• Final Clean Power Plan regulating carbon emissions from existing utilities released on August 3, 2015.
• EPA calculated new emissions rates for each state – some adjusted up or down significantly compared to the proposed rule.
• Overall emissions reduction tightened, seeking 32% reduction from 2005 levels by 2030.
• EPA adjusted the timing, allowing states until 2018 to submit a final plan and pushing the start of the initial compliance period to 2022.
• Final Clean Power Plan allows for emissions trading.
• Reliability assurance mechanisms, including a Reliability Safety Valve, are included in final Clean Power Plan.

On August 3, the U.S. Environmental Protection Agency (EPA) released its long-awaited final rule regulating carbon emissions from existing power plants (Clean Power Plan). In nine months, EPA waded through more than four million public comments and formulated the final rule. EPA retained some of the principal concepts included in the proposed version of the rule, but also made some significant adjustments. Once the Clean Power Plan is published in the Federal Register, legal challenges will undoubtedly follow.

EPA adjusted the Clean Power Plan’s timing. Although the deadline for states to submit their Clean Power Plan implementation plans to EPA is September 6, 2016, states can seek an extension until September 6, 2018. EPA also adjusted the timing of the interim compliance period. In the proposed rule, there was a single interim compliance period from 2020 to 2029. In the final Clean Power Plan, the interim compliance period begins in 2022 and is broken into three “interim steps”: 2022-2024, 2025-2027, and 2028-2029. Although there is an overall interim period compliance goal, EPA established separate compliance goals for each interim step. Critics pointed out that EPA’s proposed interim compliance period from 2020 to 2029 created a cliff instead of a glide path. EPA created interim steps in response to these concerns. States must meet the final emissions goals beginning in 2030.

EPA established both mass-based and rate-based CO₂ emissions goals. States may implement a plan that sets mass-based or rate-based emissions standards for the affected units in the states or implement a plan based on “state measures.” A “state measures” plan sets standards for affected units but also relies on state-enforceable measures imposed on entities other than the affected units.

EPA’s final Clean Power Plan employed a new approach for calculating each state’s CO₂ emissions rate. EPA established a CO₂ emissions performance rate for each affected unit, as set forth in the following chart:

EPA developed each statewide CO₂ emissions rate by applying these unit-specific rates to each state’s mix of electric generating units. EPA’s new method of calculating emissions rates significantly shifted interim and final CO₂ emissions rates for many states – some becoming more stringent while loosening others. Overall, the final Clean Power Plan seeks to reduce emissions to 32% below 2005 levels by 2030, greater than the 30% reduction sought in the proposed rule.

The final Clean Power Plan provides for emissions trading programs, a concept that was not included in the proposed rule. Electric generating units may meet their emissions standards via emission rate credits (ERCs) (for a rate-based standard) or allowances (for a mass-based standard). States can earn ERCs or allowances through investment in renewable energy (RE) and/or energy efficiency (EE) programs. For early action projects – RE projects that generate MWh during 2020 and 2021 or EE projects that save MWh during 2020 and 2021 – RE projects would receive a 1:1 credit for each MWh generated and qualifying EE projects would receive a 1:2 credit for each MWh savings achieved. For EE projects to qualify for early action credits, the projects must be implemented in low-income communities. After the early action period, state plans will establish qualification for and allocation of emissions credits.

Building blocks remain in the final rule but are employed slightly differently. EPA retained the building blocks for improved unit efficiency (Building Block 1), shifting generation to natural gas (Building Block 2), and increased reliance on renewable energy generation (Building Block 3). Building Block 4, demand side energy efficiency, is not a building block in the final rule. Instead, as mentioned above, implementing qualifying energy efficiency projects will result in emissions allowances or credits.

The proposed rule did not contain any reliability assurance mechanisms. Many comments raised concerns about the Clean Power Plan’s impact on grid reliability, and EPA included reliability assurance mechanisms in the final Clean Power Plan. All state plans must include a demonstration that the electric grid’s reliability was considered.

EPA also included a Reliability Safety Valve. A state can temporarily amend its emissions standards to employ the Reliability Safety Valve by providing EPA with notice 48 hours in advance of an unforeseen, emergency situation that threatens reliability. A second notice must be provided within seven days, confirming the need to use the Reliability Safety Valve. The notification must identify the units that will operate under a modified emissions standard to address the reliability concern. This modified emissions standard applies for 90 days. During those 90 days, units that exceed their limits under the EPA-approved state plan will not be counted against the state’s CO₂ emissions performance rate or goal. EPA reviews the Reliability Safety Valve notifications and has authority to disallow the short-term modifications. This Reliability Safety Valve only provides for increasing the operation of active units. Reliability concerns may remain caused by units retiring due to the Clean Power Plan.

Although EPA’s significantly revised final Clean Power Plan may have attempted to respond to critics, complying with this rule, while continuing to provide reliable and affordable electricity to the grid, will remain a considerable challenge for utilities in many states.