What the CPP means for AZ

Now that we have a basis for natural gas, next comes the big question of what the impact of the EPA’s Clean Power Plan (CPP) will have on the natural gas industry in Arizona. The CPP seeks to reduce nationwide carbon dioxide (CO2) emissions by 30% by 2030 and has state-specific reduction targets for carbon dioxide reductions. For Arizona, the reduction target is 52% by 2030, which is the second highest target in the nation. 

For more information on the Clean Power Plan, visit here. 

To achieve this reduction, EPA offers states four building blocks to choose from. These building blocks are meant to offer flexibility. The four building blocks are: (1) improve the efficiency of fossil-fueled power plants; (2) use of lower-emitting generation sources such as natural gas, or fuel-switching to natural gas, and use of nuclear power; (3) demand-side efficiency; and (4) renewable electric generation.

For Arizona, the building block that offers the greatest reduction of CO2 is from building block 2, switching from coal-fired power plants to natural gas-fired power plants, as stated from Henry Darwin, director of the Arizona Department of Environmental Quality. 

What does that mean for the state of Arizona? Well, the trend of natural gas without the proposed CPP was already projected in increase nationwide. The CPP acts as another driver to increase the demand for natural gas. The increase in demand will eventually lead to higher natural gas prices for consumers. Since there will be a decrease in demand for coal, production in coal will lower resulting in a loss of jobs in the coal industry. While it looks like natural gas producers will be in a winning situation with the Clean Power Plan, the environmental impacts associated with hydraulic fracking should be assessed. 

If Arizona implements building block 2, is the shift from coal to natural gas feasible? For Arizona, this is a complex question. Increasing demand for natural gas production will create many issues which will impact:

• natural gas infrastructure
• transmission
• electric reliability

Generation from both AZ's coal and natural gas plants is not interchangeable given the distance between existing plants resulting in transmission and reliability concerns.

Additionally, there are issues for the state of Arizona and its role as an electricity supplier. According to the EIA, Arizona generates more electricity than it consumes. It is an exporter of electricity supplying electricity for El Paso, Texas and Los Angeles, California. If Arizona switches to using more natural gas, Arizona may no longer be an exporter of electricity as Arizona gets about ⅖ of its electricity from coal.

Most of the electricity that AZ generates is from coal-fired power plants.

My next blog posts will go into depth on the issues raised from the implementation of EPA's CPP for Arizona including concerns on natural gas infrastructure, transmission, and reliability.