Washington (Platts)--4Dec2012/526 pm EST/2226 GMT

An environmental group pushing the Obama administration to impose carbon dioxide standards on existing fossil fuel generation Tuesday offered its own plan it contends provides flexibility and low-cost options by rewarding states for investments in renewable energy and efficiency.

"We are overturning the conventional wisdom that reducing carbon pollution through the Clean Air Act would be ineffective and expensive," said Dan Lashof, who directs the Natural Resources Defense Council's climate and clean air programs.

NRDC's proposal calls for the US Environmental Protection Agency to set state-specific performance standards for existing power plants. The agency would be expected to use national average emissions rate benchmarks and each state's specific generation mix for a certain baseline period to formulate a state's average fossil fuel emission rate standard.

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States would then be required to develop implementation plans to meet these performance standards or propose alternatives, such as participating in regional emission reductions systems. If states fail provide to acceptable compliance plans, EPA would issue federal plans based on these standards.

NRDC said an analysis showed their proposal would reduce carbon emissions from the current fossil fleet by 26% below 2005 levels by 2020 at an annualized cost of $4 billion in 2020. The benefits of reducing carbon pollution were estimated at $25 billion-$60 billion.

The analysis, conducted by ICF International for NRDC, assumed a baseline period of 2008 through 2010 and an emission rate benchmark of 1,500 lbs/MWh for coal and a 1,000 lbs/MWh for oil- and gas-fired units.

Lashof said the modeling indicated that coal-fired power plant retirements stemming from these carbon standards could reach 90,000 MWs. Yet, he said wholesale power prices were expected to go down under these carbon standards largely because incentives for energy efficiency would reduce the number of new power plants built that can drive up prices.

NRDC said it developed the proposal under the Clean Air Act's Section 111(d) provisions for emission guidelines for existing power plants. NRDC attorney David Doniger said the proposal "fits squarely" under that section of the act and that low-emission options, such as energy efficiency and nuclear power which emits zero carbon, could be sources of credit toward compliance.

While Section 111 has been used to limit conventional pollutants, it has not been applied to GHGs emitted from the current fleet of electric generating units. The section calls for standards to be technically achievable at a reasonable cost.

NRDC previewed the proposal with a few utilities before holding a news conference in Washington to unveil it. One of the utilities, Dominion Virginia Power, whose large fuel mix includes coal and zero-carbon-emitting nuclear power, said it wants to study the details more before commenting on the proposal. NexEra Energy, another utility that previewed the proposal, said it continues to support comprehensive legislation from Congress as "the most effective method" to cut carbon.

"Should the EPA move forward with regulating greenhouse gasses under the Clean Air Act, our company believes that the NRDC proposal represents a good starting point for further discussions," NexEra Energy which has built significant renewable resources and advocates for reducing greenhouse gas emissions, said in a statement.

NRDC officials said they were awaiting word on what the White House and EPA thought of the proposal but believed that the administration should welcome the plan as in keeping with the president's goal to address climate change.

NRDC and EPA in December 2010 entered a settlement agreement for the agency to issue GHG standards for power plants this year. The agency has since proposed such standards for future power plants but said it did not plan to issue them for existing fossil generation.

Doniger said the proposal offered by NRDC provided the agency with a "very cost-effective way" to proceed with GHG standards on existing electric generating units. Whether EPA agrees, NRDC will continue to press the agency to move on GHG standards by a date certain, he said.

--Cathy Cash, cathy_cash@platts.com
--Edited by Richard Rubin, richard_rubin@platts.com

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