On August 3, 2015 the EPA released its 1,500-page final rule governing performance standards for greenhouse gas (GHG) emissions for existing and new power generation sources, termed the Clean Power Plan (CPP). With more than 4.3M comments received since the proposed rule was announced, this is expected to be one of the most heavily litigated environmental regulations ever.

Key Details

The CPP provides the first-ever national standards that address CO2 emissions from power plants, which are responsible for 30-40% of GHG emissions in the U.S. EPA analysis indicates the combined climate and health benefits of the CPP will far outweigh the costs of implementing it; however, critics argue that the rule will lead to increased electricity costs, kill jobs, and harm low-income and minority communities.

President Obama attempted to head off opponents when announcing the rule by saying, “Whenever America has set clear rules and smarter standards for our air, our water, our children’s health, we get the same scary story about killing jobs and freedom…the kinds of criticisms that you’re going to hear are simply excuses for inaction. They’re not even good business sense. They underestimate American business and American ingenuity.”

The CPP uses three “building blocks” or principles to achieve objectives:

1. Improve the heat rate of existing coal-fired power plants
2. Substitute natural gas plants for coal-fired power plants
3. Increase electricity generation from new, zero-emitting renewable energy sources (like wind and solar)

Under the CPP, states have a different interim and final emissions reduction goal depending on the state’s power mix.  Opponents point to changes in the draft (June 2014) vs. final rule (August 2015) when raising their concerns. For example, the final rule has significantly more demanding requirements for high emitting states than the proposed rule. This is good news for those states that have already taken significant steps to curb their emissions, including west coast and northeast states. Additionally, where the proposed rule gave coal-dependent states a break, the final rule does not; meaning that those states now face a more difficult task in making larger reductions in the final CPP. “Coal-country” states such as Kentucky, Wyoming and West Virginia may be doubly impacted because they rely on coal for electricity and their economies depend on mining it.  Senate Majority Leader Mitch McConnell (R-KY) has urged states to “just say no” to the CPP.

The below table details some of the key differences in the proposed vs. final rule:

*Note that the EPA only uses 2005 as a comparison point for its estimate of the rule’s overall effects because that is the baseline the U.S. has been using for its international climate pledges; state emission reduction targets are set using 2012 emissions as a baseline

Implications

States have until September 2016 to complete implementation plans or petition for extension. State options include “wait it out” and see if the next President reverses the ruling after the election in November 2016 or pursue litigation. A recent request for a stay was denied pending publication in the Federal Registrar; publication is expected in October.

The CPP will likely be challenged in using Clean Air Act §111(d), which was intended to establish performance standards under a “best system of emissions reduction” as improperly extending the term “system” beyond a specific resource.  Power plants are already regulated under §112 (hazardous air pollutants), making the CPP duplicative. There is a legislative “glitch” issue because the House and Senate enacted different versions of §111(d), both of which aim to prevent EPA from issuing duplicative regulations. Others argue that the EPA is not the energy regulator with jurisdiction over energy policies and that the CPP is an incursion on state rights.

If states instead take an optimistic view of this rule and file plans by the September 2016 deadline, they will be able to maximize the benefits of the EPA’s Clean Energy Incentive Program (CEIP) and economic development opportunities. CEIP is an optional early action program that provides an opportunity for wind and solar projects, and energy efficiency programs in low-income communities, to earn clean energy credits that are likely to be valuable commodities that can be used by power generators to achieve compliance through trading schemes. If a state submits plans by 2016 (instead of filing an extension), clean energy developers may get extended eligibility under CEIP.

Please join ScottMadden for our Energy Industry Update webinar titled Strange Brew: Adapting to Changing Fundamentals on September 25 from 2:00 – 3:00PM EDT for further information about the CPP. Register Here with Energy Central.

More Information

Brookings: Which states lose from the changes to the EPA’s Clean Power Plan?

BuzzFeed: Here’s How Obama’s Clean Power Plan Will Actually Affect the Economy

Vox: How Obama’s Clean Power Plan actually works – a step-by-step guide

The White House: Remarks by the President in Announcing the Clean Power Plan

This report is part of the Fossil Minute series. To view all featured Minutes, please click here.