June 5, 2014
On June 2, 2014, the Environmental Protection Agency (EPA) released its Clean Power Program, the cornerstone of the Obama Administration's Climate Change Action Plan, which was announced last year and promised regulatory controls on greenhouse gas emissions from the power sector. EPA's most recent proposal establishes requirements for states to issue "standards of performance" for emissions of carbon dioxide (CO2) from existing fossil fuel electrical generating units (EGUs) under the Clean Air Act (CAA) section 111(d). But the broad name EPA has given to its proposal -- Clean Power Program -- more accurately reflects the sweeping nature and scope of its efforts to help propel the US power sector forward onto a cleaner, less carbon intensive path.
The Clean Power Program follows EPA's proposed New Source Performance Standards for new EGUs under CAA section 111(b) (new unit rule), published in February 2014. But where the new unit rule was clearly intended to drive new plant construction toward coal-fired power with carbon capture and sequestration and natural gas combined cycle generation, the Clean Power Program seeks to promote a wide array of low or zero-carbon options, including further natural gas dispatch, renewable energy, nuclear energy, energy efficiency and demand-side management, and to ensure that these elements are integrated into long-term planning and investment. EPA's broad reach creates legal vulnerabilities for the proposal, but it also creates opportunities for states and for electricity generators to make greater investments in a clean energy future.
How the rule works
The Clean Power Program's goal is to secure 30% CO2 reductions from fossil fuel-fired generation by 2030 based on a 2005 baseline. To get there, EPA sets "goals" -- target carbon intensity rates for each state -- expressed as the average rate of emissions per net megawatt hour (MwH) of electricity across all power plants in that state. EPA develops these goals by taking each state's 2012 power plant emission levels and calculating a reduction target based on the application of four "building blocks" identified, in the aggregate, as the "Best System of Emission Reductions." These are:
- heat rate improvements for individual coal-fired units (by an average of 6%);
- increased dispatch of natural gas from existing plants (minimum 70% capacity) or those under construction(15% of capacity available for substitution of coal) to displace oil and coal generation;
- increased renewable energy capacity based on specific renewable portfolio standards, and changes in nuclear capacity (new capacity less retirement); and
- increasing demand-side energy efficiency programs to reach 1.5% annual electricity savings in 2020-2029.
Through these calculations, EPA claims that it is taking into account the specific mix of emissions, power sources and resources available in each state, allotting higher targets to states with limited options beyond coal generation while also giving other states with significant renewable programs or climate change policies in place credit for their reductions.
EPA gives significant flexibility to states
After setting these hard targets, EPA provides states with significant flexibility in developing plans to meet them. The plans are then subject to approval by EPA based on criteria set forth in the proposal. In terms of compliance, state plans must ensure that the targets are met, beginning in 2020. States must demonstrate through decade-long averaging that they meet an interim target from 2020-2029, reporting their progress every two years. States must meet their final target by 2030, and after that date, the targets must be met on a three-year rolling average basis.
As to the substance of those plans, states can apply emission limits directly to affected EGUs, use any of the building blocks in a "portfolio approach," or use any other measure as long as they are enforceable and help meet interim and final targets. States can also create regional programs and submit regional plans. States can even convert their rate-based targets to mass-based targets (tons of CO2 emitted) since that may better enable them to participate in regional trading programs.
Finally, as to timing, states must submit plans within one year of the finalization of the rule, which EPA intends to complete in June 2015. This means states must file plans by June 2016. However, they may seek an additional year or, if they create regional plans, two extra years. States must apply for an exemption and still make interim filings in June 2016. Once a plan is submitted, EPA has a year to review, and once approved, state requirements become federally enforceable.
Upon publication, the proposed rule will be open for a 120-day comment period, twice the time usually allotted other major EPA rules. EPA will be certain to receive millions of comments, as it did on its new unit rule. EPA will also hold four public hearings in several states and in Washington, DC over the summer. EPA plans to finalize the rule by June 2015; after that, it will be surely challenged in court. EPA also plans to issue a final new unit rule before or concurrently with the Clean Power Program, as well as a companion rule setting standards for modified and reconstructed EGUs.
Creating opportunities and risks
If the Clean Power Program is finalized largely as proposed, it could create major opportunities for clean energy providers and investment in clean energy. This could include spurring further dispatch and construction of new natural gas generation capacity, further development of renewable power, and perhaps a rescue of "at risk" nuclear plants. It would also provide opportunities for utilities and other entities to enhance energy efficiency measures and take a wide range of actions to reduce energy demand well beyond EGUs or the power sector. At the same time, it is likely to lead to additional retirements of coal plants, already buffeted by sustained low gas prices and EPA's air toxics rule.
The proposal has already generated legal and political opposition. Members of Congress immediately attacked the proposal as too costly. Opponents of the regulation are likely to challenge the program in court based, in part, on its very breadth, arguing that section 111(d) in no way authorizes EPA to implement such sweeping regulation of the power sector.
Whether and how the Clean Power Program might eventually impact the power sector may ultimately depend as much on the DC Circuit Court as it does on who is in the White House.