1. Generation Performance Standards Paul Hibbard, Lexecon, Inc.

2. INPUT(mmBtu) OUTPUT(MWh) EMISSIONS (Lbs) Generation Performance Standard (GPS)

3. Output-Based (lb/MWh) Emission StandardsOutput-Based (lb/MWh) Emission Standards –Unit- or Facility-Based Maximum Emission Rates –Allocations of Emission Allowances To statesTo states To sources within a stateTo sources within a state Examples in MassachusettsExamples in Massachusetts –310 C.M.R. 7.28: Allocation of NOx allowances –310 C.M.R. 7.29: Power plant standards for CO2, NOx, SO2, and Hg

4. Purpose of GPS –Encourage and reward improvements in generating unit efficiency –Provide incentive to improve overall efficiency of electric system –Promote equity among power plants in a competitive context

5. GPS In China Pilot programs in Zhejiang, Shandong, Shanxi (and maybe Jiangsu) ProvincesPilot programs in Zhejiang, Shandong, Shanxi (and maybe Jiangsu) Provinces –In context of emission trading –Allocation of provincial cap to municipalities, enterprises –Programs just getting underway Proposed National StandardsProposed National Standards –Issued for comment by SEPA 12/24/2001 –Rate-based standards for power plants –SO 2, NO x, “Smoke and Dust”

6. Conclusions China is moving to restructure electric industryChina is moving to restructure electric industry –Privatization –Emission control programs Efficiency of electric sector is criticalEfficiency of electric sector is critical GPS is an effective emission control strategy for a competitive electricity sectorGPS is an effective emission control strategy for a competitive electricity sector GPS can promote emission reductions in a way that promotes more efficient (i.e., lower-carbon) electricity generationGPS can promote emission reductions in a way that promotes more efficient (i.e., lower-carbon) electricity generation

7. China’s TEC Program TEC – total emission controlTEC – total emission control 1 st established in 9 th Five Year Plan1 st established in 9 th Five Year Plan Caps SO2 emissions at 1995 levelsCaps SO2 emissions at 1995 levels Applies nationally with major focus on two zonesApplies nationally with major focus on two zones New Cap being set for 10 th Five Year PlanNew Cap being set for 10 th Five Year Plan

8. 310 CMR 7.29: Major Provisions StandardsStandards –Output-Based Rates - SO2, NOx, CO2 –Cap for CO2 –Data collection for future Mercury proposal Compliance schedulesCompliance schedules –Later dates than draft –Dates depend on compliance method

9. 310 CMR 7.29: Major Provisions Standards - SO2 and NOxStandards - SO2 and NOx –2 phase SO2 requirement 6.0 lb/MWh at 1st compliance date6.0 lb/MWh at 1st compliance date 3.0 lb/MWh at 2nd date3.0 lb/MWh at 2nd date –1.5 lb/MWh for NOx at first compliance date –12 month rolling average and monthly average at 2nd date

10. 310 CMR 7.29: Major Provisions Standards - CO2Standards - CO2 –facility cap based on three years of data at first compliance date –facility rate of 1800 lb/MWh at second compliance date –compliance measured as a 12 month rolling average Compliance DatesCompliance Dates –standard path - 10/04 and 10/06 –repowering path - 10/06 and 10/08

11. 310 CMR 7.29: Major Provisions Compliance FlexibilityCompliance Flexibility –Two Compliance Options - standard and repowering –No averaging across facilities –Early reduction credit for SO2 –Use of SO2 Allowances –Off-site Reductions for CO2 Monitoring/EnforcementMonitoring/Enforcement

12. Conclusions China has serious health-related air quality problemsChina has serious health-related air quality problems China’s energy use and electricity demand is growing rapidlyChina’s energy use and electricity demand is growing rapidly China could soon overtake the US as #1 CO 2 emitterChina could soon overtake the US as #1 CO 2 emitter Electricity sector is almost entirely coal-based; economic development needs mean trend likely to continueElectricity sector is almost entirely coal-based; economic development needs mean trend likely to continue –Coal is an indigenous resource –Coal is much less expensive than alternatives

13. Solutions: Electric Utilities Comprehensive plan for efficiency and renewables submitted to State CouncilComprehensive plan for efficiency and renewables submitted to State Council Make end-use efficiency profitable to utilities (pilot in Jiangsu Province)Make end-use efficiency profitable to utilities (pilot in Jiangsu Province) Generation Performance StandardsGeneration Performance Standards –Pilot GPS programs in Zhejiang, Shandong, Shanxi Provinces –Proposed National Standards Wires Charges (Public Benefits Funds for efficiency and renewables programs)Wires Charges (Public Benefits Funds for efficiency and renewables programs)

14. Why introduce GPS to China 19991999 –Coal-fired capacity - 22 + GW –Generation - 1 + million GWh –Coal consumption: almost 500 million tons (45% of China total) –SO2 emissions: 7 million tons (44% of industrial emissions) Forecast – 2010Forecast – 2010 –370 GW of capacity –2/3 of national SO2 emissions Data of Power Generation vs. Environment

15. Why introduce GPS to China The utility sector is the major source of air pollution Coal generation is the greatest contributor to air pollution in China, and its use is growing rapidlyCoal generation is the greatest contributor to air pollution in China, and its use is growing rapidly Desulphurization is yet to be incorporated into power tariffDesulphurization is yet to be incorporated into power tariff An effective mechanism to address emissions of SO2 from coal-fired power plants is needed; ideally one that will:An effective mechanism to address emissions of SO2 from coal-fired power plants is needed; ideally one that will: –Encourage clean/renewable energies –Encourage efficient electricity generation