................................................................................... 17 1.6.1. Avoided Compliance Costs using AEO2017 .................................................................. 18 1.6.2. Forgone Emissions Reductions using AEO2017 ............................................................ 18 1.6.3. Forgone Benefits using AEO2017 .................................................................................. 19 1.6.4. Net Benefit of Proposed Repeal of CPP using AEO2017 ............................................... 21 1.7. Alternative Impacts Estimates from Recent Studies by Non-Governmental Institutions ........... 25 1.8. Conclusion .................................................................................................................................. 26 2. Background .................................................................................................................................... 27 2.1. Purpose of RIA ........................................................................................................................... 27 2.2. Analysis Supporting the Clean Power Plan Review ................................................................... 27 2.3. Base Case and Year of Analysis from 2015 RIA ....................................................................... 29 2.4. Approaches Examined in RIA .................................................................................................... 30 3. Summary of Regulatory Impacts ................................................................................................... 32 3.1. Avoided Regulatory Compliance Costs in 2015 CPP RIA ......................................................... 32 3.2. Forgone Emissions Reductions ................................................................................................... 36 3.3. Demand-Side Energy Efficiency-related Adjustments to Avoided Regulatory Compliance Costs 37 3.4. Forgone Monetized Climate Benefits, Demand-Side Energy Efficiency Benefits, and Health Co-benefits .............................................................................................................................................. 42 3.4.1. Estimating Forgone Domestic Climate Benefits ............................................................. 42 3.4.2. Estimating Forgone Demand-Side Energy Efficiency Benefits ...................................... 46 v 3.4.3. Estimating Forgone Health Co-Benefits ......................................................................... 47 3.4.4. Combined Forgone Benefits Estimates ........................................................................... 55 3.5. Economic Impacts ...................................................................................................................... 58 3.5.1. Market Impacts ............................................................................................................... 58 3.5.2. Distributional Impacts ..................................................................................................... 60 3.5.3. Impacts on Small Entities ............................................................................................... 65 3.6. Employment Impacts .................................................................................................................. 65 4. Comparison of Benefits and Costs ................................................................................................. 71 5. Limitations and Uncertainty .......................................................................................................... 79 5.1. Insights from Interstate Ozone Transport-related Power Sector Modeling Performed in 2016 . 79 5.2. Regulatory Compliance Costs .................................................................................................... 82 5.3. Demand-side Energy Efficiency ................................................................................................. 83 5.4. Social Cost of Carbon ................................................................................................................. 89 5.5. PM 2.5 and Ozone Health Co-Benefits Assessment ...................................................................... 89 5.5.1. Overview ......................................................................................................................... 89 5.5.2 Benefit-per-ton estimates ................................................................................................ 92 5.5.3. Estimating PM 2.5 -related impacts at low ambient levels ................................................. 92 5.5.4. PM-related impacts attributable to individual species .................................................... 97 6. Present Value Analysis of 2020-2033 for E.O. 13771, Reducing Regulation and Controlling Regulatory Costs ......................................................................................................................................... 99 6.1. Introduction ................................................................................................................................ 99 6.2. Methods ...................................................................................................................................... 99 6.2. Results ...................................................................................................................................... 101 6.2.1. Present Values ............................................................................................................... 101 6.2.2. Equivalent Annual Values ............................................................................................ 101 6.3. Caveats Related to Present Value Analysis of Avoided Compliance of the Proposed Repeal of the CPP .................................................................................................................................................. 102 7. Additional Observations of Potential Clean Power Plan Impacts based upon the U.S. Energy Information Administration’s 2015 through 2017 Annual Energy Outlooks ........................................... 104 7.1. Introduction .............................................................................................................................. 104 7.2. Observations on AEO Trends from 2015 to 2017 .................................................................... 104 7.2.1. Trends in AEO Projections without CPP ...................................................................... 105 vi 7.2.2. Trends in Projected Impacts of CPP (AEO2016 vs. AEO2017) ................................... 112 7.2.3. Implications for Updating EPA’s RIA Projections ....................................................... 116 7.3. Avoided Compliance Costs using AEO2017............................................................................ 119 7.4. Forgone Emissions Reductions using AEO2017 ...................................................................... 121 7.5. Forgone Monetized Benefits using AEO2017 .......................................................................... 122 7.5.1. Forgone Monetized Climate Benefits ..........................................................................