1. Generation Performance Standards Paul J. Hibbard Lexecon Inc. Cambridge, MA USA

2. Generation Performance Standard (GPS) What Is GPS?What Is GPS? Why Use GPS?Why Use GPS? Examples of GPS Programs From the USExamples of GPS Programs From the US GPS and ChinaGPS and China

3. Generation Performance Standard (GPS) Output-Based (lb/MWh) Emission StandardsOutput-Based (lb/MWh) Emission Standards –Unit- or Facility-Based Maximum Emission Rates –Allocations of Emission Allowances Examples (from Massachusetts, USA)Examples (from Massachusetts, USA) –Allocation of NO x allowances under Cap & Trade program –Power plant standards for CO 2, NO x, SO 2, and Mercury (Maximum allowable emission rates by plant)

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

5. Purpose of GPS –Encourage and reward improvements in generating unit efficiency –Provide incentive to improve overall efficiency of electric system –Promote fair competition in deregulated electricity markets

6. Benefits of GPS Improved Efficiency Means Fewer Environmental ImpactsImproved Efficiency Means Fewer Environmental Impacts (Particularly Carbon and Other Unregulated Pollutants) Improved Efficiency, Fair Competition Mean Cheaper ElectricityImproved Efficiency, Fair Competition Mean Cheaper Electricity

7. Cap & Trade Allocation Start With Emission Budget, or CapStart With Emission Budget, or Cap Allocate Allowances Under CapAllocate Allowances Under Cap (To, Within States) Options for Allowance AllocationOptions for Allowance Allocation Historical emissionsHistorical emissions Fuel inputFuel input Electrical outputElectrical output AuctionAuction GPS: Allocate Based on Electrical OutputGPS: Allocate Based on Electrical Output Winners: Most efficient power plantsWinners: Most efficient power plants Losers: Least efficient power plantsLosers: Least efficient power plants

8. Hypothetical Output-Based Allocation -Economic impacts on two 100 MW plants Older Coal Plant New Gas Plant

9. MA Plant-Based Standards Output-Based Rates - SO2, NOx, CO2 (Mercury Rates in Development)Output-Based Rates - SO2, NOx, CO2 (Mercury Rates in Development) Can Not Exceed on Plant-Wide BasisCan Not Exceed on Plant-Wide Basis Compliance FlexibilitiesCompliance Flexibilities Lb/MWh20062009 CO 2 1800 NO x 1.5 SO 2 63

10. 1996 Global Rank Emissions 1.United States1,446,777MtC 2.China917,997 3.Former Soviet Union646,000 2020 Global Rank Emissions 1.China2,090,000 2.United States1,980,000 3.Former Soviet Union875,000 U.S. and China: Carbon Leaders Source: EIA

11. 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 Power Generation vs. Environment

12. Why introduce GPS to China Coal Generation – Greatest Contributor to Air Pollution, Growing RapidlyCoal Generation – Greatest Contributor to Air Pollution, Growing Rapidly China is Taking Steps to Privatize the IndustryChina is Taking Steps to Privatize the Industry Applying GPS Concepts in This Context Will:Applying GPS Concepts in This Context Will: Encourage Greater Generation EfficiencyEncourage Greater Generation Efficiency Promote Competitive EquityPromote Competitive Equity Reduce Pollution and PricesReduce Pollution and Prices

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

14. Conclusions GPS Emerging as Preferred Form for Control of Power Plant Emissions in USGPS Emerging as Preferred Form for Control of Power Plant Emissions in US GPS Encourages Power Plant and Power Sector Efficiency, Reducing Pollution (esp. Carbon)GPS Encourages Power Plant and Power Sector Efficiency, Reducing Pollution (esp. Carbon) GPS Harmonizes Emission Control with Competition in Electric IndustryGPS Harmonizes Emission Control with Competition in Electric Industry China Currently Exploring Cap & Trade, Plant- Based Standards, and Industry PrivatizationChina Currently Exploring Cap & Trade, Plant- Based Standards, and Industry Privatization GPS a Good Fit for These EffortsGPS a Good Fit for These Efforts