EPA Proposes First Carbon Emissions Limits for Power Plants

by Cadwalader, Wickersham & Taft LLP

On June 2, 2014, the U.S. Environmental Protection Agency announced its Clean Power Plan, which would impose the first federal limits on carbon-dioxide (CO2) emissions from power plants in the United States.1  The proposed rules, which the EPA published pursuant to Section 111(d) of the Clean Air Act, aim to cut CO2 emissions from power plants by approximately 30% by 2030, using 2005 emissions levels as a baseline.2  The Clean Power Plan is a central component of President Obama’s Climate Action Plan, which he announced in June 2013.3

The proposed rules set emissions reductions goals for each state.4  The state-specific goals are formulated as rates, which are derived by dividing CO2 emissions from fossil fuel-fired power plants (measured in pounds) by state electricity generation from those plants and other certain low- and zero-emitting power sources (measured in megawatt hours).5  The level of emissions allowed for each state represents the EPA’s determination of the reduction each state can achieve using the “best system of emission reduction,” or BSER, which takes into consideration  the costs of the reduction, technical feasibility, and other environmental impacts besides air quality.

The proposed rules provide each state with an interim goal that the state must meet over a ten year period from 2020-2029, as well as a final goal that it must meet in 2030 and thereafter.  The fifteen year implementation period (states may plan to achieve their targets more quickly) was created to give states an opportunity to optimize their emissions reduction efforts and afford adequate time to make the infrastructure investments necessary to achieve the required emissions reductions.  The proposed rules also provide for comment a possible alternative five-year phase-in period which would require a lower level of emissions reductions.  If the final version of the rules adopt the five year phase-in period instead of the ten year period, states would be expected to achieve their interim goals from 2020-2024 and their final goals by 2025.  Under that scheme, the EPA envisions that total emissions would be reduced by 23% from 2005 levels by 2025.6

Under the proposed rules, states will have flexibility to determine how best to achieve their required emissions reductions. The EPA envisions that states will use some combination of the four “building blocks” that the EPA has identified as constituting BSER, including:

  • reducing emissions at fossil fuel power plants by increasing efficiency;
  • reducing emissions by substituting power from the highest-emitting fossil fuel power plants with power from lower emitting plants (e.g., natural gas power plants);
  • substituting fossil fuel power with low- and zero- emitting power sources (e.g., nuclear, wind, and solar); and
  • enhancing energy efficiency, thereby reducing demand for power output.

States may use any combination of these building blocks, as well as other technologies and strategies, to achieve the required emissions reductions. 

The proposed rules envisions that states that have already implemented CO2 emissions reductions programs may rely on those programs to help achieve the emissions reductions required by the Clean Power Plan.  That is, progress in emissions reductions made under existing state programs will count towards states emissions reductions requirements.  The proposed rules reference California’s Global Warming Solutions Act, Colorado’s Clean Air, Clean Jobs Act, and the Regional Greenhouse Gas Initiative (RGGI) as examples.7  The proposed rules allow states to coordinate action using multi-state cooperative regulatory plans including market-based initiatives (e.g., cap and trade), such as RGGI, which is a cooperative effort among Connecticut,  Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.  RGGI includes a market for trading CO2 allowances. 

States must either submit their plans to the EPA by June 30, 2016 or participate in a two-step process that would extend the deadline to June 30, 2017 and require an interim submission.  Once state plans are submitted, the EPA will review each plan for approval through a notice-and-comment rulemaking process.  Although the EPA’s emissions reduction targets do not place specific requirements on individual electric generating units (EGUs), state plans are required to include emissions levels for EGUs.  Therefore, the true impact of the EPA’s proposal on specific power plants and businesses may be hard to assess prior to seeing the state plans.  Nonetheless, it is reasonable to expect that the proposed rules will place a financial burden on at least some coal-fired power plants and will impact electricity prices.

The EPA will evaluate state plans based on four general criteria:

  • enforceable measures that reduce emissions from EGUs;
  • projected achievement of the emissions reduction target established by the EPA;
  • quantifiable and verifiable emissions reductions; and
  • a process for biennial reporting on plan implementation. 

The proposed rules are already generating political resistance from Republicans and Democrats hailing from coal-producing regions, who fear lost jobs and rising electricity prices.  Indeed, news sources have reported that Senate Minority Leader Mitch McConnell intends to propose legislation to block the rules this week.  Other opponents could also challenge the rules in court, assuming they are adopted. 

The EPA will accept comments on the proposal for 120 days and will hold four public hearings during the week of July 28.8

1 The proposed rules and EPA fact sheets concerning the Clean Power Plan are available at http://www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule.

2 The proposed rules are available at http://www2.epa.gov/sites/production/files/2014-05/documents/20140602proposal-cleanpowerplan.pdf.

3 See http://www.whitehouse.gov/sites/default/files/image/president27sclimateactionplan.pdf.

4 Vermont and Washington, DC are not subject to the proposed rules because neither has any fossil fuel-fired power plants.

5 States may choose to achieve an emissions reductions measured in mass of emissions, rather than a rate.  If a state opts for a mass-based limitation, it must demonstrate that the limitation is equivalent to the rate limitation set by the EPA.

6 If the EPA adopts the 10 year phase-in period, total emissions would be reduced 29% by 2025.

7 See http://www.rggi.org/.

8 The hearings will take place in Denver, Atlanta, Pittsburgh, and Washington, DC.  If you are interested in commenting on the proposed rules, contact your Cadwalader attorney and see http://www2.epa.gov/carbon-pollution-standards/how-comment-clean-power-plan-proposed-rule.


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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