In a much anticipated move, the Trump Administration has proposed the Affordable Clean Energy (ACE) rule as a replacement for the Obama Administration Clean Power Plan (CPP).  While the CPP was controversial from the start for it broad regulation of the power industry, the ACE rule will be controversial as it signifies a 180 degree turn from aggressive climate change regulation of the energy sector.

Overview of CPP

The CPP was finalized on October 23, 2015.  The fundamental goal was to reduce CO2 emissions from the energy sector (one of the largest contributors to greenhouse gas emissions) by 32% by 2030 compared to 2005 levels.  The reductions were to be achieved through significant emission reductions from coal power plants coupled with incentives to move toward renewable energy and energy efficiency.

The CPP was touted a being flexible by giving states freedom to choose among various “building blocks” to achieve the necessary reductions.  States could either choose to regulate emissions from individual power plants or set a statewide cap of total CO2 emissions from its power sector.

Each state was given its own target for reductions (i.e. hard cap on emissions).  Under the rule, states must submit their plans (referred to as State Implementation Plans or SIPs) by 2018 and start achieving reductions by 2022.  If a state failed to adopt an approvable SIP by the deadline, EPA would impose its own Federal Implementation Plan (or FIP) to achieve the necessary reductions.

The CPP was controversial from the start. Many believed the structure of the plan as an overall regulation of the energy sector went significantly beyond EPA’s legal authority. The entire CPP hinged on the EPA’s authority under Section 111 of the Clean Air Act.  Under Section 111, the CPP set emissions standards across the entire energy sector thereby changing the mix of production to natural gas and renewables. The  crux of the legal challenge to the CPP was that Section 111 only allowed EPA to impose controls at individual power plants (i.e. within the “fence line”), not broadly across the energy sector. In February 2016, in a rare move, the Supreme Court issued a stay of the effectiveness of the CPP while the legal challenges to the CPP were heard in lower courts.

Why Replace the CPP?

The Trump Administration exited the United States from the Paris Agreement, the international accord on climate change.  President Trump and former Administrator Pruitt repeatedly questioned whether climate change was occurring.  Trump called the CPP a “job-killing regulation.”  Then why not simply repeal the CPP  with no replacement?

To repeal the CPP, the Trump Administration must go through the formal rulemaking process.  The Administration would have to justify, legally, why it is getting rid of the plan.  Complicating any effort to simply get rid of climate change regulation of the power sector was the Supreme Court prior ruling in Massachusetts. v. EPA  that the regulation of greenhouse gas emissions was required under the Clean Air Act.  Furthermore, the Obama Administration had already asserted that Section 111 of the Clean Air Act provide EPA the legal authority to regulate CO2 emission from power plants.  Therefore, given the prior Supreme Court ruling and EPA’s prior legal statements, it would be very difficult for the Administration to develop a legal justification for why there should be no regulation of CO2 emissions from the power sector.  The Administration likely decided a more prudent move would be to replace the CPP with a more flexible and less stringent rule.

Affordable Clean Energy Rule

The ACE rule reconsiders EPA’s authority under Section 111 of the Clean Air Act.  While EPA still maintains it has authority to regulate C02 emissions, it believes that authority is limited to requiring specific improvements at individual coal fired power plants  (i.e. within the “fence line).  The standards in ACE are based on a list of candidate heat rate improvement measures (either technologies or operational changes).  ACE removes the push toward natural gas and renewables.  ACE also removes the ability of states to set statewide CO2 caps on emissions as well as the trading program that would have allowed states to trade amongst themselves to more cost effectively achieve necessary emission reductions.

Under the ACE rule, each state must develop custom compliance schedules that include the selected emission standard and compliance deadlines.  States must submit the plans for EPA’s review within three years of the final EPA rule.  This effectively pushes the compliance deadline for states from 2018 under the CPP to likely 2022.  However, units are given up to 24 months to comply, which effectively pushes compliance deadlines further to 2025.

ACE also aims to encourage energy efficiency by redefining the applicability of the New Source Review (NSR) rules for power plants.  Under NSR, a facility must apply for a permit every time there is a “major modification” to an existing plant.  Under the existing NSR rule a change to facility is considered a “major modification” by measuring the change in annual emissions.  Critics of this approach argue this actually discourages energy efficiency upgrades because: 1) utilities may not adopt energy efficient upgrades due to the lengthy permitting process required; and 2) utilities may want to run plants that are more efficient more often and determining whether a upgrade constitutes a “major modification” based on annual emissions discourages increased operation of more efficient plants.  ACE proposes to change the measure for major modifications to an hourly emission test.  This change could greatly reduce the applicability of NSR to existing plants thereby avoiding the lengthy permitting process and encouraging operations of more efficient plants.  Critics argue NSR ensured the plants could not extend there useful life without adopting new emission reduction technologies.

Despite the radically different approaches to regulate CO2 from the power sector, EPA projects that the reductions under ACE are very similar to CPP.  This is because market forces will continue to push more closures of coal fired power plants as the country moves more to natural gas.  However, critics argue ACE contains no hard cap on emissions, therefore, the projected reductions are not guaranteed.

What is Next for CPP and ACE?

ACE must undergo a sixty day comment period before the rule can be finalized.  If ACE is made final, numerous legal challenges will certainly ensue.  Once again, the future of climate change regulation in the United States will be decided in the courts.

 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]

It is an issue that just won’t go away…Our incredibly hot summer seems to have re-focused attention on doing something regarding climate change. 

James E. Hansen, director of NASA’s Goddard Institute for Space Studies, in Friday’s Washington Post, announced the release of a new study.  The title of Mr. Hansen’s op-ed piece shows what the new study concludes- Climate Change is Here—and Worse than
We Thought:

In a new analysis of the past six decades of global temperatures, which will be published Monday, my colleagues and I have revealed a stunning increase in the frequency of extremely hot summers, with deeply troubling ramifications for not only our future but also for our present.

This is not a climate model or a prediction but actual observations of weather events and temperatures that have happened. Our analysis shows that it is no longer enough to say that global warming will increase the likelihood of extreme weather and to repeat the caveat that no individual weather event can be directly linked to climate change. To the contrary, our analysis shows that, for the extreme hot weather of the recent past, there is virtually no explanation other than climate change.
 

Media reports from this summer are painting a dramatic picture of the impact from the summer’s heat wave.  Take today’s AP news article – Thousands of Fish Die as Midwest Streams Heat Up:

Thousands of fish are dying in the Midwest as the hot, dry summer dries up rivers and causes water temperatures to climb in some spots to nearly 100 degrees.

About 40,000 shovelnose sturgeon were killed in Iowa last week as water temperatures reached 97 degrees…..The fish are victims of one of the driest and warmest summers in history. The federal U.S. Drought Monitor shows nearly two-thirds of the lower 48 states are experiencing some form of drought, and the Department of Agriculture has declared more than half of the nation’s counties — nearly 1,600 in 32 states — as natural disaster areas. More than 3,000 heat records were broken over the last month.

With new media reports of the impact of the heat wave and new studies emerging confirming the impact of climate change conservatives have started to see its an issue that they need to get ahead of rather than simply resist.

Conservative groups have held meetings this summer to talk about pushing for a carbon tax to replace other taxes while addressing climate change.  A recent CNN article discusses how the proposal to put a tax on certain fossil fuels in gaining support amount some Republicans-  Carbon Tax Gets Unusual Support:

We have to have a system where all forms of energy bear their full costs," President Reagan’s former Secretary of State George Shultz said in a recent interview with Stanford University News. Shultz now heads a task force at Stanford that is currently studying the feasibility of a carbon tax.

For Shultz there are many reasons to support such a tax. One is making fossil fuel energy sources absorb costs that are currently borne out by society at large, such as through higher health insurance premiums or Medicare bills caused by pollution-induced diseases.

He also cites energy independence, as well as global warming, "which is not a matter of opinion, but a matter of fact," he said. "The arctic is melting. A lot of people seem to be scoffing at the idea of global warming, but reality will catch up with them."

The old saying is that elections go the way of the economy.  Perhaps the debate over climate change regulation goes the way of the weather.  

Political ads still try and cast support for cap and trade as a negative for those politicians that supported the proposal in Congress.  However, as long as media headlines are filed with the dramatic impacts of this years hot summer, it will become much more difficult for politicians to cast support for doing something on climate change as a negative. Perhaps that is why conservative groups are trying to get ahead of the curve by exploring policy options that they see as more palatable. 

Let’s say Romney wins the election.  Do you see President Romney, with the current "hot weather" news cycle, repealing all of the EPA climate change regulations without some sort of new policy initiative like a carbon tax?  That just seems far less likely. 

For an interesting discussion as to whether climate change regulation is back on the table, see the National Journal’s Energy Expert’s Blog- Is Momentum Building to Act on Climate Change.

The AP is reporting that the Republican controlled House is expected to introduce legislation shortly that will strip all authority from U.S. EPA to regulate greenhouse gases (GHGs) under its existing authority in the Clean Air Act.  This would specifically target the EPA’s endangerment finding and could possibly go as far as saying GHGs are not a "pollutant" under the Clean Air Act.

The soon introduced legislation will be very aggressive according to a recent AP article:

Officials said the House bill, which was to be offered Wednesday, would nullify all of the steps the EPA has taken to date on the issue, including a finding that greenhouse gases endanger public health.

In addition, it seeks to strip the agency of its authority to use the law in any future attempts to crack down on the emissions from factories, utilities and other stationary sources.

The House bill joins similar efforts in the Senate:

Republicans are attempting similar restrictions in the Senate, where the political situation is more complicated. Sen. John Barrasso of Wyoming has introduced a more sweeping measure than the one House Republicans are drafting. At the same time, Sen. Jay Rockefeller, D-W.Va., has proposed a two-year moratorium on EPA attempts to regulate greenhouse gases, a plan that already has attracted a handful of Democratic supporters.

It will be very difficult to pass through the Senate the aggressive measures that will likely be included in the House bill.  Only the proposed 2 year delay of implementation is likely to pass the Senate.  Even if something does pass, the legislative efforts appear futile based on comments in an article appearing in Politico from Lisa Jackson, U.S. EPA Administrator:

“What has been said from the White House is that the president’s advisers would advise him to veto any legislation that passed that would take away EPA’s greenhouse gas authority,” Jackson told reporters on Capitol Hill. “Nothing has changed.”

Any Room for Real Compromise?

During the State of the Union, President Obama announced a plan to mandate 80% of the nation’s electricity from renewable sources by 2035.  The President signaled a willingness to consider an expansive definition of "renewable energy" that would include nuclear, clean coal and natural gas.  The President suggested financing energy projects by slashing $4 billion annually in government subsidies to oil and gas companies.

Many see the President’s proposal of a national renewable energy standard as a switch in strategy now that cap and trade is dead.  While there was no mention of climate change in the President’s speech, the renewable standard is seen as, perhaps, less distasteful means of reducing GHGs.  More importantly, it has some possibility of getting a few Republicans on board.

Republicans and the U.S. Chamber seem cool to the President’s plan.  However, reality is that U.S. EPA has moved forward and will continue to implement new GHG regulations under its existing authority.  The convoluted and complex rules need to prevented. (See, prior post Regulation under CAA "Absurd")

Perhaps a bill implementing a renewable energy standard offers a mechanism in which the Administration would find palatable a reduction or prohibition on EPA’s GHG regulatory authority.  Before dismissing the President’s plan, similar to the tax deal, Republicans should see what they could get as part of a broader compromise.  Because without compromise, EPA will continue to issue GHG regulations through 2012.

With prospects dead for federal cap and trade climate change legislation, the focus for market mechanisms to reduce greenhouse gas (GHG) emissions shifts to the states.  Meanwhile, as discussed in my last post,  EPA is left moving forward with its command and control regulations to reduce GHGs under the Clean Air Act.

After the defeat of Proposition 23, California’s climate change programs are moving forward including cap and trade which is planned to start in 2012. California is in talks to link their carbon trading market with New Mexico, British Columbia, Ontario and Quebec.  There is even a possibility of linking the market to the 10 Northeast states already operating a trading program for power plants- RGGI. 

Now an interesting concept is being proposed that would allow states using market mechanisms to reduce GHGs to be exempt from EPA’s command and control regulations. The following appeared in article in Reuters,

U.S. states with cap-and-trade laws want the Obama administration to add their carbon markets into new federal greenhouse-gas regulations, a California environmental official said.

State-run carbon-trading programs should be "treated as equivalents or substitutes" for Environmental Protection Agency regulations for emissions tied to global warming from power plants, oil refineries and factories, Mary Nichols, Chairman of the California Air Resources Board, said yesterday in a telephone interview.

This is an interesting proposition.  Would EPA allow state cap and trade programs to replace regulations under the Clean Air Act such as New Source Review (NSR) or New Source Performance Standards (NSPS)?

It may set up an interesting dynamic where states that have adopted market mechanisms for reducing GHG emissions are put at an advantage to states subject to the myriad of EPA command and control regulations.  While cap and trade has recently received a very bad name, putting these two regulatory approaches side-by-side may breathe new life into cap and trade as a more business friendly means of reducing GHG emissions.

While the political and policy focus is clearly on the Country’s struggling economy, caught within that debate is U.S. policy on climate change.  As the economy continued to languish this summer, any hope of a cap and trade bill emerging from Congress died. 

The bill was a victim of a Congress that created a Christmas tree of regulation out of a basic market-based concept.    In the end the bill was labeled  "cap and tax."  And who raises taxes during the middle of a recession?

In fact, who passes any major piece of environmental legislation during a bad economy?  While I don’t subscribe to all the viewpoints of the organization, a fascinating chart featured in an article by Daniel Weiss appearing on the Center for American Progress website paints a vivid historical picture that ties the state of the economy to the prospects for passage of major environmental legislation. 

This from the article:

"The first Clean Air Act, Clean Water Act, Endangered Species Act, and Resource Conservation and Recovery Act (hazardous waste disposal) were all enacted when unemployment was 6 percent or lower. Unemployment is 50 percent higher now. Only four major environmental laws were enacted with annual unemployment over 7 percent, and none with unemployment greater than 7.5 percent. Unemployment averaged 9.3 percent in 2009 and 9.7 through September 2010."

The Congressional Budget Office provided testimony in August 2010 that the economy faces a slow recovery.  Some have coined the phrase a "jobless recovery."  The CBO says the unemployment rate, currently at 9.5 percent, will not fall to around 5 percent until 2014.

Coupling the CBO forecast with the historical track record on passing environmental legislation, climate change legislation may not have a serious hope of passing until 2014 or later. 

With no legislative alternative, EPA will continue move its climate regulatory agenda forward.  Environmentalists will continue to push nuisance claims in the courts.  Unfortunately, the inefficiencies of "command and control" regulation and litigation will be the U.S. policy on climate change for the foreseeable future.

[Note:  The New Yorker’s, Ryan Lizza, has an very interesting article on the inside the beltway politics regarding cap and trade legislation.  A grand bargain between environmental groups and industry was scuttled by poor timing, unfortunate events and political infighting] 

By all accounts, Republicans are set to enjoy major gains in both the House and Senate following midterm elections.  Speculation is that the Republicans could likely regain control of the House and could even get close in the Senate.

What implications could this change in the political landscape have for climate change regulation?

We have already seen the Senate scrap all efforts at a cap and trade bill this summer.  Based upon Senator Reid’s comments that a "piecemeal" approach is on tap, its more than likely cap and trade is off the table for the foreseeable future.

With cap and trade’s dim future, all eyes have been shifting toward U.S. EPA promulgation of climate change regulations.  EPA has already finalized greenhouse gas standards for vehicles and will require consideration of greenhouse gases from major stationary sources beginning in 2011 (Tailoring Rule). 

Congressional Efforts to Stop EPA

With renewed focus on EPA’s efforts, Republicans made lead the charge toward blocking EPA’s actions through budget maneuvers or by directly blocking the effectiveness of the EPA regulations. (See Reuter’s article)

  • Budget Bill Prohibition-  Republicans could include in an appropriations bill a ban on the use of EPA funds to administer climate change regulations. 
  • Block EPA Authority or Delay it- Earlier this year, the Senate debated legislation that would directly block EPA from implementing its rules by undermining its Endangerment finding.  Another alternative was floated by Senator Rockefeller- delay EPA’s implementation for two years which would take us to the next Presidential Election. There were 47 out of 100 votes in the Senate supporting a delay in implementation of EPA’s climate change regulations.  Its hard to imagine this issue will not be revisited after the midterm elections.

Effectiveness of an Appropriations Blockage 

The utility of a budgetary blockage of EPA’s authority to implement the climate change regulations should be seriously questioned.  As discussed below, a budget provision prohibiting expenditures doesn’t remove the requirements from the books.  Industry will still have to comply with the Tailoring Rule even if EPA can’t use funds to enforce it.

The strategic limitations on use of the appropriations tool was pointed out in a Congressional Research Service in an extensive report:

The regulatory restrictions in appropriations bills that have been enacted during the last 10 years illustrate that Congress can have a substantial effect on agency rulemaking and regulatory activity… These appropriations provisions can prevent an agency from developing a proposed rule, from making a proposed rule final, or from implementing or enforcing a final rule. However…these appropriations provisions cannot nullify an existing regulation (i.e., remove it from the Code of Federal Regulations) or permanently prevent the agency from issuing the same or similar regulations. Therefore, any final rule that has taken effect and been codified in the Code of Federal Regulations will continue to be binding law — even if language in the relevant regulatory agency’s appropriations act prohibits the use of funds to enforce the rule. Regulated entities are still required to adhere to applicable requirements (e.g., installation of pollution control devices, submission of relevant paperwork), even if violations are unlikely to be detected and enforcement actions cannot be taken by federal agencies.
 

Such an appropriations maneuver could mean businesses must prepare PSD permit applications that address greenhouse gases only to have those permits sit at EPA because it is legally prohibited from paying staff to review them.

Hopefully the real world implications of Congressional efforts to block EPA will be considered.  There is no doubt a strong effort will be made after the midterms to block EPA climate change regulations.  Without passage of legislation that directly addresses the issue, maybe…just maybe litigation is a better alternative than tricky legislative tactics. 

 

After this summer’s anti-climatic end to federal climate change legislation, some thought that perhaps there would be a temporary end of the discussion of climate change regulation.  However, recent weather events (wildfires in Russia, floods in Pakistan and an ice sheet breaking off Greenland) and extreme heat have reinvigorated the debate. 

Here is some highlights of the recent discussion. 

Is Climate Change Causing Wild Weather? –  I like the National Journal’s discussion of controversial topics.  The website features view points from well recognized experts, politicians or interest groups.  The current thread discusses the science (or lack thereof) behind linking climate change to this summer’s wild weather. 

GOP Candidates Knock Climate Change-  This article on Politico discusses the number of Republican candidates who are willing to take the stance linking man made emissions to climate change is simply unproven.  With the economy possibly heading to a double dip recession, support for a new "tax" on emissions has become a basis for attack this November.

Chamber Sues EPA Over Endangerment Finding-  In late July, EPA rejected the Chamber’s petition for reconsideration of EPA’s Endangerment ruling.  The Chamber argued that e-mails released in "climate-gate" justified EPA reconsideration of its finding.  EPA said the e-mails were taken out of context and there is no evidence that undermines its finding. This month, the Chamber pushed its legal finding further by filing suit challenging the basis for EPA’s finding that greenhouse gases endanger public health and the environment. 

EPA Marches Forward with Rule Making-  As discussed in my previous post, U.S. EPA is moving forward with regulation of greenhouse gas emission under the Clean Air Act.  Beginning in 2011, without passage of any federal legislation, emissions of GHGs from large sources will trigger new requirements. 

Concluding Comment-  All of this may be a surprise to some of you who thought that the Senate’s decision to scuttle federal cap and trade legislative efforts meant the end of the debate.  It is clear that this issue will not go away.  While direct connection to weather events cannot be made, there is no denying the connection between extreme weather events and re-invigoration of our national debate.
 

There was a lot of anticipation this summer about the scope of the energy bill coming out of the U.S. Senate.  Would the Senate try and tackle climate change?  Would it develop a national renewable portfolio standard? 

The bill was released yesterday and the answer was "no" on both accounts. 

The White House kept a glimmer of hope that climate change provisions- Cap & Trade- could be added back in at a later date.  This from Reuters:

But the White House indicated on Tuesday that climate provisions could be added back into a bill once negotiators from the Senate and the House of Representatives hammer out differences between their respective versions during "conference" talks.

The House bill, passed last year, includes climate provisions to cut greenhouse gas emissions.

White House spokesman Robert Gibbs, when asked whether the administration would seek to do a separate climate bill later after getting a narrow energy-focused bill first, said: "No, I think the process is you get an energy bill through the Senate then you can conference that legislation with the House."

Also absent from the bill was a proposed national renewable energy standard (RES) that would have mandated 15% of electric generation from renewable sources.   Some Democrats claimed there were 62 votes in favor of an RES.  They pointed to the urgency of restoring incentives for construction of renewable energy sources noting wind development dropped 72% in the first half of 2010 compared to last year.  This from the N.Y. Times:

Many see an RES as an achievable goal that could spark construction of manufacturing plants for wind turbines and drive the development of clean energy. Several senators, including Mark Udall (D-Colo.) and Byron Dorgan (D-N.D.), said yesterday that support for a modest RES that requires utilities to find 15 percent of their power by 2020 exists in the Senate.

"It seems to me that would be logical to include that [RES] in the energy bill that was going to be brought to the floor," said Dorgan, whose state stands to be a key generator of wind power. "I hope maybe there’s a way to be found to do that."

Udall said there are about 62 senators who would support the 15 percent standard.

EPA and States Maintain Center Stage

The prospects for cap & trade and an RES diminish rapidly.  It seems hard to imagine the Democrats trying to cram such major provisions through reconciliation.  Though it appears that is being left open as an option.

What has become clear is that EPA’s greenhouse gas regulations are center stage.  EPA’s Tailoring Rule will kick in at the end of 2010 on new sources.  Mandatory monitoring and reporting already exists for other sources.  With legislation seemingly forever stalled in the Senate, pressure will mount on EPA to adopt more climate change regulations.

As to renewable energy standards, the states’ have been on center stage for several years.  Thirty-seven states have adopted some form of a renewable or alternative energy standard.  Some are stronger than others, but there are strong incentives at the state level for development of alternative sources of power. 

However, there is inconsistency among the states in defining renewable sources, the % required, and marketability of production credits.  A federal bill could have addressed these inconsistencies.

However, the price of addressing those inconsistencies in mandating renewable energy generation in every state, including the Southwest which has resisted the standards.  Southern states don’t feel there is a much opportunities for renewable energy development.

Like cap & trade, prospects have dimmed for a national RES.  Incentives for development will be left primarily to the states.

(For more information on each states specific programs, click on the map above)

U.S. EPA has released its CAIR replacement program called the "Transport Rule."  In a previous post I discussed EPA’s efforts under the Transport Rule to address the Court’s ruling striking down the CAIR rule.  After listening to a presentation by EPA, the structure of the Transport Rule is a little clearer.

The major issue identified by the Court was that CAIR failed to ensure that upwind states significant contribution to the air quality issues in downwind states would truly be eliminated.  The court ruled that utilities in a state could make no actual reductions, they simply could satisfy their regulatory obligations by purchasing allowances (pollution permits) under the cap and trade program. 

After two years of development, EPA has released its proposed Transport Rule and is very confident it can withstand legal challenge.  They stated in the presentation that their lawyers are confident the structure of the Transport Rule will meet the Courts mandate by ensuring elimination of "significant contribution."

Here is how the program works.  Each state has a firm budget which serves as a state specific  cap on emissions.  At the end of the trading year, U.S. EPA will review emissions information from each state and see if any exceeded their caps.  If a state is below the cap, nothing happens.  If the state is above, EPA will embark on a more extensive review to determine which companies within the state were responsible for exceeding the cap. 

Companies responsible for exceeding the state cap by failing to actually reduce emissions significantly enough, will be required to turn in extra allowances based upon their pro rata share of the amount the State’s cap was exceeded.  Perhaps an oversimplified example would help:

 Assuming the state of Ohio has only three utilities companies operating in the State.  Hypothetically, it has a State budget under the Transport Rule of 90 tons.  In 2014, actual emissions in the State (120 tons) exceed its  budget by 30 tons. 

The slide shows that two companies will be required to surrender extra allowances equivalent to the amount the Ohio exceeded its budget.

Certainly this is far more complicated than the original CAIR rule struck down by the Courts.  Let’s hope the Transport Rule can withstand legal challenges. Otherwise, States will face a complex mess in trying to meet federal air quality standards.  Also, utilities will face tremendous uncertainty preventing them from making long term choices.

Has EPA left a window open for environmental groups who may not like the Transport Rule to successfully challenge the rule?  In essence, EPA is penalizing companies who caused the state to exceed its budget (which represents it significant contribution to downwind states). 

Will the courts deem this adequate to meeting the Clean Air Act obligation to eliminate actual significant contribution?  Or will the courts still maintain the view that the utilities will be able to meet their obligations through purchasing allowances and not by actual reductions?  In other words, what is the assurance each state’s significant contribution will be actually eliminated?