Changes Likely in Final Version of EPA's Clean Power Plan

Manatt, Phelps & Phillips, LLP

EPA's rules regulating greenhouse gas emissions from power plants are expected to be finalized by the end of the summer. It has been nearly two years since the EPA unveiled its proposed greenhouse gas emissions standards under the Clean Air Act for new and modified electric power plants, and over a year since it released its Clean Power Plan, which would limit carbon pollution from existing power plants. EPA has sent both rules to the Office of Management and Budget, the final step in the administrative rulemaking process. After receiving millions of comments and holding scores of meetings with industry, NGOs, citizens, grid operators and other interested parties, the final versions of both rules are expected to have significant changes from the proposed versions.

Emissions Standards for New and Modified Power Plants

The carbon emission standards for new power plants have received less attention than those for existing power plants, and it is expected that this rule may be finalized largely unchanged from the proposed rule. However, the final rule may contain one very significant change. The proposed rule requires that all new coal-fired power plants be equipped with carbon capture and sequestration (CCS) technology. This provision has been extremely controversial because CCS has not yet been commercially demonstrated and the pilot programs exploring this technology have all received significant federal financial support, leading to concerns among industry that the CCS requirement was a de facto ban on new coal-fired power plants. Additionally, this requirement posed a significant legal threat to the rule because if a court were to find that CCS is not an "adequately demonstrated" technology, the rule could be invalidated. Thus, given the practical and legal concerns surrounding the CCS requirement, there is speculation that EPA will remove this requirement in the final rule. EPA has remained silent on this point and has neither confirmed nor denied that it has dropped this requirement in the final rule.

Emissions Standards for Existing Power Plants

The proposed standards for existing power plants are expected to undergo significant changes before they are finalized. EPA officials have hinted at several changes that they are likely to make. First, EPA is considering amending the proposed rule to allow states to more easily meet their compliance obligations through interstate greenhouse gas emission credit trading. These changes would allow states to engage in emission credit trading without the establishment of a cap-and-trade program or other more formal mechanisms, which can create barriers to participation and increase costs. EPA has consistently touted its intention to create a flexible rule with many potential routes of compliance, and this change appears aimed at furthering this goal.

Second, the EPA may adjust the state emission reduction targets established in the proposed rule. Many states have raised concerns that the proposed targets are unfair because they require some states to achieve large reductions while others are asked to do relatively little. These targets reflect certain assumptions EPA made regarding each state, such as access to renewable energy sources and ability to switch to natural gas-fired power plants. Furthermore, because these targets are based on the historic energy mix of each state, those states that were early movers on addressing carbon pollution may have a more difficult standard to meet than states with more carbon-intensive power generation. EPA has indicated it is strongly considering adjustments to address these concerns.

Third, EPA may adjust or altogether remove the binding interim emission reduction targets contained in the proposed rule. EPA's proposed rule establishes interim emissions reduction targets that must be met beginning in 2020, before final targets are required by 2030. Industry and utilities have strongly resisted the interim targets, arguing that they will significantly increase the cost of compliance with the rule and, in some cases, may be unachievable. While EPA has not indicated how they would change the interim targets, if at all, EPA has acknowledged these concerns and is reviewing this section of the proposed rule.

Legal Challenges

While EPA works toward finalization of these rules, the Clean Power Plan has survived its first, of what is likely to be many, legal challenges. The DC Court of Appeals unanimously rejected a challenge led by coal producer Murray Energy and joined by more than a dozen states, energy companies and industry groups to enjoin the EPA from finalizing the Clean Power Plan. In the lawsuit, Murray Energy challenged the Clean Power Plan on the grounds that EPA did not have the authority to regulate greenhouse gas emissions from power plants under Section 111(d) of the Clean Air Act, the statutory foundation for the Clean Power Plan. Without addressing the merits of Murray Energy's arguments, the court held that it did not have the power to review proposed rules and dismissed the lawsuit. Thus the ruling will allow the EPA to finalize the rule, but paves the way to future legal challenges once the rule is finalized.

The finalization of the rules will set off a flurry of activity consisting of legal challenges, development of implementation plans by states and planning by industry. Although the past year has been a relatively tranquil period of waiting and speculating regarding EPA's regulation of greenhouse gas emissions from power plants, the finalization of EPA's rules is likely to usher in a transformative period for large sectors of the economy that will last until at least the end of the current administration.

This article was originally published in Environmental Leader, July 21, 2015.

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.

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