On June 2, 2014, as directed by President Obama’s Climate Action Plan, U.S. Environmental Protection Agency (“EPA”) Administrator Gina McCarthy signed EPA’s proposed emission guidelines for existing electric utility generating units, which EPA has dubbed the “Clean Power Plan.”  The proposal sets state-specific, rate-based goals.  According to EPA, this proposal will help reduce carbon emissions from the power sector 30% from 2005 levels by 2030. 

EPA’s Role: Establish the Best System of Emission Reduction (“BSER”)

EPA acknowledges that states have the lead in implementing existing source performance standards under Clean Air Act (“CAA”) section 111(d), recognizing that states are the most knowledgeable about their specific circumstances and are best positioned to evaluate and leverage existing and new generation capacity and programs to reduce carbon dioxide (“CO2”) emissions.  As a result, EPA’s proposal establishes state-specific “goals” for CO2 emission reductions, and then requires states to develop a plan that sets source-specific standards of performance to achieve those goals.

EPA’s proposal relies on four “building blocks” to set each state’s goal, indicating that “the agency recognizes that the most cost-effective system of emission reduction for GHG [greenhouse gas] emissions from the power sector under CAA section 111(d) entails not only improving the efficiency of fossil fuel-fired EGUs [electric generating units], but also addressing their utilization by taking advantage of opportunities for lower-emitting generation and reduced electricity demand across the electricity system’s interconnecting network or grid.”  The four building blocks that EPA uses to establish BSER include: 

  1. Making existing fossil plants more efficient (average 6% heat rate improvements);
  2. Increased dispatch of natural gas combined-cycles (to 70% capacity factor);
  3. Using and expanding the use of zero-emitting generation (additional renewables and nuclear); and
  4. Increasing demand-side energy efficiency (increase to 1.5% annually).

Each state’s goal is set by EPA by applying these building blocks to the state’s unique mix of emissions and power sources.  Although the percent of reductions will vary from state to state, in total, the state-specific reductions add up to a 30% reduction nationwide from 2005 levels.  Notably, once EPA promulgates the final state goals, states will have no opportunity to adjust them. 

States’ Roles under EPA’s Proposal: Identifying Source-Specific Standards of Performance

Once EPA finalizes the state goals, states are responsible for determining how best to meet the goals.  EPA has proposed a two-part goal structure, including an “interim goal” that a state must meet on average over the ten-year period from 2020-2029 and a “final goal” that a state must meet at the end of that period in 2030 and thereafter.  Notably, states can develop a state-only plan or collaborate with each other to develop multi-state plans.

If finalized as proposed, the rule would require states to submit an initial or complete plan by June 30, 2016, with the option to use a two-step process for submitting final plans if more time is needed.  Individual state plans would be eligible for a one-year extension to June 30, 2017, and multi-state 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 plan, 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.  If EPA disapproves of a plan, or if a state fails to submit a plan, then EPA will develop a federal plan for that state.  The federal plan is an interim action and will be automatically withdrawn when the state’s plan is approved.

Implications

According to EPA, the proposal has net climate and health benefits of $42 to 82 billion.  EPA stated that because “[t]he way that power is produced, distributed and used is already changing due to advancements in innovative power sector technologies and in the availability and cost of low carbon fuel, renewable energy and energy efficient demand-side technologies, as well as economic conditions,” EPA does not project significant impacts to reliability or increases in the cost of electricity.  EPA projects that coal and gas each will remain greater than 30% of generation in 2030. 

Given EPA’s expected focus on energy efficiency improvements at specific units, many stakeholders have focused on the difficulties of implementing CAA section 111(d) in light of EPA’s existing New Source Review (“NSR”) permitting program, which EPA previously has acknowledged discourages efficiency improvement projects.  See New Source Review: Report to the President, USEPA, June 2002, available here.  EPA indicated in the proposal that it expects few projects to trigger NSR and for those projects that could trigger NSR, EPA recommended that states work with individual sources to take synthetic minor limits to avoid NSR. 

Next Steps

EPA will accept comments on the proposal for 120 days after publication in the Federal Register.  Four public hearings on the proposed Clean Power Plan will be held during the week of July 28 in the following cities: Denver, Atlanta, Washington, DC and Pittsburgh.  Pursuant to the President’s Climate Action Plan, EPA must finalize the existing source performance standards next June.

A copy of the proposal is available here.