The Pacific Coast Action Plan On Climate And Energy – Will It Make A Difference?

by Davis Wright Tremaine LLP

Late last month, the Governors of California, Oregon, and Washington joined with the Premier of British Columbia to sign a Pacific Coast Climate Action Plan on Climate and Energy (PCAP). Like its ill-fated predecessor, the Western Climate Initiative (WCI), the PCAP attempts to fill the void created by Congress’ failure to address climate change at the national level. But much has changed, both regionally and nationally, in the almost seven years since the WCI was launched, and there are major differences between the PCAP and the WCI.

The question is: will this regional effort be more effective than the WCI? Will the PCAP make a real difference in terms of the mix of energy projects and strategies that will prosper in the coming years, or is it just another great press opportunity for four green elected officials?

There are at least four reasons why the PCAP is likely to make a difference. First, it has the right geopolitical footprint – the West Coast. In contrast, the WCI also included Arizona, New Mexico, Utah, Montana, Manitoba, Ontario, and Quebec. This was impressive at the outset, but it was politically unstable because the non-West Coast states are considerably more conservative than their West Coast cousins. Predictably, one-by-one, they dropped out of WCI, and the coalition unraveled.

This time, the West Coast leaders have chosen a smaller, much more cohesive team. The three states and British Columbia do not agree on everything, but they agree on enough to form a durable political partnership. And with 53 million people and a combined economy that is the fifth largest in the world, they are plenty big enough to be heard.

Second, the four PCAP leaders are taking a much more realistic approach to the regulatory tools they use to reduce greenhouse gases (GHGs). For the WCI members, a fully-integrated regional cap and trade system was the definition of success; anything less was failure. Unlike the Regional Greenhouse Gas Initiative (RGGI) that was being developed in New England during the same period, the WCI proposed to strictly regulate power purchases from outside the WCI region. This approach raised thorny issues under the U.S. Constitution, particularly the Commerce Clause, the Supremacy Clause, and (due to the inclusion of the Canadian provinces) the Treaty Clause. It also meant that each state would need to enact nearly-identical legislation in order to delegate the necessary powers to a regional regulatory entity. This was a political non-starter in virtually every WCI state, not to mention the state constitutional issues that it would have raised.

This time, the four jurisdictions are taking a more flexible approach. Instead of staking themselves to a regional cap-and-trade model, they are more broadly agreeing to establish GHG reduction targets that will be accomplished by “setting a price on carbon.” This could be done through cap-and-trade, through a carbon tax, or some other mechanism chosen on a jurisdiction-by-jurisdiction basis. And instead of a regional regulatory entity operating outside the control of any one jurisdiction, the leaders are now simply promising to “link programs for consistency and predictability” “where possible.” This may sound ho-hum, but it gives the PCAP members room to advance a common agenda without stumbling over Constitutional tripwires.

To further reduce emissions, PCAP includes a suite of other strategies, including low-carbon fuel standards, streamlined permitting for renewables, increased deployment of zero-emission vehicles, enhanced energy efficiency, more high-speed rail, and connecting the markets for buying and selling wholesale electricity in the region.

Third, two of the four jurisdictions now have regulatory systems that in fact place a price on carbon. At the time of WCI, British Columbia’s carbon tax was in its infancy, and California’s cap and trade system was a distant “Plan B” in case WCI failed. Now, despite criticism, both programs are operating successfully, creating models for Washington, Oregon, and others to consider.

Fourth, the Obama Administration is playing a supportive role, based on its June 2013 Climate Action Plan. This is a dramatic change from the WCI era, when the Bush Administration was questioning the science of climate change, and EPA was resisting the conclusion that GHGs endanger public health until the U.S. Supreme Court forced its hand in Massachusetts v. EPA.

The only thing that has remained the same is Congressional gridlock, but that leaves EPA with authority to move ahead under existing law. Under Section 111(b) of the Clean Air Act, EPA issued proposed GHG emission limitations for new power plants in September 2013, and is now developing rules under Section 111(d) for existing powerplants.

Unlike the limitations for new power plants, the rules for existing plants will be based on state implementation plans, tailored by each state in accordance with EPA guidelines and then subject to EPA approval. In those guidelines, due to be proposed by June 1 of next year, it is quite likely that EPA will endorse state plans that take a “system-based” rather than a “source-based” approach. While a source-based approach looks solely at what can be done at the powerplants themselves, a system-based approach looks at both the powerplants and all the ways to reduce the demand for electricity produced by those powerplants. Attached is a September 23, 2013 version of an EPA white paper on this topic.

As a result, Washington, Oregon, and California could use EPA’s backing to undergird implementation of the entire suite of programs described above. Indeed, the PCAP endorses EPA’s efforts to regulate GHGs from powerplants, and emphasizes the “importance of allowing state flexibility to design ambitious reduction programs within this regulation.” By leveraging EPA’s statutory authority and steering clear of the Constitutional pitfalls that contributed to the downfall of the WCI, the PCAP could affect a wide range of activities contributing to GHG emissions, thereby transforming the regional energy economy.

For these reasons, the PCAP bears watching.

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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