171 Background

It is well known that the traditional electricity industry is a major source of air pollution (Table 1.10). The combustion of fossil fuels, which accounts for 67% of electricity generation, results in the release of a stream of gases into the atmosphere. These gases include several pollutants that pose direct risks to human health and welfare, including sulfur oxides (SO2), nitrogen oxides (NOx), particulate matter (PM), volatile organic compounds (VOCs), carbon monoxide (CO), and various heavy metals including lead and mercury. In addition, the combination of VOCs and NOx in the presence of heat and sunlight forms ozone. Other gases may pose indirect risks. Carbon dioxide (CO2) may contribute to global warming. Electricity generation accounts for 66, 29, and 35% of the total national emission inventory for SO2, NOx, and CO2 emissions, respectively (Clean Air Network, 1997).

TABLE 1.10

1996 National Estimated Emissions from Fossil Fuel, Steam-Electric Utilities

TABLE 1.10

1996 National Estimated Emissions from Fossil Fuel, Steam-Electric Utilities

CO2

NO,

PM10

SO2

Hg

kiloton

%

kiloton

%

kiloton

%

kiloton

%

kiloton

%

All

2,047,368

35

6034

26

282

9

12,604

66

52

33

Coal

1,851,787

5517

258

12,114

51.6

Oil

56,340

96

5

412

0.2

Gas

136,689

269

1

21

Other

2552

151

18

57

Notes: Kilotons refer to thousands of short tons. "%" refers to percent of all sources of the listed pollutant.

Source: Electric Power Annual, 1996, Energy Information Administration, DOE.

Notes: Kilotons refer to thousands of short tons. "%" refers to percent of all sources of the listed pollutant.

Source: Electric Power Annual, 1996, Energy Information Administration, DOE.

Of the fossil-fired steam generators, coal-fired facilities contribute a disproportionately large share of these airborne contaminants. While coal accounts for about 84% of fossil-fuel fired electricity generated, it accounts for 90% or more of the emission gases (Parker and Blodgett, 1998).

Besides the fuel, the location of a generator can also have important consequences for air pollution impacts (for CO2, source location is immaterial). Location can be important with respect to local ambient conditions and downwind areas due to long-range transport of air pollutants. For example, with prevailing air movement from west to east, nonattainment of the ozone air pollution standard in the Northeast has directed attention to the concentration of Midwest coal-fired generating facilities as possible sources of NOx, a precursor to ozone.

After many decades of operating in a regulated market structure, the electric utility industry is facing significant change, from both new generating and transmission technology and shifting policy perspectives with respect to competition and regulation. The policy shift is prompted by the theory that market forces can and should replace the current regulatory structure that provides natural monopolies for electric utilities. The restructuring effort attempts to reduce and alter the role of government in electric regulation by identifying transactions, industry segments, regions, or specific activities that might benefit from fewer regulations. The overall purpose of restructuring is to promote economic efficiency, which presumably will lead to lower overall rates.

Some argue that this singular focus on economic efficiency could come at the expense of other values that the regulatory system traditionally has balanced against economic efficiency (Northeast States for Coordinated Air Use Management, 1998). The environmental concern with respect to restructuring is that the new economic signals implicit in a competitive market could result in increased emissions of undesirable pollutants (National Resources Defense Council, 1997). It is postulated that lower baseload prices would increase electricity demand and, therefore, increase generation and concomitant emissions. In addition, it has been suggested that the restructured market's revaluation of existing facilities relative to the marginal cost of constructing new capacity (along with lower operating costs) would encourage the rehabilitation and full utilization of older, more polluting generating facilities.

The relationship between restructuring electricity generation and environmental consequences is not simple (Begley, 1997). The final environmental outcome will result from dynamic process-balancing decisions which address (1) future electricity demand, including renovation of existing generating capacity or development/deployment of new emerging generating technologies for new construction or existing load locations (i.e., distributed generation), and (2) decisions which either implement existing environmental regulations or catalyze the promulgation of future environmental regulations. Restructuring would influence each of these trends to varying degrees, encouraging some, such as renovating existing capacity, and challenging others (e.g., existing environmental regulations).

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