Severe heat has gripped the East Coast, putting pressure on four of the largest power grids in the country during the Fourth of July holiday. This situation follows a recent federal court ruling that backed the Biden administration’s EPA regulations, which might complicate the operation of essential coal and natural gas plants that help ensure consistent power supply.
The North American Electric Reliability Council (NERC) is already cautioning about tight margins, indicating that half of the nation’s power grids could potentially face issues. They’ve pointed out that we could be on the verge of rolling blackouts by 2030.
It seems we are heading towards an increasingly unreliable power grid. For a long time, policymakers have been fixated on the external costs associated with greenhouse gas emissions from power facilities, while neglecting the economic ramifications that come with heightened outage risks. The current regulations have largely encouraged the closure of coal-fired plants, placed limits on new natural gas facilities, and led to an excessive reliance on renewable sources like wind and solar along with battery storage.
This trajectory feels unsustainable and necessitates a fresh evaluation of our regulatory approach. If we’re going to assess the costs of greenhouse gas emissions, it would only be reasonable to also consider the financial impacts of power outages and declining reliability.
Federal and state regulators often calculate the external costs related to greenhouse gas emissions in the regulations they propose and the energy strategies they approve. The “social cost of carbon” serves as a predictive estimate concerning economic damage associated with increased emissions from both power plants and vehicles.
Still, there’s a gap. Regulators haven’t embraced similar metrics to evaluate the drawbacks tied to power outages that may stem from their own regulations or energy plans, creating a skewed cost-effectiveness picture.
To address this imbalance, Always On Energy Research has launched a new report titled “Introducing the social costs of power outages: A practical guide for policymakers.” It offers a straightforward framework to assess the validity of proposed regulations. Furthermore, the report collaborates with the Lawrence Berkeley National Laboratory to gauge the economic fallout that could arise from power outages prompted by policy changes.
The U.S. EPA, particularly active under the Biden administration, has imposed stringent regulations on greenhouse gas emissions from existing coal and new natural gas plants. However, warnings from grid operators about possible “serious power shortages” seem to have been overlooked.
Remarkably, the EPA did not consider the reliability implications of these new rules, which were finalized in April 2024. They simply assumed these rules would sustain reliability standards. Evaluations conducted by the North Dakota Transmission Authority revealed this assumption is not well-founded.
The impact of the regulation on the Southwest Power Pool—a regional grid catering to around 20 million residents from North Dakota to New Mexico—was scrutinized. The assessment indicated that the grid model proposed by the EPA could lead to more than a dozen outages in that area due to the insufficient performance of renewable resources and a lack of adequate coal, natural gas, and nuclear capacity.
The Biden EPA’s Regulatory Impact Analysis claimed a net benefit of $370 billion by 2047 from the reduction of greenhouse gas emissions. However, our findings, which applied the LBNL Outage Cost Calculator to estimate the social costs of outages, suggest that outages in the Southwest Power Pool could result in up to $407 billion in costs by 2047, surpassing the EPA’s anticipated benefit for the entire country while only covering about 6% of the U.S. population.
The U.S. cannot afford to focus solely on emission-related externalities while overlooking the substantial costs that power outages may bring. Integrating reliability modeling and calculating the social costs associated with outages into regulatory processes is crucial for balancing reliability with efforts to reduce emissions.
