One of the biggest electric grid operators in the country, PJM Interconnection, says its member states would have a harder time complying with U.S. EPA’s proposal to cut greenhouse gas emissions from the power sector under the agency’s clarified guidance for implementing state carbon budgets.

EPA’s draft rule from June 2 said states could take the pounds of carbon dioxide per megawatt-hour they could emit and translate it into an annual carbon emissions cap — a specific number of tons of CO2 per year. After many states and stakeholders asked for more information about making that conversion, EPA earlier this month issued a memo with examples of how to do the math to develop that “mass-based” standard.

How states interpret the new methodology could weigh heavily on whether they decide to convert to a mass-based standard and attempt a cap-and-trade system.

Under PJM’s initial interpretation of the rule, it expected the region would have to reduce carbon emissions from 442 million to 415 million short tons of carbon dioxide per year. Using the clarified method, PJM expects its regional cap would be about 358 million short tons of carbon dioxide by 2029.

“Higher-intensity states got hit pretty hard with the change,” PJM President and CEO Terry Boston said last week.

PJM conducted the analysis for the Organization of PJM States. PJM economists modeled 15 different compliance scenarios — considering different levels of new generation, energy efficiency, renewable energy, potential coal and nuclear retirements, and possible natural gas prices. They then compared the costs of those scenarios in PJM’s original interpretation of the rule with the costs based on the Nov. 6 guidance from EPA.

Multistate approach may be cheaper

Jennifer Macedonia, a senior adviser who tracks the issue for the Bipartisan Policy Center, said of all the stakeholders analyzing a mass-based approach, PJM had one of the least stringent interpretations.

“Rather than necessarily a difference in EPA’s guidance, the divergence reflects the difference in PJM’s interpretation of the earlier guidance versus EPA’s,” Macedonia said.

According to PJM, the new calculation method would make electricity more expensive than originally expected in the PJM region, which covers Pennsylvania, West Virginia and Ohio, plus 10 other states and the District of Columbia. Regardless, PJM found electricity production costs would still be lower under the mass-based approach.

PJM’s analysis also shows states could save money by working together as a region to implement a plan. A multistate approach would lead to lower compliance costs, fewer units at risk of retirement and lower prices for CO2, which would mean lower electricity prices across the PJM footprint, chief economist Paul Sotkiewicz told consumer advocates at a conference in San Francisco this weekend.

In any scenario the region would get a running start after adding in the power plants that will retire since the 2012 base-line year. Those retirements alone account for a decrease of more than 11 percent in PJM’s emissions, according to the report. But the figures also don’t consider new natural gas generation since 2012.

Still, the outcomes are endless and depend on a multitude of unpredictable factors, including how much states can ramp up energy efficiency and renewable energy and how much natural gas costs in the coming years.

“Under some assumptions, this looks easy,” Sotkiewicz said. “Under other assumptions, it looks very difficult and expensive.”

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