Clean Power Plan Promotes Renewables
On August 3, 2015, the U.S. Environmental Protection Agency (EPA) announced its controversial, final “Clean Power Plan” regulations.1 The regulations require states to submit plans to EPA to gradually reduce carbon dioxide (CO2) emissions from existing fossil fuel-powered electric power plants (EGUs). Reductions are to begin in 2022 and continue through 2030. The Plan contains a number of significant changes from the proposed regulations that have far-reaching ramifications for the entire energy industry and energy users. These are described below.
Perhaps the most important changes relate to EPA’s increased emphasis on renewable energy (e.g., wind, solar, hydropower) to reach CO2 emissions reductions goals. The Clean Power Plan provides the best opportunity yet for the renewable energy industry to become more integrated into our nation’s electric power grid. That opportunity would come at the cost of not only the continued use of coal but also the continued expansion of the use of natural gas. Thus, we can expect significant litigation challenging most aspects of the Plan by industry stakeholders.
1. Background – Proposed Clean Power Plan
EPA issued the Clean Power Plan pursuant to Section 111(d) of the Clean Air Act. That section requires EPA to issue regulations directing the states to submit plans that “establish standards of performance for any existing source for any air pollutant.”2 A “standard of performance” is “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 [BSER] . . . [EPA] determines has been adequately demonstrated.”3
EPA proposed to establish state-specific CO2 emissions standards (the “standard of performance”) based on what EPA determined to be BSER for CO2 emissions for each state. Each state’s standard would vary based on a number of factors, including the current mix of energy sources in the state, the useful life of existing EGUs in the state, and current trends in the state toward increasing use of renewable energy sources.
In the proposed Clean Power Plan regulations, EPA determined that the BSER would require states to consider not only reducing emissions from EGUs themselves, but also “beyond the fence line” strategies for reducing their reliance on fossil fuels.4 These so-called BSER “building blocks” provided the basis for EPA’s CO2 emissions standard of performance in the proposed Plan.
EPA addressed four building blocks in the proposed rule: (1) reduction of fossil fuel EGU CO2 emissions through heat rate5 improvements; (2) substitution of generation from existing natural gas EGUs for coal–fired EGUs and establishment of substitution rates based on the “nameplate” capacity of natural gas EGUs (i.e., the full capacity of the EGU when new); (3) substitution of generation by fossil fuel-powered EGUs with expanded low or zero-carbon electricity generation, including existing, under-construction, and future nuclear and renewable energy sources; and (4) application of demand-side efficiency measures to reduce amount of energy required.6
Several industry stakeholders sought to challenge EPA’s authority to issue the Plan even before comments had been received. The U.S. Court of Appeals for the District of Columbia Circuit dismissed those suits, holding that the Proposed Plan was not final agency action subject to judicial review.7
2. Changes to the Clean Power Plan that Increase Emphasis on Renewable Energy
In response to thousands of public comments, and in light of what it states is more accurate information regarding the current use of renewable energy and the pace of renewable energy technology development, EPA in the Final Clean Power Plan increased its final target for overall CO2 emissions reductions nationwide from 30 to 32 percent. At the same time, however, EPA extended the initial date by which states are to meet interim CO2 emissions reduction targets from 2020 to 2022. In doing so, EPA also significantly revised the BSER to more heavily emphasize renewable energy. The Agency also created an emissions credit incentive program to spur states to increase renewable energy capacity in 2020 and 2021.
a. Less Favorable Treatment of Natural Gas
In the final rule, EPA revised its estimate of the available capacity at existing natural gas EGUs based on what it deemed more realistic information. Rather than base its calculations on “nameplate” capacity, EPA stated that it based them on data regarding the actual operating capacity of the EGUs.8
The upshot of this recalculation is that less CO2 emissions reductions may be realized through shifting energy production from coal-fired EGUs to natural gas EGUs than EPA originally estimated. Consequently, reductions must be found elsewhere —presumably through the increased use of renewable energy.
EPA also provided a more explicit explanation of why it does not include newly-constructed natural gas EGUs (as opposed to increased capacity at existing natural gas EGUs) as a component of BSER. EPA asserted that because of the long life of such EGUs they would not, over the course of their working life, decrease overall CO2 emissions.9 EPA stated that “[u]nlike emission reductions achieved through the use of any of the building blocks, emission reductions achieved through the use of new [natural gas] capacity require the construction of additional CO2-emitting generating capacity, a consequence that is inconsistent with the long-term need to continue reducing CO2 emissions beyond the reductions that will be achieved through this rule.”10
b. More Favorable Treatment of Renewable Energy Technology
EPA also recalculated the cost-effectiveness of existing renewable energy technology and the availability of existing renewable energy capacity. EPA stated that “[t]he final guidelines’ BSER determination . . . takes into account recent reductions in the cost of clean energy technology, as well as projections of continuing cost reductions, and continuing increases in [renewable energy deployment” in carving out a larger role for renewable energy.11
EPA also abandoned its determination in the proposed regulations that renewable energy capacity existing at baseline (which for the Clean Power Plan is the year 2012) is a component of BSER.12 EPA stated that such capacity does nothing to reduce CO2 emissions from baseline and thus could not be part of a best system of emissions reduction.13 By making existing renewable energy capacity immaterial to the BSER, EPA put greater emphasis on new and expanded renewable energy capacity.
c. Incentives for Early Use of Renewable Energy
In response to concerns regarding the timing and path for implementation of the Clean Power Plan, EPA lengthened the time period by which states must meet the first interim CO2 emission standards from 2020 to 2022.14 To further incentivize the use of renewable energy, EPA created in the final rule the Clean Energy Incentive Program (CEIP).15 Under the CEIP, and, depending on the type of emission standard they adopt (e.g., mass-based or rate-based), states may earn emissions allowances or emission reductions credits (ERCs) in 2020 and 2021. They can do this by creating new wind and solar energy capacity or reducing electricity costs in low-income communities.16 These credits can be banked and used in 2022 and later or else traded.
3. Litigation Has Already Begun
The final Clean Power Plan may prove to be a boon for the renewable energy industry. The Plan remains controversial with others, however, especially with respect to any requirements that go beyond measures that directly affect CO2 emissions reductions at fossil fuel-fired EGUs themselves. Many industry stakeholders have argued that such requirements go beyond EPA’s authority under Section 111 of the Clean Air Act.
Sensitive to these “beyond the fence line” challenges, EPA dropped from the final rule a proposal (Building Block 4) to include demand-side energy efficiency measures as part of BSER. But the Agency asserts that it remains confident that the other components of BSER (Building Blocks 2 and 3, which are described above) are well within its authority. Nonetheless, even though the final regulations have not yet been published in the Federal Register, West Virginia and other coal-producing states filed an emergency petition to stay them.17 The petition was denied.18 Much more litigation is on the horizon. Renewable energy stakeholders and advocates would be wise to be prepared to jump into the fray.
1 EPA, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, Final Rule, prepublication version (“Final Clean Power Plan”) (August 3, 2015), available at http://www2.epa.gov/sites/production/files/2015-08/documents/cpp-final-rule.pdf.
2 42 U.S.C.§ 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). See id. § 7411(b)(1)(A).
3 42 U.S.C. § 7411(a)(1).
4 See EPA, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, Proposed Rule (“Proposed Clean Power Plan”), 79 Fed. Reg. 34,830, 34,852 (June 18, 2014).
5 “Heat rate improvements are changes implemented at an EGU that increase the efficiency with which the EGU converts fuel energy to electric energy, thereby reducing the amount of fuel needed to produce the same amount of electricity and consequently lowering the amount of CO2 produced as a byproduct of fuel combustion.” Final Clean Power Plan at 647.
6 Proposed Clean Power Plan, 79 Fed. Reg. at 34,858.
7 See In re Murray Energy Corp., 783 F.3d 330 (D.C. Cir. 2015).
8 Final Clean Power Plan at 341.
9 Id. at 346.
11 Id. at 65.
12 “As part of the adjustment in approach, we have also refocused quantification solely on generation from new RE generating capacity rather than total (new and existing) RE generating capacity as in the proposal.” Final Clean Power Plan at 343.
13 See id.
14 Id. at 60-61.
15 See id. at 864-879.
16 See id. at 74, 868.
17 See, e.g., In re West Virginia, et al., Case No. 15-1277 (D.C. Cir. Aug. 13, 2015) (emergency petition for extraordinary writ of stay filed by West Virginia and other states to stay implementation of the final Clean Power Plan regulations).
18 See id. per curiam order (D.C. Cir. Sept. 9, 2015).