Yesterday, the U.S. Environmental Protection Agency (EPA) released its rule proposal to regulate the emission of carbon dioxide (CO₂) from the entire existing U.S. fleet of coal, natural gas, and other fossil–fueled power plants (Rule Proposal or Proposal).¹ The Rule Proposal is titled: Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, and is being referred to by the EPA as the "Clean Power Plan." EPA also concurrently released a rule proposal to regulate CO₂ emissions for modified and reconstructed power plants, which expands on last year's release of a new-source rule.²

This existing-source Rule Proposal comes on the heels of the still pending and highly controversial proposed rule for new power plants. The scope and impact of this existing–source Rule Proposal is unprecedented by any measure, is expected to be heavily litigated, and has already been the subject of significant Congressional attention, including a bipartisan letter from the Texas Congressional delegation issued last week to the Administration imploring them to rethink the Proposal.³ 

Key Facts About The Rule Proposal

In the 645 page rulemaking, EPA's stated goal is to meet a national average CO₂ reduction from power plants of 30% by 2030, compared to 2005 emission levels. While it will be some time before the details and extent of the impacts of the Rule Proposal are fully understood, there are key elements of the Proposal that are immediately obvious.

EPA proposes guidelines outlining individualized CO₂ emissions goals for each state.⁴ Contrary to requests by a large number of states and a wide range of industry representatives, EPA has derived the targets by going "beyond the fence" to see where CO₂ emissions can be found in various parts of the electric–power system rather than assessing each unit individually and proposing standards that are derived from reductions that can be met "within the fence" of each power plant.

Each state's state–wide carbon goal is based on the rate of CO₂ emissions from fossil fuel–fired power plants in pounds (lbs) divided by state electricity generation from fossil–fuel fired power plants and certain low– or zero–emitting power sources in megawatt hours (MWh). EPA is proposing an interim goal that a state must meet on average over the ten year period between 2020-2029, and a "final goal" that a state must meet at the end of that period in 2030 and thereafter. Texas' interim and final goal rates are 853 pounds of CO₂ per megawatt hour (lbs CO₂/MWh) and 791 lbs CO₂/MWh, respectively. As a means of comparison and demonstration of the varying goals assigned to states, Idaho's rates are 244 and 228 lbs CO₂/MWh, while North Dakota's are 1,817 and 1,783 lbs CO₂/MWh.

The carbon intensity targets vary significantly from state to state, because while EPA has designed a national formula for establishing reduction targets, EPA has then taken state– and regional–specific information, including previous state actions and their current energy mix, and plugged this information into its formula to establish each state–specific goal. EPA's formula incorporates and anticipates increasing efficiencies at fossil fuel power plants, using lower-emitting power sources, using more renewable sources, and reducing electricity demand.

EPA is leaving it to the states to determine how each state will demonstrate compliance. This includes going "beyond the fence" by joining or creating new cap–and–trade programs, forcing retirements of certain higher–emitting generation sources, deploying more renewable energy or ramping up energy–efficiency technologies, and other options. States will apparently also be allowed to differentiate between individual power plants, and therefore how significantly plants are impacted, depending on numerous other factors including ownership structure, market conditions, and other criteria.

By June 30, 2016, states are required to submit their complete plans in response to the guidelines, but EPA is allowing a one–year extension to June 30, 2017 for states that require more time due to factors such as requiring legislative approval. Multi–state plans are eligible for a two–year extension to June 30, 2018. 

Developments Leading To Rule Proposal 

On December 30, 2010, EPA reached a settlement agreement with certain states and environmental groups to move forward on CO₂ NSPS for power plants. The agreement included that by July 26, 2011, EPA would propose a rule under Clean Air Act Section "111(b) establishing standards of performance for CO₂ for new and modified [electric generating units (EGUs)]," as well as propose a rule under Clean Air Act Section "111(d) that includes emissions guidelines for CO₂ from existing EGUs." These deadlines were not met. The new and modified source rule was proposed in March 2012, withdrawn, and then re–proposed September 2013.⁵ The existing–source rule was proposed today.

Rather than following the timeline of the consent decree, EPA is proceeding along the rulemaking timeline proposed in the President's Climate Action Plan (Plan) and associated Presidential Memorandum on Power Sector Carbon Pollution Standards (Memorandum) – both announced June 25, 2013.⁶ The Plan outlined numerous long–term goals of the Obama Administration to reduce greenhouse gas emissions. The Memorandum outlined key dates for EPA and states to take action, including for: EPA to release the Rule Proposal by June 1, 2014; EPA to finalize the Rule by June 1, 2015; and states to submit their plans implementing the rule by June 30, 2016.

As EPA goes forward with this Rule Proposal, it is set to the backdrop of the U.S. Supreme Court's review of separate greenhouse gas regulations. On February 24, 2014, the Court heard oral arguments on various components of EPA's earlier greenhouse gas permitting regulations. A decision is expected soon. While it is impossible to predict the way the Court will rule, given the arguments at issue in this case, it is unlikely that any decision would directly affect or restrict EPA's ability to proceed with this existing–source NSPS rule.⁷

Predicted Costs And Benefits Of The Rule

EPA estimates that the Rule Proposal would have an annual cost of $7.3 billion to $8.8 billion in 2030 and would annually yield a public health benefit of between $55 billion to $93 billion, reduce premature deaths from between 2,700 and 6,600, and reduce asthma attacks by 140,000 to 150,000. Many of these alleged benefits are not from reducing CO₂ emissions, but from claims that other pollutants will be indirectly reduced, such as sulfur dioxide, nitrogen oxide, and particulate matter. Although not targeted by the rule, EPA counts these "co–benefits" in its cost–benefit analysis and applies highly controversial assumptions to derive economic benefits from alleged health benefits from these predicted reductions. EPA also claims that the Proposal will shrink electricity bills by roughly 8 percent in 2030, apparently due to efficiency improvements.

It will still be some time before the various groups interested in the Rule Proposal will be able to conduct their own cost–benefit analyses, but prior to the Proposal's release, numerous parties attempted to estimate the impact that a predicted Rule Proposal would have on the American economy based on pre–proposal modeling and other analyses. These analyses will have to be reassessed and reviewed in light of the Proposal, but they do indicate the significant impact of this rule and provide a context for the disagreements between EPA, industry, and environmental groups.

The U.S. Chamber of Commerce on May 28, 2014, released a report claiming that EPA's potential new carbon regulations would, through 2030:

• Lower U.S. Gross Domestic Product (GDP) by $51 billion on average per year;
• Lead to 224,000 fewer U.S. jobs on average per year;
• Force U.S. consumers to pay $289 billion more for electricity; and
• Lower total disposable income for U.S. households by $586 billion.⁸

In Texas, Oklahoma, Arkansas, and Louisiana, the U.S. Chamber of Commerce claims that, per year, the economic harm would reach $8.2 billion, would lead to 36,000 fewer jobs, and would increase electricity prices by $1.4 billion.

Using models developed by the Natural Resources Defense Council (NRDC) and assumptions made by EPA in prior rules, the American Coalition for Clean Coal Electricity (ACCCE) estimated that the climate impact of this Proposal would be the reduction of global temperature increase by 0.016°F and mitigation of sea level rise by 0.01 inches – roughly the thickness of 3 sheets of paper (or one third the thickness of a dime).  

What's Next?

The Rule Proposal was released only today, but it has already been the subject to years of intense debate and disagreement – debate and disagreement that will certainly grow now that EPA has released proposed rule language. Once the Proposal is published in the Federal Register, likely in the next few weeks,⁹ it will begin a timeline for any interested parties to file comments on the substance of Rule Proposal directly with the EPA. It is expected that these comments will be extensive. So far, EPA is providing 120 days to comment on the rule following official publication, although it is possible at a future date that EPA will extend the comment timeline.

Under the President's aggressive timeline, EPA is ordered to finalize the rule by June 1, 2015. It is highly likely that, once finalized, this rule will be subject to numerous lawsuits on behalf of industry and, depending on the perceived stringency of the rule, potentially by environmental and other groups as well.

¹ The released Rule Proposal is a prepublication version. The Proposal, as well as facts sheets and other supporting documents, are available HERE. In the next few weeks, or months, EPA will formally publish the Proposal in the Federal Register.

² Information on the modified and reconstructed source rule can be found HERE. 

³ The Texas Congressional delegation letter is available HERE.

⁴ Vermont and Washington, D.C. are not included in the Proposal because they do not have fossil fuel–fired power plants. 

⁵ Additional information on EPA’s new-source NSPS rule can be found HERE. 

⁶ The President's Climate Action Plan and Presidential Memorandum – Power Sector Carbon Pollution standards, can be accessed HERE and HERE, respectively. 

⁷ Additional information on the Supreme Court's oral argument can be found HERE. 

⁸ The Chamber of Commerce's Report and additional information can be found HERE. 

⁹ While it often takes a few weeks to go from unofficial publication to publication in the Federal Register, EPA recently took over three months to go from unofficial to official publication for the new–source CO₂ power plant rule proposal.