EPA Proposes Rule Requiring Existing Power Plants to Reduce Greenhouse Gas Emissions

On June 2, 2014, the United States Environmental Protection Agency (EPA) released its Clean Power Plan, a much anticipated proposed rule under the Clean Air Act to reduce carbon pollution from existing electric generating power plants. Through a combination of emissions reductions, greater reliance on natural gas facilities as opposed to coal-fired facilities, increased use of renewable energy, and/or enhanced energy efficiency, EPA is seeking to cut greenhouse gas (GHG) emissions by 30 percent nationwide (below 2005 levels) by 2030, with most of the reductions occurring by 2020. According to EPA, the proposed regulations are intended to:

• Protect human health and the environment now and for future generations by cutting the single largest source of carbon pollution in the United States;
• Maintain an affordable, reliable energy system; and
• Preserve the important role of states by providing a flexible approach to emissions reductions that builds upon on existing state programs by allowing use of a variety of GHG emission reduction measures.

Background: Clean Air Act Regulation of Green House Gas Emissions as an Air Pollutant

In 2007, the U.S. Supreme Court ruled in Massachusetts v. EPA that GHGs meet the definition of “air pollutant” as defined by the Clean Air Act. As a result, EPA proposed New Source Performance Standard (“NSPS”) for new power plants in 2012. After consideration of numerous comments to EPA’s then-proposed NSPS, EPA issued a revised proposal in January 2014 under which new coal- or pet coke-fired power plants would be required to install partial carbon capture and storage technology, and new large natural gas facilities would be required to incorporate the latest combined-cycle technology. EPA expects to finalize the NSPS rule for new electric generating power plants in January 2015.

By presidential memorandum issued in June 2013, President Obama directed EPA to exercise its authority under section 111(d) of the Clean Air Act to propose regulations to reduce carbon pollution from existing power plants by June 2014 and to issue a final rule by June 2015. Within the past year, EPA has engaged with stakeholders, including states and other interested parties, in a process to gather information to inform this newly proposed rule. Once EPA finalizes these regulations for existing power plants, states will have nine months to prepare, adopt, and submit to EPA a state plan addressing how each state will control GHG emissions from existing power plants.

Selected Elements of the Proposed Regulations

Several key aspects of the proposed regulations are described below.

• Under the proposed rule, existing power plants must reduce carbon dioxide emissions by 30 percent (from 2005 levels) by 2030, with interim goals that appear to require most of the reductions by 2020.
• Each state would have its own rate-based carbon dioxide emission standard (measured in lbs. CO2 per MWh), but may demonstrate compliance by meeting either its target rate or by converting the rate into a more flexible mass-based emission standard (e.g., tons CO2 per state per year).
• EPA determined the best system of emission reduction (BSER) to be a combination of measures to improve emission rates and limit overall carbon emissions. These measures can generally be grouped into four separate categories: (1) improving power plant efficiency; (2) satisfying energy demand by utilizing natural gas combined cycle facilities rather than coal-fired facilities; (3) generating renewable energy; and (4) increasing demand-side energy efficiency.
• States may rely on emission-reduction measures already in place, including renewable energy standards and demand-side energy efficiency programs, and the proposed rule details how such existing state programs can be incorporated into state plans.
• Permits (if not encourages) collaboration on multi-state plans to provide additional opportunities for cost savings and flexibility.

Proposed Rule Reaches Beyond the Fenceline and Seeks Increased Efficiency and Renewables

Clean Air Act section 111(d) requires each state, with assistance from EPA, to develop “standards of performance” for existing stationary sources as well as an implementation plan to achieve those standards. The term “standard of performance” is statutorily defined as “the degree of emission limitation achievable through the application of the best system of emission reduction [when] taking into account the cost of achieving such reduction….” Nothing in the Clean Air Act explicitly limits EPA to analysis of only technology-based or source base emission reduction systems. Historically, however, EPA has focused a unit based emissions limits achievable through installation of a technology control device.

The proposed rule encourages emission reductions that fall “outside-the-fenceline” of power plants, such as end use energy efficiency, renewable energy, and cap-and-trade programs. The proposed regulations are structured so as to undercut the distinction between “within-the-fenceline” and “outside-the-fenceline” emissions reductions. State goals would be established on a statewide basis as emission rates for all fossil-fuel fired facilities. The initial rate would be determined based on facility efficiency and production; however, each state would be credited for emissions avoided through use of renewable energy or energy efficiency when calculating total carbon emissions. States would be afforded the option of translating individual facility emissions goals into a limit on the total mass of GHGs emitted by all generators and receiving credit for those emissions avoided due to renewable energy use or energy efficiency. In short, the emissions reduction goal could be achieved by either by improving efficiency (i.e., reducing carbon emissions per megawatt) or by utilizing alternate energy sources (i.e., reducing the total number of megawatts generated by traditional fossil-fuel fired facilities).

EPA’s Clean Power Rule Highlights Opportunities for States

The proposed rule has potential impacts on any business that is related to or relies on the electric energy market. Importantly, the proposal allows states to join together to submit multi-state plans to achieve regional compliance with a multi-state emissions goal. And EPA’s interpretation of section 111(d) to allow emission averaging or trading among affected electric generating units (EGUs) expressly contemplates that state plans can include trading programs that incorporate flexible compliance mechanisms, such as California’s A.B. 32 program. The opportunity to collaborate with other states and to rely on existing state climate mitigation programs such as renewable portfolio standards (RPSs) means that states such as California are well positioned not only to achieve its emissions goals but also to partner with other states in achieving theirs.

EPA will be accepting comments on the proposed regulations through September 30, 2014. EPA is likely to receive a very large number of comments on a variety of legal and policy issues outlined in the proposed rule.

For additional information, please visit EPA’s website by clicking here.

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