President Obama and the U.S. Environmental Protection Agency (EPA) today announced the issuance of the long-anticipated Federal Clean Power Plan, which regulates emission to the atmosphere of carbon dioxide (CO₂) from existing fossil fuel-fired electric steam generating units and natural gas-fired combined cycle electric generators. EPA has determined that these emissions are a primary component of nationwide greenhouse gas air pollutants, which EPA previously determined endanger public health and welfare through impacts from climate change.

The Clean Power Plan (as reported at www2.epa.gov/cleanpowerplan) relies on authority EPA has determined to be provided in the federal Clean Air Act to identify CO₂ emissions performance rates for existing power plants and to translate those rates into “goals”—expressed as an emissions “budget” or a rate of tons of CO₂ per megawatt hour—for each state. These emissions performance rates and state goals reflect levels achievable by a state’s portfolio of existing power plants based on “building blocks” which take into account the ability of power plants to improve the efficiency through which they convert heat into generated energy; reductions achievable by substituting generation from coal-fired power plants with generation from natural gas-fired units; and opportunities to introduce new zero-emitting energy-generating units (e.g., renewable or nuclear units) into use.

The Clean Power Plan relies on Clean Air Act authorities to call on each state to develop a state-specific plan for meeting the state’s CO2 emissions budget or rate goal. The state plans are required to phase in those budgets in incremental steps between 2022 and 2030, at which point the plans on the whole are to be targeted to achieve a 32 percent reduction in aggregate CO₂ emissions from 2005 annual levels.

The Clean Power Plan calls for states to submit initial plans for implementing these CO₂ emission reductions to EPA for approval by September 6, 2016. A state may be eligible for an extension until 2018 if it submits a request with a plan showing that its plan still will meet EPA requirements. If a state fails to make any submissions by September 6, 2016, makes an inadequate submission, or fails to meet the applicable schedule, EPA itself would be authorized to impose standards in that state. Those federal standards will be based on guidelines for federal implementation plans EPA has proposed today in conjunction with the Clean Power Plan.

EPA’s Clean Power Plan does not require states to impose EPA-specified emission limits on specific power plants, although they may do so. States also may develop plans that include other options to choose how to meet their respective annual CO₂ budgets. Those options can include, subject to meeting certain prerequisites, authorizing power plants to trade CO₂ emission “allowances” within or possibly across state lines to benefit from facilities that can limit CO₂ emissions more efficiently; allowing states to take credit in later years for CO₂ emission reductions occurring ahead of established schedules; providing options for low-income communities to qualify for marketable energy conservation or efficiency measures; or relying on successful energy efficiency measures used by energy consumers to reduce the aggregate amount of generation needed to meet energy demands.

The Final Clean Power Plan actually targets a more ambitious goal of 32 percent CO₂ emissions reductions by 2030 relative to the 30 percent reduction goal set out in its proposed regulations in 2014. The Final Clean Power Plan reflects EPA and Obama Administration review of more than four million comments submitted on the proposal, and includes other changes (some presumably to enhance legal defensibility) such as less aggressive schedules for state submission of implementation plans and for achieving interim CO₂ reduction goals; eliminating consideration of energy efficiency measures by consumers as a building block in developing CO₂ limitations and budgets (but allowing inclusion of those measures in state plans to achieve those budgets); and clarifying the opportunities for new or updated nuclear facilities to play a role as zero-emission facilities in a state’s implementation plan. Today’s announcement also includes final regulations establishing CO₂ emission limits for new or rebuilt fossil fuel-fired power plants which are separate from the Clean Power Plan regulations for existing plants, although the Clean Power Plan discusses options for addressing new power plants in developing state plans.

Myriad details need to be understood and evaluated in order for states to work with various constituency groups to fashion their plans for achieving their respective CO₂ budgets while still maintaining electricity system reliability, and for power plant operators (and their lawyers, engineers, and financial experts) to analyze not only possible compliance plans, but also generation and pricing strategies as the electricity market adjusts to these new inputs. It is reasonable to anticipate that even now a variety of operators, electric industry-related businesses and organizations, states, and advocacy groups have begun work on appeals they plan to file either in opposition to, or in support of, the Clean Power Plan. The outcome of that litigation, including the effect it may ultimately have on the Clean Power Plan, is at best a matter of speculation at this point. In the meantime, it is also reasonable to anticipate that the Clean Power Plan will serve as a major component of the United States platform the Obama Administration will advance at the upcoming international meetings on climate change scheduled for December in Paris.

The Final Clean Power Plan is a major step forward in crystallizing the United States’ program for addressing climate change; however, it is far from the last step. A sound piece of advice at this point is simply, “Stay tuned.”