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The Environmental Protection Agency (EPA), under the new leadership of former Republican Attorney General for Oklahoma Scott Pruitt, is expected to officially repeal the Clean Power Plan (CPP). The EPA asserts that the CPP’s justification under Section 111 of the Clean Air Act (CAA) was flawed, and the proposed repeal would return to a more traditional reading of the act where Section 111 was applied narrowly to single sources of emissions (e.g., individual power plants). This reversal will likely lead to legal challenges from environmental groups as they will assert that the EPA is legally required to do something to regulate carbon dioxide (CO2) levels as Section 111 also directs the agency to implement the “best system of emission reduction” for pollutants.
As originally positioned in late 2015[1], the EPA issued the CPP to establish statewide CO2 emissions standards for existing fossil fuel-fired electric generating units to cut CO2 emissions by 32% by 2030, as measured from a 2005 baseline. The EPA based its authority to promulgate such a rule using Section 111(d) of the CAA. The EPA ruling prompted many coal-reliant states to seek legal redress against the rule.
At present, the agency has not yet determined whether it will replace the rule with something new regulating greenhouse gases from power plants. The EPA intends to solicit feedback from the public through an advance notice of proposed rulemaking “in the near future.” The “advance notice” will also collect feedback on compliance measures and state planning requirements. Per the EPA, updated modeling and analysis of avoided compliance costs, forgone benefits, and other impacts will be performed by the EPA and released to the public before the CPP repeal is finalized.
If the CPP is repealed, as appears increasingly likely, what are the implications, particularly for the coal industry?
Implementation of the CPP was originally meant to help the United States fulfill its CO2 reduction commitments under the Paris climate accord, so repeal of the CPP represents the removal of a key regulatory mechanism for carbon and a further distancing of the United States from the Paris accord.
Repeal of the CPP will also have a significant symbolic impact on the U.S. coal and oil-based electric power industry. It is unclear, however, if the CPP repeal will lead to new coal plant construction in the United States, as other forces are also in play.
The U.S. regulatory environment over the past ten years has significantly affected the cost and competitiveness of coal and oil as fuel sources for electric generation in the United States, contributing in part to the retirement of approximately 61.4 GWs of coal and 24.4 GWs of gas steam turbine generation capacity since 2010. Key U.S. regulations impacting fossil generation, in addition to the CPP, include Mercury and Air Toxics Standards (MATS), Cross-State Air Pollution Rule (CSAPR), Carbon Pollution Standards for New, Modified, and Reconstructed Power Plants, and Coal Combustion Residuals (CCRs).
The key energy marketplace forces over the past decade include increased investment interest in the oil-and-gas sector driving technological advances, such as horizontal drilling in oil-and-gas exploration and more hydraulic fracturing (“fracking”); along with domestic U.S. production of oil and gas reaching record levels, sparking a sustained decline in natural gas and oil prices.
Going forward, market forces and regulations will remain major factors concerning fossil competitiveness for electric generation, particularly coal. However, the die may have already been cast for the future of new coal generation development in the United States. While the repeal of the CPP may carry symbolic and political effects, the repeal alone is unlikely to materially tilt the marketplace away from natural gas and utility-scale renewables.
This report is part of ScottMadden’s Fossil Minute series. To view all featured Fossil Minutes, please click here.
[1] See ScottMadden November 2015 Fossil Minute “States Sue EPA over Clean Power Plan” (link)
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