Air Quality Law Alert: EPA Unveils Sweeping New CO2 Rules

by Stoel Rives LLP

Yesterday, EPA Administrator Gina McCarthy announced two new rules that will ultimately result in the application of carbon dioxide (CO2) standards to existing power plants. The first rule was proposed under Section 111(d) of the Clean Air Act (CAA) and will impact existing power plants that do not undergo changes. This is the rule that garnered the press even though it will not directly impact any emitters for several years. The second proposed rule was proposed under CAA Section 111(b) and will impact existing power plants that undergo any changes starting immediately (note: 111(b) standards apply starting on the day of proposal). Dubbed the “Clean Power Plan,” the rules taken together likely will have a significant impact on industrial and other consumers of electricity as well as developers of natural gas-fired and renewable (e.g., solar, biomass and wind) generation. EPA and other federal agencies promoted news of the 645 page draft rule with an intense and sustained public relations and social media blitz.

President Barack Obama has repeatedly stated his determination to regulate the roughly 40-percent of the nation’s GHG emissions that come from the energy sector. EPA proposed rules on January 8, 2014 regulating new power plants which many predict will make it impossible to build new coal-fired generating units. However, those rules left CO2 from existing power plants unregulated. Yesterday’s rules changed that.

Section 111(d): A More Flexible Regulatory Approach?

Section 111(d) differs from EPA’s conventional rulemaking authority. For new and modified power plants EPA simply issues standards (under CAA Section 111(b)) that are directly applicable to all new and modified affected facilities. For example, EPA proposed CO2 standards under CAA Section 111(b) for new power plants in January, 2014, and for modified power plants yesterday. EPA’s 111(d) authority is more circumspect. Rarely employed, Section 111(d) grants EPA the authority to issue emission guidelines that then must be used by the states to craft programs that are consistent with EPA’s stated objectives. These state programs must then be approved by EPA. However, the guidelines are just that--options for how to create a program--and not outright mandates as to what the state rules must entail.

One of the few existing Section 111(d) programs was the emission guidelines from May 1979 requiring states to regulate Total Reduced Sulfur from kraft pulp mills. That rulemaking proposal received 11 industry comments, no environmental group comments and the preamble to the final guidelines was two pages long (those were the days). EPA’s Regional Haze program, proposed in 1999, was also guideline-based, but resulted in years of litigation and court decisions holding that EPA had been too proscriptive and not respectful of states’ rights. EPA’s most recent use of the section 111(d) authority involved imposition of mercury guidelines where EPA attempted to establish a nationwide cap and trade program. That attempt ended with the D.C. Circuit striking down the rules without addressing the agency’s use of its 111(d) authority. As a result, the limits of EPA’s authority under a guideline-based approach are uncertain making its issuance of 111(d) standards for existing, unchanged power plants subject to inevitable challenge.

The new proposed 111(d) power plant rules establish state specific CO2 emission limits and require that each state demonstrate by June 2016 how it will achieve that limit by the deadlines in 2020 and 2030. The CO2 limits vary widely depending on the state. For example, the 2030 emission limit for Washington is 215 lb CO2/MWh while Montana’s limit is 1,771 lb/MWh. States have the option of converting this rate-based limit to a mass-based limit (i.e., a specific number of tons of CO2 emissions per year). Each state must develop a set of rules to reach these limits and submit the plan to EPA for approval. If a state fails to do so, EPA will impose its own rules.

Implementation of the New Rules

EPA specified four basic strategies to be used by the states in achieving the limits: improved power plant efficiency, increased use of lower emitting fossil fuel fired power plants (e.g., natural gas-fired combined cycle combustion turbines), increased use of non-emitting generation resources (e.g., solar, wind), and increased end-user (demand-side) efficiency. For example, states would be able to take credit for shifting generation from coal-fired power plants to natural gas-fired power plants. The proposed rules specify that a state can include existing programs in its plan, but can only take credit for action under those existing programs that occur after the date the proposed rule is published in the Federal Register.

EPA derived the state limits based on its projections of what each state can achieve from implementing the four strategies. In establishing the emission limits, EPA assumed that every coal-fired power plant would improve its generation efficiency by 6 percent, that combined cycle natural gas combustion turbines would, on average, provide 64 percent of a state’s generation, that renewable generating capacity would increase to meet or exceed all state goals, and that demand-side energy efficiency gains would reach 1.5 percent annually by 2020. A default option for states is to develop a plan that simply tracks the EPA assumptions.

The proposed rules allow states to join together to prepare regional plans. EPA’s rule preamble discusses extensively the benefits of implementing cap and trade programs such as that in place in California and the Northeast US. The proposal leaves open the possibility of states joining together into similar regional trading programs to demonstrate compliance with the 111(d) limits. This push may result in the revitalization of comparatively moribund programs like the Western Climate Initiative as a forum for the development of such schemes. This approach could shift the U.S. to a cap and trade system akin to what has existed in the European Union for years. In addition to or as an alternative to cap and trade, the proposed rule allows states to take credit for new wind and solar generation. States can also take credit for post-publication energy efficiency gains. This means that a state can meet its obligations under the 111(d) program through energy efficiency gains and Renewable Portfolio Standards so long as the gains were realized after the proposal is published in the Federal Register (likely about 2 weeks from now).

One very contentious aspect of the rulemaking is whether EPA can consider any of the reduction strategies other than the first (efficiency improvements at affected facilities). Several states have already indicated that they consider any “outside the fenceline” options to be outside the authority of EPA, virtually ensuring that the 111(d) guidelines will be in litigation for years to come. EPA responds in the preamble by stating that it welcomes comments on this issue. However, the agency also strongly suggests that not much credence will be given to such comments.

Impact on Industrial and Power Generation Sectors

How the rules will impact the industrial and power generation sectors remains to be seen. Two things are likely. First, if the final guidelines bear any resemblance to the proposed guidelines, they create one more significant impediment to the U.S. utilizing its coal resources. Second, many predict that the cost of electricity will increase as a result of this program (although EPA believes cost reductions from efficiency gains will more than offset any cost increases). If costs do increase, many predict that policymakers will be loath to have these costs fall too hard on residential and commercial consumers. That will end up with much of the cost being borne by the industrial users.

The rules may create benefits for several sectors. Developers of renewable energy sources are generally praising the proposal as it will, at the very least, provide support for Renewable Portfolio Standards and potentially boost sectors such as biomass and solar. Owners of existing natural gas combined-cycle combustion turbine generation should also be pleased with the proposal as EPA acknowledges that one likely result is a significant increase in utilization of these units. This will also benefit all of those involved in the extraction and transportation of natural gas. Nuclear should also be pleased.

Next Steps: Comment Period

EPA is allowing the public 120 days from the date of publication to comment on the proposed rules. Ultimate publication of the final rules is scheduled for June 2015 with states having to turn in their plans by June 2016 (unless they get an extension). It seems hard to believe that EPA will meet the 2015 final rule issuance deadline given this schedule (EPA received over 2.5 million comments on the 111(b) standards for new sources). Even if EPA meets the June 2015 deadline for signing the final rules, it seems unlikely that the states will move fast enough to meet the 2016 deadline and EPA has little ability to force timely compliance. Some states may drag out the submittal process to see who is next in the White House.

Stay tuned as this process unfolds in the next few years. The one certainty is that these rules will be vigorously litigated.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Stoel Rives LLP | Attorney Advertising

Written by:

Stoel Rives LLP

Stoel Rives LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.