The issue of climate change and its potential economic consequences for energy investments and the economy as a whole – though quite uncertain due to lack of policy resolution – cannot be ignored in energy asset valuation, utility resource planning, load forecasting, fuel development, and long-term risk management. A patchwork of pricing and control policies is emerging, including regional carbon pricing initiatives, externality penalties imputed for the cost of greenhouse gas (GHG) pollution, renewable resource standards and incentives, state-specific GHG reduction goals, and federal rules for operational controls or carbon dioxide (CO2) emissions limits.

As an example, if the U.S. Environmental Protection Agency's (EPA) Clean Power Plan (CPP) is upheld, or something akin to it allowing some degree of regional trading and choice in methods of compliance, it would affect the entire power industry as well as gas and coal producers and pipeline companies. States would need to choose among several compliance pathways over the next few years, and optimal choices would depend on what other states would do and states’ priorities to achieve various potential objectives such as cost minimization, wholesale price impact, retaining in-state coal and nuclear units, expanding in-state renewables, among others.

The Brattle team has a detailed understanding of the GHG exposure in terms of costs, emissions, and mitigation opportunities in each state, which allows us to evaluate policies and their impacts on value and supply plans for generation owners. We have several types of analytical tools to address key questions such as impacts on specific plant values, wholesale prices, revenue streams for low/zero-CO2 measures and investments, the need for additional grid infrastructure to support clean resources, and operational/investment efficiencies under alternative methods to allocate emissions allowances.