Technical Support Document

for the Proposed

Ozone NAAQS Regional Impact Analysis

Energy Efficiency Approach for Reducing NOx Emissions from EGU Sources

(Description and Analysis)

EPA Docket number:  EPA-HQ-OAR-2007-0225

July 2007

U.S. Environmental Protection Agency

Office of Air and Radiation

Using Energy Efficiency to Reduce Ozone Formation

Energy efficiency is already a key component in the nation’s energy
resource mix.  Experience shows that energy efficiency programs can
improve the environment, lower customer energy bills, cost less than and
help defer new energy infrastructure, and spur local economic
development.  As a result, there is significant and growing interest in
energy efficiency and in tapping unrealized cost-effective potential. 
Given this potential, the Environmental Protection Agency (EPA) has been
studying how energy efficiency could affect power sector emissions,
specifically the relationship between electricity demand and air
quality.  The agency understands that in areas where air pollutants from
the electric power sector are regulated by an emissions cap and trade
program (e.g., Acid Rain Program, NOx SIP Call, Clean Air Interstate
Rule), clean energy investments will not reduce aggregate emissions of
the covered pollutants unless allowances are associated with the
investment and retired.  However, even without net emissions changes,
clean energy investments could contribute to important changes in the
temporal or spatial profile of the capped emissions, such as shifting
capped emissions away from high ozone days or from nonattainment areas. 

History

The Clean Air Act (CAA) instructs EPA to set National Ambient Air
Quality Standards (NAAQS) for pollutants that are considered harmful to
public health and the environment, such as ozone.  EPA requires state
air pollution control agencies that do not meet NAAQS levels within
their jurisdiction to develop policies that will lead to attainment. 
The Clean Air Act requires periodic review of the science upon which the
standards are based and the standards themselves.

To assist in bringing more areas into ozone NAAQS attainment status, the
EPA developed regional strategies such as the NOx SIP Call and Clean Air
Interstate Rule (CAIR) designed to reduce air pollution that moves
across state boundaries. To date, energy efficiency has played a limited
role as an explicit reduction strategy in the state and local air
quality planning context.  Several states have included allowance
set-asides for energy efficiency in NOx cap and trade programs being
implemented under the NOx SIP Call and CAIR.  Also, EPA has issued
guidance under its "Incorporating Emerging and Voluntary measures in a
State Implementation Plan" that allows a state some flexibility to
include energy efficiency measures in their air quality planning
process.

Existing state and regional strategies have resulted in substantial
reductions of ozone, but there are still areas of residual
nonattainment.  To address ozone in these remaining nonattainment areas,
the states and EPA have begun looking at other strategies, such as
direct controls, sub-regional caps, and enhanced energy efficiency, most
notably as part of the High Electricity Demand Day (HEDD) initiative
established by the Ozone Transport Commission (OTC) in 2006. One
objective behind these approaches was to reduce emissions from
uncontrolled peaking units that are not typically regulated.  Common
types of uncontrolled peaking units include gas and/or diesel-fired
turbines.  Often, the peaking units run on high electric demand days
(e.g., very hot summer days when there is high demand for air
conditioning) to meet additional energy demands that base load and
intermediate generation units cannot meet.  However, because they are
not typically controlled units, they substantially increase NOx
emissions proportionate to the energy they provide; this spike in
emissions can contribute to high levels of ozone and exceedances of the
ozone standard.  Increasing energy efficiency reduces energy demand,
which would lessen the demand for high emitting peaking units to operate
on high demand days (particularly if the energy efficiency measures are
designed to target peak end uses such as residential or commercial air
conditioning or commercial lighting).  As part of the OTC HEDD
Initiative, the OTC and EPA conducted analyses to project the effect of
increased energy efficiency on power sector emissions that could, in
turn, help improve air quality on high electricity demand days. 

OTC Modeling

As part of the OTC HEDD Initiative, EPA worked with OTC to determine if
increased energy efficiency measures could reduce NOx emissions on High
Electric Demand Days.  EPA used ICF’s Technology Retrofit and Updating
Model (TRUM) model that was developed to supplement their Integrated
Planning Model (IPM).  TRUM uses a linear programming formulation to
select investment options and to dispatch generation and load management
resources to meet overall electricity demand and energy requirements, or
the load duration curve.  

Using the CAIR “base case” scenarios, the exercise looked at twelve
high electric demand days, based on projected 2010 loads.  Three energy
efficiency scenarios were devised, with measures projected to be
installed in 2008.   The low scenario assumed a one percent cumulative
reduction in load, the medium scenario assumed a 1.5 percent reduction,
and the high scenario assumed a two percent reduction.  

The results were encouraging.  In 2010, for all electric generating
units (including capped units and backup generation) NOx emissions on
high electricity demand days were reduced by 3.25 percent from energy
efficiency in the medium scenario.  Based in part on these results, and
the potential for related air quality benefits on high electricity
demand days, the OTC states included energy efficiency as one of the
potential options for states to pursue under their “Memorandum of
Understanding Among the States of the Ozone Transport Commission
Concerning the Incorporation of High Electrical Demand Day Emission
Reduction Strategies into Ozone Attainment State Implementation
Planning” (March, 2007) and some states are examining how to include
energy efficiency in their upcoming SIPs.

EPA Modeling Using IPM

EPA initiated a detailed analysis to examine how energy efficiency
strategies similar to those examined for the OTC HEDD Initiative could
possibly contribute to air quality improvements on a broader, national
scale under the proposed Ozone NAAQS.  EPA used the IPM model to project
the impacts of enhanced energy efficiency, and the corresponding
reduction in electricity demand, on power sector emissions in 2020.  The
intent is to incorporate the results, and results of additional similar
analysis, into future air quality modeling exercises.  

Using IPM, EPA modeled a one percent annual decrease in energy and peak
demand projections, starting in 2005.  The one percent decrease is
roughly equivalent to cutting demand growth in half by 2025.  This is
supported by a number of state and regional energy efficiency potential
studies that have found adoption of economically feasible and
technically achievable energy efficiency could yield a 24% savings in
total electricity demand nationwide by 2025, which is equivalent to a
50% or greater reduction in electricity growth.  Many states are already
setting and making progress on energy efficiency goals that are more
aggressive than halving load growth.  For example, energy efficiency
efforts in California are projected to meet 55 to 59 percent of
incremental electric energy needs between 2004 and 2013, New Jersey is
aiming for zero load growth beyond 2012, and New York recently set a
target for zero load growth by 2015.

According to the IPM results, summarized in the table below, the reduced
growth in demand does not lead to overall changes in nationwide annual
emissions, as expected in the presence of an emissions cap, but it does
change the temporal distribution of those emissions.  Because the
electricity demand is scaled downwards in this scenario, demand on HEDDs
does not reach the same peak it would under the base case.  The reduced
demand results in fewer tons of NOx emissions on these HEDD.  

At the annual level, the model showed little or no change in NOx
emissions, as sources continue to emit at the CAIR cap levels.  However,
the reduced demand results in fewer controls being installed on existing
units, less new coal-fired units being built, less generation, and more
coal and oil and gas retirements (older units no longer needed to meet
energy demand).  These factors result in less overall cost to meet the
CAIR and Acid Rain Program caps, as indicated in the table below. 
However, this analysis did not include the costs to install energy
efficiency measures.  EPA estimates, based on analysis of comprehensive
energy efficiency programs operating in several states, that the
levelized cost for these measures, over the useful lifetime of the
measures installed, exclusive of participant costs, would average three
cents per kWh. Using this figure to approximate total costs for the
energy efficiency scenario modeled in this analysis, the total cost for
reducing demand by 740 GWh (as done in the model) would be $22 million
dollars.  This means the net cost reduction under the energy efficiency
scenario would be approximately $20 million (13% of baseline cost).

EPA IPM Run Results	 

% Change from Base Case,  under Energy Efficiency scenario (2020)	 

NATIONWIDE EMISSIONS 	 

NOx 	-2%

CO2	-17%

RETROFITS (Cumulative GWs)	 

FGD	-22%

SCR	-31%

SNCR	-71%

ACI	-23%

TOTAL CONTROLS  (Cumulative GWs) 	 

FGD	-24%

SCR	-32%

SNCR	-16%

GENERATION MIX	 

Coal	-20%

Hydro	0%

Nuclear	-5%

Oil/Natural Gas	-16%

Other	0%

Renewables	-8%

Grand Total	-15%

COAL USE  - POWER SECTOR	 

Bituminous	-21%

Subbituminous	-13%

Lignite	-4%

Total	-18%

NATURAL GAS PRICES	 

Henry Hub Natural Gas Prices	-9%

Delivered Natural Gas Prices	-9%

CAPACITY	 

Coal	-19%

Hydro	0%

Nuclear	-5%

Oil/Natural Gas	-17%

Other	0%

Renewables	-3%

Grand Total	-14%

RETIREMENTS / REPOWERINGS  	 

Coal Retirements (2 GW in base case to 12 GW in EE scenario)	607%

Oil/Natural Gas Retirements	65%

NEW CAPACITY 	 

Grand Total	-96%

TOTAL COSTS 	 

w/ combustion controls (cost of energy efficiency not included*)	-27%

EMISSIONS AND ALLOWANCE PRICES	 

Annual NOx Emissions at Affected Plants	0%

NOx allowance price	4%

Ozone Season NOx Emissions at Affected Plants	1%

WHOLESALE ELECTRICITY PRICES	 

National	-19%

* EPA estimates, based on analysis of comprehensive energy efficiency
programs operating in several states that the levelized cost for these
measures, exclusive of participant costs, would average three cents per
kWh. See footnote 5, below.

Given the high number of ozone nonattainment areas in the OTC region,
EPA looked in greater detail at changes in this region.  Within the OTC,
the model showed a decrease in annual NOx emissions of roughly 4,400
tons (3%), and a decrease in ozone season NOx emissions of 450 tons
(1%).  The time series below, for 2020, displays the OTC daily NOx
change in emissions from the base case scenario to the energy efficiency
scenario.  

Notably, when examining daily emissions in the OTC, emissions are
reduced overall.  During every day outside of the ozone season the
average daily emission reductions are 19 tons per day, and range from 10
to 29 tons per day (2.5 to 7.1 percent).  Daily emissions reductions
during the ozone season average 3 tons.  Moreover, many of the peaking
days for NOx emissions, the HEDD days, show a reduction in emissions
under the energy efficiency scenario.  The 16 days in the ozone season
with the highest base case generation show a decrease in NOx emissions. 
Also, when examining hourly generation in the OTC, the 120 highest
emitting hours of the year (almost all of which are during the ozone
season) all show a reduction in emissions under the energy efficiency
scenario.  On the whole, the significant reductions in emissions
occurring on HEDD days, and during the ozone season in general, would
potentially help some of these counties achieve attainment status under
the proposed new ozone standard.   

Proven Energy Efficiency Solutions

Increased investment in energy efficiency can help reduce costs,
stabilize energy prices, reduce greenhouse gases, and enhance electric
and natural gas system reliability.  Despite these benefits and the
success of energy efficiency programs in many regions of the country,
energy efficiency remains largely under-utilized in the nation’s
energy portfolio due to a number of market barriers.  Therefore, there
are potential growth opportunities for enhanced energy efficiency that
would result in substantial air quality and health benefits.

Within the broad area of energy efficiency, there are a number of
technologies and approaches that can specifically address peak ozone
season demand and would, therefore, be appropriate places to focus
investment to realize the co-benefits of potential air quality
improvement. Proven strategies include specific technologies and end
uses as well as whole-building approaches: new and replacement
residential cooling systems; residential cooling systems maintenance and
repair; new and existing whole-house efficiency improvements; new and
replacement commercial and industrial HVAC equipment; commercial and
industrial lighting retrofit acceleration; and commercial and industrial
lighting design enhancement; improved new commercial building design and
commercial building retro-commissioning and maintenance. The ENERGY STAR
program, administered by the US EPA and US Department of Energy, offers
technical assistance and guidance on how to cost-effectively employ
these technologies and approaches across the country.

Sources:

U.S. Department of Energy and U.S. Environmental Protection Agency. 
National Action Plan for Energy Efficiency.  July 2006.

U.S. Environmental Protection Agency.  Clean Energy-Environment Guide to
Action: Policies, Best Practices, and Action Steps for States.  April
2006.

U.S. Environmental Protection Agency.  State Load Growth Reduction /
Energy Efficiency Goals, DRAFT, April 25, 2007

U.S. Environmental Protection Agency.  State Clean Energy / Environment
Technical Forum, call #24, Using Multiple Benefits to Advance Clean
Energy, June 24, 2007.

S. Nadel, F. Gordon, Neme, C.  November 2000.  Using Targeted Energy
Efficiency Programs to Reduce Peak Electrical Demand and Address
Electric System Reliability Problems.  American Council for an
Energy-Efficient Economy, report number U008.

 The full analysis looked at a package of options including energy
efficiency as well as renewable energy, combined heat and power  and
demand response measures, for 2010 and 2015.  Results for 2015 were not
disaggregated to show only energy efficiency impacts.

 For more information on the OTC HEDD initiative, and a copy of the MOU,
please see: http://www.otcair.org/document.asp?fview=meeting#.

 Clean Energy-Environment Guide to Action, US EPA, April 2006, page
ES-3. http://www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm

 State Load Growth Reduction / Energy Efficiency Goals, DRAFT, US EPA,
April 25, 2007.

 Clean Energy-Environment Guide to Action, US EPA, April 2006, page
ES-2. http://www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm

 Nadel, et al.  p. iii-iv.  

 See www.energystar.gov

