HIGHLIGHTS:

• EPA's proposed rule is focused on limiting the carbon intensity of fossil fuel-fired power plants (commonly referred to as electric generating units or EGUs) by adopting goals to limit overall carbon dioxide (CO₂) emissions to a point that is achievable by implementing the best system of emission reduction (BSER) available.
• While EPA has identified specific "building blocks" as the basis for its determination of each state's goal, the proposed rule allows each state to design a compliance program that combines these blocks into an inclusive portfolio based upon specific circumstances and policy preferences. 

The Environmental Protection Agency (EPA) released its long-awaited proposed rule under Section 111(d) of the Clean Air Act (CAA) to reduce greenhouse gas emissions from existing power plants. The EPA proposed rule, which was released on June 2, 2014, is focused on limiting the carbon intensity of fossil fuel-fired power plants (commonly referred to as electric generating units or EGUs) by adopting goals to limit overall carbon dioxide (CO₂) emissions to a point that is achievable by implementing the best system of emission reduction (BSER) available. The proposed rule recommends a flexible approach that would establish state-specific CO₂ reduction goals while allowing states or regions to craft individualized compliance plans. Those plans may integrate a range of carbon reduction "building blocks" suggested by EPA, as well as other technologies and strategies that states may propose for approval by EPA.

The proposed rule is a key element of the president's recently released Clean Power Plan. This plan serves as the framework for the Obama administration's efforts to put the United States on a path to address CO₂ emissions and associated impacts on climate and human health by requiring state-by-state reductions of 30 percent by 2030 in CO₂ emissions from existing fossil fuel-fired power plants, measured against a baseline of emissions from 2005.

In addition to its proposed rule under Section 111(d), EPA also issued a proposed rule for modified and reconstructed plants (EPA-HQ-OAR-2013-0603) under Section 111(b) of the CAA, which allows EPA to set standards of performance for new and modified EGUs directly. That rule is representative of EPA's ongoing effort to tighten standards directly when issuing new permits under the CAA. The proposed Section 111(d) rule for existing power plants is the more controversial development because it applies to all existing EGUs and will effectively end the practice of "grandfathering" existing power plants, under which existing plants were allowed to have higher emissions than those from new and reconstructed facilities.

EPA's Conclusions and Calculations

In issuing the proposed Section 111(d) rule, EPA has taken advantage of broad authority under Section 111(d) to establish emissions reduction targets and guidelines for states for existing sources of pollutants that are not specifically addressed under the CAA. In doing so, EPA has made a public determination that greenhouse gas emissions represent an ongoing risk to public health and the environment, and that existing EGUs must be regulated to have a meaningful impact on emissions.

State-Level Goals

Instead of establishing uniform targets for specific types of EGUs, EPA's proposed rule establishes state-specific goals for CO₂ reductions based on a formula that takes into account the degree of emission reductions that EPA has determined is achievable through the implementation of BSER at each of the states' fossil-fueled EGUs. The formula considers four potential carbon reduction "building blocks," including:

1. heat rate improvements
2. generation at less carbon-intensive units (e.g., switching from coal to natural gas)
3. increasing generation from renewable sources
4. reducing demand through energy efficiency programs

The resulting final rate-based goals for total emissions from state power sectors range from 215 pounds of CO₂ per net MWh in Washington state to 1,783 pounds of CO₂ per net MWh in North Dakota. Alternatively, EPA has stated in the proposed rule that states may convert this rate-based goal into a mass goal, which may be desirable for states or regions that wish to simply set an overall cap on CO₂ emissions from their utilities.

Focus on Flexible Implementation

The EPA's approach in the proposed Section 111(d) rule has focused on providing states with broad flexibility to achieve their carbon reduction goals, subject to EPA's approval. As a result, while EPA has identified the preceding "building blocks" as the basis for its determination of each state's goal, the proposed rule allows each state to design a compliance program that combines these blocks into an inclusive portfolio based upon specific circumstances and policy preferences. Further, states may identify other technologies that could be applied as part of their plans to meet their emission reduction goals by 2030. For example, the proposed rule finds that carbon capture and sequestration (CCS) may represent a viable strategy for CO₂ reductions, but a state could also request that EPA approve its use of carbon capture and recycling (CCR) technology, or other new technologies that are being developed. EPA is requesting states to submit their initial plans by June 30, 2016, but it is willing to allow for an extension until June 30, 2017, for submission of finalized plans.

In addition to allowing states to develop a portfolio approach integrating various policies and technologies to meet their reduction goals, the proposed rule provides for a "regional compliance approach" that will allow states to draft collaborative plans that maximize their resource utilization. Notably, the EPA proposes to give states that choose to engage in a multi-state planning process until June 30, 2018, to submit a completed plan for EPA review and approval.

Comment Period and Implementation

EPA is accepting public comments on the proposed rule for 120 days from the date that the proposed rule is published in the Federal Register. Public hearings will be held in late July in Atlanta, Denver, Pittsburgh and Washington, D.C.  

EPA has requested broad comments regarding the credible technologies and policy solutions that can help states meet these targets, as well as specific comments, amongst others, regarding:

• whether non-coal fossil fuel-fired EGUs should be considered in determining the BSER
• integration of ISO/RTOs into the regional planning format
• appropriate state reporting and record retention requirements
• all aspects associated with enforceability of a state plan and ensuring compliance
• appropriate methods to take into account CO₂ reductions from energy efficiency and/or renewable energy programs into EPA's determination that state plans will meet their performance projections

EPA anticipates issuing a final rule by June of 2015. John Podesta, senior counselor to the president, has advised business leaders that the White House is committed to finalizing the rule in that time frame.  

Submitting Comments to EPA

The proposed Section 111(d) rule has the potential to impact a broad array of entities in the energy sector, including states, municipalities, utilities, end users and private entities. Holland & Knight has extensive experience with the broad spectrum of legal and policy issues in this area and can assist in preparing comments on this significant proposed rulemaking.