Oregon CO2 Emissions Proposal

[Lisa Marina Brooks <lbrooks@essential.org>]

  To:     Environmental Colleagues
  Fr:     Pete West, Renewable Northwest Project (503) 223-4544;rnp@igc.apc.org
  Dt:     November 1, 1996
  Re:     Proposal For CO2 Emissions Standard in Oregon
  
  I thought you might be interested in a CO2 emissions standard being 
  promoted for new energy facilities in Oregon.  Renewables Northwest and 
  Northwest Environmental Advocates (Eugene Rosolie) were able to convince 
  a special task force appointed by the Governor to review energy facility 
  siting in Oregon, that CO2 standards were critical to siting new plants. 
  We were then able to negotiate with PacifiCorp, Portland General Electric 
  (our major utilities in Oregon), and US Generating to set specific 
  standards to limit CO2 emissions and establish mechanisms to achieve the 
  reductions.
  
  The proposed standards have been forwarded to the Governor and 
  Legislature as part of a set of recommendations for Legislative action.  
  If passed into law, these would be the first statutory limits for CO2, to my
  understanding.  We believe we can a decent bill.  Let us know what you 
  think.  Gross errors?  Fatal flaws?
  
  The proposed CO2 standard:
  
  As a starting point, the standard requires reducing CO2 emissions by 17% 
  for new base-load power plants.  The standards can be met by any 
  combination of efficiency, cogeneration or offsets from mitigation.  The 
  17% standard is relative to the most efficient combined-cycle, combustion 
  turbine plant operating commercially in the US.  The 17% defines the tons 
  of CO2 that must be avoided, displaced or mitigated, as calculated 
  assuming the plant runs all the time and for a life of at least 30 
  years.  Meeting the standard becomes part of the sunk costs of the plant.
  
  We assumed for a base case that the best currently operating commercial 
  plant has a heat rate of 7200 BTUs per kWh and emits 0.84 pounds of 
  CO2/kwh when new and clean.  Therefore, under the proposed standards the 
  net CO2 emissions would be limited to not more than 0.70 pounds of CO2 
  per kWh. The application of the standards will require that, over time, 
  the rate for net allowable emissions will decrease.  Further, in actual 
  operation the 17% standard will appear more like a 20% standard or better.
  
  How it works:
  
  1)  By agreement, the 17% standard remains in statute, but the reference 
  point (heat rate) shifts when the Oregon Energy Facility Siting Council 
  (EFSC) determines that a new, more efficient plant has come into 
  commercial operation.  As new gas-fired plants begin to achieve better 
  heat rates the base case shifts and the allowable limit of net emissions 
  becomes tougher. For example, if the next new commercial plant comes on 
  line at a heat rate of 6500 BTUs/kWh, the emissions limit drops to 0.63 
  pounds of CO2 per kWh, a 25% decrease from today's unregulated emissions 
  rate.
  
  Like the EPA concept of best available control technologies, we wanted to 
  keep redefining the reference point for the efficient plant.  Developers 
  are encouraged to offer more efficient plants as a means to reach the net 
  emissions target for their plant, and they are discouraged from offering 
  less efficient plants.  Developers are given credit for the CO2 they 
  avoid by using a plant that is more efficient than current commercial 
  standards for new and clean facilities.  Building a less efficient plant 
  would require meeting the 17% requirement, plus mitigating all of the 
  extra CO2 emitted as a result of building a plant that higher heat rate 
  worse than in the standards.
  
  2)  The 17% reduction is measured at a 100% capacity factor and 
  determines the total number of tons that must be avoided, offset or 
  mitigated.  For example, a 7200 heat-rate plant operating 30 years and 
  100% of the time emits roughly 30 million tons of CO2.  Based on the 17% 
  standard they would have to avoid, displace or mitigate 5.1 million 
  tons.  But given current river flows and regulations in the Pacific 
  Northwest, our hydro system displaces nearly all thermal generation for 
  two months per year.  Our example plant might expect to typically operate 
  ten months of the year and emit maybe 25 million tons; but, they would 
  still be on the hook for 5.1 million tons, or 20% of their expected CO2 
  emissions.
  
  All efforts to meet the standard are part of the site certificate 
  conditions.  All mitigation and offsets must be set at the beginning and 
  become part of the sunk, fixed costs for operating the plant.  If 
  cogeneration is proposed as an offset, the displaced CO2 must be 
  guaranteed.  If the cogeneration fails, the developer must develop 
  alternative mitigation.
  
  We developed these standards to first apply to base-load plants.  We've 
  had strong recent experience with these kinds of facilities in this 
  region.  We agreed to have EFSC promulgate standards for peaking 
  facilities and those using other fuels (e.g. coal).  These follow-on 
  standards are to be based on the principles embedded in the proposed 
  standards, above.  We did not address old sources in our negotiations; 
  that would have killed the deal. We hope that restructuring can be used 
  as leverage for old source reviews.
  
  
  3)  Offsets may be demonstrated through either a performance or a 
  monetary path.  Under the performance path the applicant proposes 
  mitigation projects and demonstrates the net reduction in emissions 
  likely to be produced.  After review by staff and approval by EFSC, the 
  site certificate would be conditioned on implementing the offset measures 
  accepted.
  
  Alternatively, the applicant contributes to a trust fund an amount of 
  money deemed to pay for the offsets needed to meet the standard (in total 
  tons mitigated).  The statute would set an interim rate based on the 
  results of Oregon's Best of Batch Proceeding (see below).  Unfortunately, 
  this rate starts at $0.57/ton of CO2.  The initial rate could be adjusted 
  by EFSC based on evidence of the actual costs of CO2 offset projects, but 
  not more than 50% in any two-year period.  The site certificate is 
  conditioned on paying all monies up front.
  
  In the example above, the plant was required to avoid, displace or 
  mitigate 5.1 million tons of CO2.  They could pay $2.9 million to the 
  trust fund to satisfy this obligation.  The details for the trust and how 
  it will run are yet to be finalized.  Most likely the trust will solicit 
  and fund proposals through an RFP process.
  
  In developing this proposal, our goals were to create a standard that:
          encourages developers to build the most efficient plant possible,
          continues to pressure the market for more efficiency,
          resets and tightens the allowable limits over time,
          internalizes costs for green house gases,
          requires a developer to always mitigate some emissions, and
          could serve as a model for other types of plants.
  
  We also wanted a standard to follow the one-time success of the Best of 
  Batch Proceeding, in which we got the state to hold an auction for site 
  permit based on the plant offering to have the lowest net environmental 
  impact.
  
  How got to this standard:
  
  In 1995 developers and utilities took a run at gutting Oregon's energy 
  siting rules.  A Legislative compromise was reached that provided for :  
  a one-time exemption from some siting rules a single permit for a 
  gas-fired power plant of up to 500 MW, and the creation of a Governor's 
  Task Force to re-evaluate the siting of energy facilities.
  
  Four developers started clamoring for the permit for the exempted 500 MW. 
  The state originally was going to allocate the permit on a first come, 
  first served basis.  Instead, we helped develop a scheme that would 
  allocate the permit to the plant that would be the most efficient and 
  least polluting, based on plant design and bids of offsets.  The idea was 
  to employ a market mechanism to effect an environmental result.  Plants 
  were to be evaluated on the basis of monetized net air emissions 
  (including CO2), water impacts (quantity and quality), and land and 
  wildlife effects. Credit was given for efficiency, cogeneration and 
  qualified offsite mitigation.
  
  The scheme was accepted and the state held a bid and contested case in 
  what was named, The Best of Batch Proceeding.  Three developers put 
  together bids.  The winning power plant proposed cogeneration, and 
  offsets that included:  tree planting, solar lighting programs, 
  geothermal district heating, and turning waste methane into electricity.  
  The net present value of the offset projects was about $0.57/ton, 
  including monitoring.  The second place proposal included a plant with a 
  6500 BTU heat rate and a program of carbon sequestration through forest 
  management techniques.
  
  The Best of Batch results showed that the 'market' in Oregon could afford 
  to internalize CO2.  Following this, we looked to the Governor's Task 
  Force to get the results of the Best of Batch embedded in future 
  permitting of energy facilities.  The Task Force agreed that 
  internalizing externalities made sense, that CO2 should be regulated, and 
  that the Best of Batch showed it could be done in a deregulated market.  
  (Many of our colleagues came to our aid and helped tremendously!)
  
  In the end, the Task Force preferred specific standards and mechanisms to 
  institutionalized bidding.  They then challenged environmentalists, 
  utilities and developers to propose a negotiated standard to be included 
  in their final recommendations.  The proposed standards are the result of 
  those negotiations.
  
  
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