Renewable Energy Not a Blockbuster in EPA’s Clean Power Plan
On June 2, 2014, the U.S. Environmental Protection Agency (EPA) proposed “Clean Power Plan” rules requiring states to reduce carbon dioxide (CO2) emissions from existing fossil fuel-powered electric power plants by 2030.1 EPA claims that the Plan will reduce CO2 emissions nationwide by as much as 30% and reduce the percentage of the nation's electricity supply derived from coal to 30%, down from 37% currently.2 EPA has touted the Plan as a “flexible proposal” in the fight against global climate change.3
The Plan provides some opportunity for expansion of electric generation capacity from renewable energy sources. However, a key element of the Plan, and perhaps its main drawback for the renewable energy industry, is the significant flexibility it offers states to meet CO2 emissions reduction targets. Under the Plan, states may choose from a variety of options to reduce CO2 emissions, including direct emissions reductions from the power plants themselves and demand-side management in addition to programs to increase reliance of renewable energy. Increasing renewable energy capacity is not mandatory, however; states are not required to increase renewable energy capacity if they can meet their CO2 emissions targets by other acceptable means.
Given this flexibility, the immediate impact of the Plan on the renewable energy industry is potentially modest. To insure that they maximize the potential for the development of renewable energy technologies under the Plan, renewable energy industry stakeholders may need to approach state regulators directly to make the case that increasing renewable energy capacity beyond what is assumed in the Plan is a more environmentally responsible—and cost-effective—way for the states to meet their CO2 emissions reduction obligations. The Clean Power Plan is discussed in more detail below.
EPA issued the proposed Clean Power Plan rules pursuant to Section 111(d) of the Clean Air Act (Act)4, which requires EPA to issue regulations directing the states to submit plans that “establish standards of performance for any existing source for any air pollutant.”5 Section 111(a) of the Act defines “standard of performance” as “a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction . . . [EPA] determines has been adequately demonstrated.”6
The Clean Power Plan establishes state-specific CO2 emissions rate limitations (the “standard of performance”) based on what EPA determined to be the “best system of emissions reduction” (BSER) for CO2 emissions for each state. Each state's emissions limitation varies based on a number of factors including, among others, the current mix of energy sources in the state, the useful life of existing electric generating units (EGUs) in the state, and current trends in the state toward increasing use of renewable energy sources. Unlike Section 110 of the Act, which governs EPA's authority to issue area-specific NAAQS for other air pollutants, Section 111 allows EPA to take the costs of compliance into consideration when establishing the BSER for EGUs.7
Much of the preamble to EPA's proposed rule focuses on EPA's interpretation of the “best” system of emission reduction for reducing CO2 emissions from EGUs and on establishing guidelines for state plans. EPA determined that the BSER would require states to consider not only reducing emissions from EGUs themselves but also consider reducing their reliance on fossil fuel-powered EGUs for their energy needs, either by building EGU capacity through renewable and nuclear energy power sources that do not increase CO2 emissions or by reducing energy demand through demand-side management.8 These so-called “building blocks” provide options for reducing CO2 emissions that states have the discretion—but not the obligation—to implement. EPA describes the four building blocks of the proposed emissions rate limitations as follows:
- Reduce EGU emissions through heat rate improvements;
- Substitute high-emitting EGUs with lower-emitting EGUs, primarily through use of natural gas;
- Substitute generation by EGUs with expanded low or zero-carbon generation; and
- Apply demand-side efficiency measures to reduce amount of EGU generation required.9
EPA considered these additional measures to be part of the “best” system of emissions reductions because, in EPA's analysis, they: (1) achieve appropriate levels of emissions reductions; (2) were achievable at reasonable cost; (3) encourage technological development; and (4) were adequately demonstrated because they were already in use in a number of states.10
In calculating the emissions limitations applicable to each state, EPA assumes that each building block independently reduces CO2 emissions.11 EPA quantifies the potential impact of the renewable energy building block (Building Block 3) through what it calls a “best practice” approach, which is based on projections of increasing annual levels of renewable energy (RE) reliance based, in turn, on application of an annual renewable energy “growth factor” to states' renewable energy generation history.12 Renewable energy growth factors for each state are calculated based on regional state groupings to account for the differences between the states in their use of renewable energy sources to date.13
EPA does not anticipate that Building Block 3 will be a huge spur to innovation and investment in the renewable energy sector. EPA stated that its estimates of the percentage of a state's power that will come from renewable energy as a result of EPA's “best practices” assumptions does not significantly expand the renewable energy sector in many states, and in some states it actually reduces the percentage that renewable energy sources contribute to a state's electric power capacity by 2030.14 EPA also states that although the emissions limitations established for each state are based on application of all four of the building blocks (and based on a “best practices” approach for RE generation), states are free to use whatever combination of the building blocks they deem appropriate to meet EPA's
state-specific emissions reduction goals.
In California and a number of northeastern states that have already implemented more robust state and regional initiatives to spur renewable energy sources for the electric power sector, the proposed rules will continue the trajectory those states are already headed in. Indeed, EPA has stated that the renewable energy programs included in Building Block 3 are already “adequately demonstrated” because many states already use them. But the flexibility of the Plan does not bode well for aggressive expansion of the renewable energy industry in states that do not, as a matter of policy, already have or require the development of significant renewable energy sources for electricity generation, especially when natural gas remains a relatively cheap and well-developed means of lowering CO2 emissions, at least as compared to coal. Renewable energy industry stakeholders may therefore want to look toward the states and develop arguments showing that “best practices” require the development and use of more renewable energy resources than EPA's models assume.
1 Environmental Protection Agency, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (June 2, 2014) (“Clean Power Plan”), available athttp://www2.epa.gov/sites/production/files/2014-05/documents/20140602proposal-cleanpowerplan.pdf.
2 Clean Power Plan at 14; see also U.S. Energy Information Administration FAQs, available at http://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3.
3 EPA Press Release, June 2, 2014, available at http://yosemite.epa.gov/opa/admpress.nsf/bd4379a92ceceeac8525735900400c27/
4 42 U.S.C. § 7411(d).
5 Id. § 7411(d)(1)(A). In 2007, the Supreme Court held that CO2 was an “air pollutant” under the Act. See Massachusetts v. EPA, 549 U.S. 497 (2007). Unlike Section 110 of the Act, which requires states to submit plans that allow them to meet NAAQS emissions standards for a particular geographical region, Section 111 requires states to submit plans that allow them to meet emissions standards for a particular source category. See 42 U.S.C. § 7411(b)(1)(A).
6 42 U.S.C. § 7411(a)(1).
7 Id. § 7411(a)(1).
8 Clean Power Plan at 120.
9 Id. at 153.
11Id. at 179.
12 See id. at 196.
13 See id.
14 See id. at 198.