On June 2, 2014, U.S. EPA released its Clean Power Plan Proposal to address carbon dioxide (CO2) emissions from existing power plants.  EPA continues to move forward with climate change initiatives as gridlock in Congress persists over the issue.  EPA’s strategy has been to target transportation and the power sector, the two largest sources of greenhouse gas emissions.

The Clean Power Plan is an interesting mix of federal regulation while attempting to provide maximum flexibility to the states to achieve emission reductions.  EPA would require a 30% reduction in CO2 emission from existing power plants from 2005 levels by 2030.  

However, rather than establishing specific emission limits for each plant, the regulation would establish "goals" for each state to achieve by 2030.  The goals were established by examining each state’s current carbon output and the potential to reduce those emissions.

Formula for Arriving at Goals

EPA has authority under Section 111(d) of the Clean Air Act (CAA) to regulate and set emission standards (42 U.S.C. Section 7411(d)).  Under Section 111(d), EPA must determine the "best system of emission reduction" (BSER) for existing sources.  EPA then must apply the system to determine the level of emission reductions required (referred to as "emission guidelines").

State’s are then tasked with developing their own plans to meet the emission guidelines.  This is where the flexibility comes in.  Rather than specifying each plant must meet a specific emission limit, EPA is allowing the state’s to choose from a variety of options on how to achieve their emission guidelines (i.e. "goals").

EPA provide four general approach to achieving the reductions and refers to those approaches as "building blocks."  These include:

1. Reducing the carbon intensity at individual power plants through heat rate improvements;
2. Reducing emissions from the plants that produce the most CO2 emissions by using those sources less frequently;
3. Replacing high carbon intensity plants (i.e. coal) with low or zero-carbon generation (which means renewable sources or natural gas);
4. Implementing demand-side energy efficiency programs that reduce the amount of generation needed in the state.

In its proposal, EPA takes the four building blocks and applies them to each individual state through a seven step process.  This formula generates a state-specific CO2 emission performance goal which is measured in average pounds of CO2 per net megawatt hour from all sources in the state.  

(To see the CO2 emission-rate goals for each state click here)

State Flexibility

After determining the amount of reductions needed in each state, EPA then defers to each state to develop its plan for achieving the emission reduction goals.  States can use any component of EPA’s four building blocks or even develop an entirely different methodology for achieving its state goal.

States are also given the option to utilizing either a rate-based or mass-based emission reduction goal.  Under a rate-based approach, emission reductions are determined by comparing the rate of CO2 emission per unit of electricity output (expressed in emissions per megawatt hour).  To establish a rate-based emission limit in the power sector, EPA has traditionally looked at the difference between coal-fired units and natural gas units.  

Under a mass-based approach, the emission reduction is based upon a quantity of reduction from an established baseline.  For example, 30% reduction of the state’s total power plant C02 emissions from 2005 baseline.

States have argued that rate-based method forces states to shut down coal plants and switch to natural gas.  A mass-based approach provides states more flexibility to choose from a menu of options to achieve reductions.  (See, Kentucky’s Comment Letter to EPA on Greenhouse Gas Reduction Policy)

After Congress failed to pass national cap-and-trade legislation in President Obama’s first term, the option is back on the table. State’s can develop an in-state only program or join with other states, such as has already been done by the Western States and Eastern States (RGGI).  Cap-and-trade, while criticized, has proven to be the most cost effective means of achieving emission reductions. 

State’s even have flexibility when it comes to compliance deadlines.  While initially states will be required by 2016 to create a plan that will include some emission reductions, states can qualify for extensions of 1 or 2 years.  

No matter when plans are submitted, states will have to achieve interim goals for reductions between 2020-2029, then meet the state final goal no later than 2030.  By providing for this flexibility, the states can choose when to accelerate their emission reductions.  

In commenting on the flexibility provided states under the rule, the New York Times reported:

“I’ve never seen anything like this, where states get this much flexibility. It’s astounding,” said Dallas Burtraw, an expert on electricity markets with Resources for the Future, a Washington research group. “The E.P.A. is signaling maximal deference to the states.”

Criticism of the Proposal

Too Strong

 Those criticizing the proposal, concentrated on the costs of achieving the proposed reductions.  Business groups, utilities and Midwest states were harshly critical of the proposal.  Opposition is probably best summed up by Indiana Governor Pence who was quoted in the New York Times as stating:

“These proposed regulations will be devastating for Hoosier workers and families,” Mr. Pence said. “They will cost us in higher electricity rates, in lost jobs, and in lost business growth due to a lack of affordable, reliable electricity. Indiana will oppose these regulations using every means available.”

Too Weak

EPA had been criticized for utilizing 2005 as a baseline.  As noted in Bloomberg, half of the emission reductions required have already been met without even a single new regulation being adopted. 

Criticism also is directed at the overall emission reductions required under the proposal.  Some think the cost of compliance has dropped dramatically in recent years.  As noted Harvard Business Review– the cost of renewable have come way down; states have already implemented regional cap-and-trade programs; and natural gas has displaced coal as the fuel of choice.

Comment Period

EPA will accept comments for 120 days after the proposed rule is published in the Federal Register.  Due to the sweeping nature of the proposal,  EPA will, no doubt, be inundated with comments.  

[Photo courtesy www.TheEnvironmentalBlog.org]