On August 3, 2015, the Environmental Protection Agency (EPA) released the final Clean Power Plan, the Obama Administration’s landmark effort to limit carbon dioxide emissions from existing fossil fuel-fired power plants (which are referred to as electric generating units, or EGUs). This rule requires states to adopt plans to collectively reduce 2005 levels of power sector carbon dioxide emissions by 32% by the year 2030. If a state does not comply with this requirement, EPA will issue a plan for that state.
The Clean Power Plan is intensely controversial and we can expect litigation over this rule, which could continue for at least three years. However, it appears that EPA has markedly strengthened the legal foundation of the final rule as compared to the proposed rule.
Changes to the Proposed Rule
EPA’s final Clean Power Plan significantly revised several aspects of the rule in response to the over four million comments it received during the comment period.
Calculation of emissions targets. In the proposed rule, EPA generated an emissions reduction target for each state based on EPA’s definition of the “Best System of Emissions Reduction” (BSER), the standard prescribed by the Clean Air Act. EPA based these targets on the reductions it thought each state could achieve by improving the efficiency of coal EGUs, using existing gas EGUs more intensively, and promoting renewable energy and energy efficiency. The resulting targets varied widely from state to state.
In the final rule, EPA used a somewhat modified procedure to determine the BSER, establishing uniform emissions rates for coal-fired and natural gas-fired EGUs and developing state limits based on the number and type of EGUs in each state. The result, roughly speaking, was to require more reductions from high-emitting states and relatively less reductions from low-emitting states.
EPA will allow states to use any of three forms of emissions standards for their plans: emissions rates for each type of EGU, state mass-based emissions rates, and state rate-based emissions rates.
Timing and interim compliance. In the proposed rule, states were required to submit plans to comply with the emissions standards within 13 months of the date of issuance of the final rule and to begin achieving emissions reductions by 2020.
In response to concerns about this short deadline, the final rule gives states until September 6, 2018 to submit implementation plans and until 2022 to begin achieving emissions reductions. The final rule gives states additional flexibility in meeting the interim reduction targets, allowing states to customize the trajectory of their interim reductions. The final rule also encourages early investment in carbon reduction efforts by establishing a “Clean Energy Incentive Program,” which would subsidize qualifying wind, solar, and energy efficiency projects that are constructed and will begin operation in the next several years.
Improving legal defensibility. EPA’s final rule, like the proposed rule, continues to adopt the controversial argument that EPA can base the stringency of its reductions standards on the reductions that an entire EGU fleet can achieve collectively, rather than on reductions that each individual EGU can achieve by modifying its own operations. Opponents of the proposed plan expressed concern that inclusion of such “outside the fenceline” provisions, which would require the substitution of coal generation with natural gas and renewable energy generation as well as the implementation of demand-side energy efficiency programs, are contrary to the Clean Air Act.
Therefore, in the final rule, EPA narrowed the scope of the Clean Power Plan’s requirements in several ways. Specifically, EPA restricted its BSER analysis to reduction measures that an individual source can achieve either by its own efforts or by contracting with others. EPA also stated its emission requirements in terms of individual unit limits, made clear that only EGUs can be federally regulated under this rule, and removed demand-side energy efficiency programs from the BSER computation. EPA agreed that this element was inconsistent with a fundamental principle of the Clean Air Act, namely that facilities can produce as much of a particular good as they desire as long as they do so cleanly.
The Central Role of State Plans and EPA’s Plan Proposal
Even though EPA analyzed only a restricted set of measures to determine the stringency of the Clean Power Plan, state plans to achieve these reductions can also rely without limit on other measures, such as energy efficiency. The Clean Power Plan allows states to rely on measures that do not affect EGUs at all, such as building efficiency improvements, though such plans must also include backstop measures that target EGUs in case the non-EGU approach does not work.
Also on August 3, EPA proposed regulatory approaches to serve both as an EPA plan for states that failed to timely adopt their own plan, and as a model rule that EPA could approve almost automatically if states adopted it. This proposal will be open for comment for 90 days after it appears in the Federal Register. EPA put forward two market-based approaches in the proposal, one that would limit EGU emissions on an annual basis (“cap and trade”) and one that would limit EGU emissions per MWh. EPA said that it would pick one approach in the final rule and hinted that it favored cap and trade, suggesting that EPA hopes that multi-state trading programs will eventually arise.
The cost and workability of the Clean Power Plan—if it survives—will depend heavily on the implementation choices that states make and the framework that EPA establishes for making them.
