September 26, 2016
Energy modeling indicates cleaner energy futures likely benefit Michigan
Scenarios with increased energy waste reduction and trading for carbon rule compliance are projected to lower costs over a business-as-usual scenario
LANSING, Mich. – In results released today, two different modeling programs indicate that Michigan’s path to compliance with the federal clean air carbon rule, should it be enacted, would be at a relatively low cost. The lowest-cost scenarios for compliance were projected in both models to reduce costs compared to a future without the rule. The highest-cost scenarios from either modeling effort occurred when the amount of energy waste reduction was constrained by spending limits in current law.
The findings are the result of two compliance modeling efforts that were conducted for the state, with participation and guidance from staff of the Michigan Agency for Energy (MAE), the Michigan Public Service Commission (MPSC), the Michigan Department of Environmental Quality (MDEQ) and the Michigan Economic Development Corporation (MEDC) to help the state evaluate potential strategies for compliance with the federal rule.
“Michigan’s pursuit of a ‘no regrets’ energy policy, and the transformation of our electric sector that has already begun, means we are more adaptable than most states in our region to a variety of energy futures,” said MAE Executive Director Valerie Brader. “The state’s embrace of programs supporting energy waste reduction, renewable energy, and its reduction of coal-fired electric generators appears to have positioned it well, even though the federal rule did not give the state credit for a large portion of its renewable energy resources.”
“Putting these two modeling efforts together provide Michigan useful information regarding the choices we will have to make over the next two decades whether or not the federal carbon rule for clean air is put into place,” said Sally Talberg, chairman of the Michigan Public Service Commission. “In both efforts, we saw that assumptions about natural gas prices and the level of energy waste reduction could have significant impacts on long-term costs.”
The modeling efforts focused on a mass-based compliance, since initial baseline runs of both models indicated it was the preferable strategy for the state. Earlier round results released by the state projected that Michigan would likely be in compliance for the coming decade in a baseline (business-as-usual) scenario. The modeling indicated that under most scenarios, Michigan’s compliance position would mean the state would benefit from multi-state trading of allowances – in other words, that Michigan’s ease of compliance would likely allow it to earn money on the sale of credits.
One of the modeling efforts was conducted by Resources for the Future at no cost to the state due to a program run by the National Governors Association (NGA) for which Michigan was selected. The other modeling effort was conducted by Synapse Energy Economics, Inc., which was chosen by the state after a competitive bid process.
For the Synapse effort, the state convened a technical team of a wide group of stakeholders to advise the state on model inputs. That input, as well as confidential staff projections on likely closure dates of current plants in a business-as-usual scenario, were used in these model outputs.
The modeling results from the NGA effort, in which a number of scenarios showed increased costs over a baseline, assumed a lower level of energy waste reduction, in which current law constraints on spending on that resource lead to energy waste reduction levels well below 1 percent per year in later years. The Synapse model assumed 1 percent per year energy waste reduction, and no modeled scenario resulted in increased costs over the baseline scenario.
Michigan suspended its carbon rule activities in February, pending resolution of the rule’s legal standing in the courts. When that rule was suspended, modeling costs had been incurred and the state elected to complete those efforts in order to prevent the waste of those resources. The state has taken no position in any of the lawsuits now pending regarding the rule.
For more information about MAE, please visit www.michigan.gov/energy.