Part 1—–Introduction

The Obama administration’s history-making Clean Power Plan to reduce carbon emissions from existing fossil-fuel power plants arrived basically in the form most observers expected.  At this point, the main element of the plan is a proposed standard that will result in a 30 percent reduction in CO2 emissions from power plants, or electric generating units (EGU), by 2030 compared to 2005 levels. 

EGUs generate more than one-third of all U.S. CO2 emissions, and a 30 percent reduction goal, even stretched out over 10 to 15 years, would be by far the most ambitious climate-related action ever undertaken in the United States.

The proposal is a gamble because the Clean Air Act (CAA) is almost entirely silent on the authority of the executive branch to regulate CO2 emissions.  The Supreme Court has affirmed that CO2 is a pollutant and, therefore, the EPA must take action to reduce the danger it poses to human health and the environment.  But the proposal relies on CAA’s Section 111(d), a very brief provision that many argue cannot possibly justify regulatory actions that will fundamentally alter the way electricity is generated and consumed by all Americans. 

Building blocks

Section 111(d) requires that the EPA set a standard based on the best system of emission reduction (BSER) that has been adequately demonstrated, taking into account other factors, including cost.  The proposal interprets the BSER in ways that will give each state the flexibility to achieve an average CO2 emissions rate for EGUs based on each state’s unique circumstances.  Overall, the proposal defines the BSER as a range of measures that fall into four main categories, or “building blocks,” which comprise improved operations at EGUs, dispatching lower-emitting EGUs and zero-emitting energy sources, and end-use energy efficiency.
“All of these measures have been amply demonstrated via their current widespread use by utilities and states,” says the EPA. 

State role is central

Indeed, the roles that will be played by states —including the amount of support of and resistance they offer to the proposal —may be the pivotal factor in whether the proposal can be made to work.  Some states are already far along in implementing  EPA’s building blocks.  For example, the EPA notes that the results of  Northeast’s Regional Greenhouse Gas Initiative (RGGI) and California’s Global Warming Solutions Act have “amply demonstrated” the successful use of the building blocks by utilities and states to achieve cuts in EGU CO2 emissions comparable to those the Agency is proposing. 

During the preproposal period, the EPA says it “engaged” with representatives of all 50 states, a process that included collecting policy papers from states with overarching energy goals and technical details on the states’ electricity sector.  This engagement with the states will continue, says the EPA, at least until June 1, 2015, when the final action on the proposal is scheduled for release.

The whole world is watching
This regulatory action is extraordinarily consequential.  According to the EPA and many scientists, climate change is literally threatening the American way of life, and the risks in other parts of the world are even more dire.  While the collective actions of the United States will not alone pull us back from the alleged brink, all other nations are watching us.  The power to persuade other major emitting countries, mainly China and India, to control their GHG emissions will depend to a large degree on the fate of this proposal. 

The EPA is assuring us that the proposed standards will devastate neither the economy nor the reliability of electric power.  Indeed, the Agency is claiming that the proposal will produce many benefits, including the co-benefit of improved human health from the reduction in other air pollutants and more jobs in the renewable energy and demand-side management sectors. 

Five issues

Here’s a quick look at five major issues within and associated with the Clean Power Plan.

• Standards.  The overall goal is a 30 percent cut in CO2 emissions from fossil-fuel power plants by 2030.  However, the standard is more accurately described as the average emissions rate that that will be set for each of the 50 states.   The proposal would set both interim and final rate-based CO2 emissions performance goals expressed as pounds of CO2 per net megawatt hour (lb CO2/MWh).  The goals vary considerably based on each state’s fuel mix, electricity market, and “numerous other factors.”  The proposal’s final goals range from 215 lb CO2/MWh for Washington to 1,783 lb CO2/MWh for North Dakota. 
• State plans.  The proposal includes guidelines to the states for the development, submission, and implementation of Section 111(d) state plans to achieve interim and final goals.  According to the EPA, the proposed guidelines are structured so that states would not be required to use each and every one of the measures the EPA determines constitute the BSER or to apply any one of those measures to the same extent that the EPA determines is achievable at reasonable cost.  Instead, in developing its plan, each state will have the flexibility to select the measure or combination of measures it prefers to achieve its CO2 emission reduction goals, says the Agency.
• Schedule.  All states must submit initial or complete plans by June 30, 2016, with the option to use a two-step process for submitting final plans if more time is needed.  For example, some states may reasonably need additional time to submit complete plans because of factors such as the timing of legislative approval processes.  Accordingly, the deadline for submission of individual state plans may be extended for eligible states for one year to June 30, 2017.  Multistate plans would be eligible for a two-year extension to June 30, 2018, and would need to submit a progress report in the interim by June 30, 2017.  Once a state submits a complete state plan, the EPA will review the plan and make a determination within 12 months to approve or disapprove the plan through a notice-and-comment rulemaking process.  States have the authority to determine the schedule by which their sources must achieve the required CO2 reductions.  States must make “meaningful progress” toward the required reduction by 2020 and achieve full compliance by 2030.
• Benefits.  The EPA states that the Clean Power Plan will lead to climate and health benefits worth an estimated $55 billion to $93 billion in 2030, including avoiding 2,700 to 6,600 premature deaths and 150,000 asthma attacks in children.  Average monthly electricity bills are anticipated to increase by roughly 3 percent in 2020, says the EPA, but decline by approximately 9 percent by 2030. This is a result of the increasing penetration of demand-side-management programs that more than offset increased prices to end users by their expected savings from reduced electricity use, the Agency says.
• Costs.  Since the states will wield considerable authority to devise their compliance plans and state energy mixes also vary, costs will differ from state to state.  The proposal will also allow states to band together into regional units to meet the reduction goals, and this will also impact compliance costs.  Total compliance costs for the proposed regional approach are approximately $5.5 billion in 2020 and in $7.3 billion in 2030.  If states act alone, total compliance costs are estimated at $7.5 billion in 2020 and $8.8 billion in 2030.

In the next several days, we will provide more detail on these and other issues associated with this groundbreaking regulatory action. 

The proposed Clean Power Plan

Part 2-State specific goals

Part 3-BSER

Part 4-State plans

Part 5-Reactions