The U.S. Environmental Protection Agency (EPA) passed the Mercury and Air Toxics Standards in December 2011 to regulate mercury and other toxic air pollutants from coal- and oil-fired power plants. The regulation is expected to be one of the most costly in EPA history, with many plants forced to install new pollution controls or shut down.
Numerous organizations have run economic models to predict how the electricity sector will respond to MATS. The models try to answer questions such as how much coal capacity will retire and how much natural gas generation will ramp up. However, these studies have come to different conclusions about the impact of MATS.
A new RFF Discussion Paper seeks to break down the differences in the various models and isolate what leads some models to predict large impacts on the electricity sector and others to predict minimal changes. This is accomplished by running policy scenarios using a common modeling platform, RFF’s Haiku electricity sector model. The exercise highlights the power of modeling assumptions.
Overall, the RFF paper finds that models that include requirements and flexibilities similar to those in the final MATS rule predict fewer coal retirements than models that strayed farther from the rule’s requirements. For example, under MATS plants can meet an emission standard for hydrochloric acid (HCl) or, as an alternative, sulfur dioxide (SO2). Models that required plants to meet the SO2 standard, with no option to select the HCl standard, tended to find more coal retirements and more SO2 emissions reductions than models that included both compliance options.
Another factor driving the differences was the number of rules modeled at the same time. When MATS was modeled alongside other proposed EPA regulations, such as a future CO2 policy, the impacts on the electricity sector tended to be more severe. This distinction is important since some studies modeled numerous EPA policies at once.
MATS will certainly impact the electricity sector. New pollution controls are likely to come online, for example, and emissions, particularly those of mercury, are anticipated to come down. However, this new modeling exercise shows that MATS is unlikely to lead to the large-scale retirements in the coal fleet that some observers have feared.