Flexibility and Stringency in Greenhouse Gas Regulations

The Clean Air Act provides the regulatory framework for climate policy in the United States. Emissions rate performance standards are the metric identified for regulation of the electricity sector, the most important source of emissions. Rates for existing sources could be averaged to achieve flexibility in compliance, although the stringency of policies is ambiguous when flexibility is introduced. For example, a specific emissions rate improvement averaged over a larger set of generators may reduce the actual emissions change. We evaluate three policy designs according to emissions rate, emissions and marginal cost and show how a marginal abatement cost criterion can be applied within a technology-based regulation. This approach can quadruple the emissions reductions that are achieved, with net social benefits exceeding $25 billion in 2020, and with a 1.3 % electricity price increase. Over half of the benefits stem from improvements in conventional air quality.