Yesterday, the Obama Administration released the long-awaited plan to require existing power plants to drastically reduce CO2 emissions by 2030. The “Clean Power Plan” follows years of effort by the Administration to regulate greenhouse gases. In 2007, the United States Supreme Court upheld the federal government’s ability to regulate greenhouse gases, but the Administration could not get support in the House or Senate to pass more specific implementing legislation. In lieu of major legislative support, the Administration has taken the increasingly favored approach of side-stepping Congress and pushing policy through agency action. This is likely one of the most significant public policy programs ever attempted through rulemaking rather than legislation and, in that respect alone, is notable for the shift in the way policies will be made in a divided political system.
The proposed rule itself is massive, with the pre-publication version running 645 pages. The unofficial version was posted this morning, with an official publication version to be printed in the Federal Register today or tomorrow. The official version will set the schedule for written comment submission. There will also be nationwide hearings on the proposed rulemaking, including one in Denver, Colorado on July 29, 2014. Lewis Roca Rothgerber attorneys will attend and report back through a follow-up post.
CLEAN POWER PLAN SUMMARY:
Nationwide, by 2030, the rule could result in CO2 emission reductions from the power sector of approximately 30 percent from CO2 emission levels in 2005.
The rule applies to Existing Generating Units (EGUs).
As proposed, states will have options in implementing the proposed reductions using EPA’s four “Building Blocks”:
Make power plants more efficient;
Use low-emitting power sources more (as a percentage of production);
Use more zero and low emitting sources; and
Use electricity more efficiently.
In addition, states can implement market-based programs to reduce CO2 (such as cap and trade).
States can implement these programs alone, or group together to achieve regional reductions.
States must submit initial or complete carbon emission reduction plans by June 30, 2016, with the possibility of a one- or two-year extension under certain circumstances.
There are interim and final reduction goals built into the Plan with interim goals starting in the period 2020 – 2029 and final compliance in 2030.
WHAT DID WE LEARN TODAY?
A few major questions were answered today:
“Inside the Fence” vs. “Outside the Fence” Regulation – Commentators were watching closely to determine whether the EPA would regulate “inside the fence,” with mandated emissions reductions on individual sources. Speculation favored “outside the fence” regulation, calling for emissions targets and options for states to meet the reductions. The EPA went with the more flexible, “outside the fence” approach which is intended to provide states and electric utilities greater opportunities to meet the emission reduction targets.
Baseline Year – The EPA chose 2005, a year that CO2 emissions were relatively high. Had the proposed rules been based on a more recent year when carbon emission reductions were lower (for example, 2012), this would have created a greater challenge for electric utilities that have already been working in recent years to reduce their emissions.
Percent of Expected Reductions – The EPA is requiring 30 percent total reductions by 2030. This is expected to be a significant challenge to the electric utility industry. Before the proposed rules were released, speculation ran as high as 27 percent targeted reductions. It is possible that the target reductions percentage may substantially offset the benefits of the EPA having chosen 2005 as the baseline year. This will most likely be a major issue of contention in the comment period and public hearings.
WHO WINS AND WHO LOSES?
The coal industry and coal states will no doubt see this as a major new battleground in the ongoing “war on coal.”
Electric utilities with a significant percentage of coal-fired generation will also undoubtedly take a negative view of this proposed regulation. These utilities will face the prospect of incurring massive costs over the next 15 years to implement the necessary regulations through installation of emission controls or fuel switching from coal to natural gas. The result will be difficult financial and policy decisions for the utilities, and frequent trips to state regulatory commissions to fund the required programs. The coal and electric utility industries are very likely to mount serious legal challenges to the rule.
Natural gas producers will favor this program as drafted. The writing is on the wall that the future of American energy production, at least where fossil fuels are concerned, favors American-produced natural gas. In that regard, it could be said that the Administration is picking a favored fuel.
Renewable energy wins. The renewable sector will undoubtedly get a big boost from the proposed rules as states, regional groups, and utilities that have been making progress toward complying with existing renewable energy standards will have a new incentive to integrate more renewable resources as part of their carbon emission reduction plans.
Engineering firms and technology vendors will also benefit as there will be a substantial increase in the need for consultants and other service providers to assist utilities in retrofitting existing generating units, with emission control systems and undertaking generating efficiency improvement projects.
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