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Both Effective and Flexible, EPA‘s Proposed Rule Strikes a Sensible Balance

EPA’s proposed rule addressing greenhouse gas (GHG) emissions from existing power plants establishes ambitious yet achievable standards for each state, and offers a number of implementation pathways such that each state can select the approach most likely to work for its own sources and citizens. In terms of stringency, the proposal calls on states to meet an interim emissions rate reduction in the 2020-2029 period and a final emission rate target set to achieve a 30 percent reduction from 2005 levels in 2030 and beyond. This level of emissions reduction takes us further than the power sector’s share of the President’s 2020 goal of reducing emissions by -17 percent below 2005 levels, and positions the U.S. to adopt an ambitious yet credible post-2020 contribution by March of 2015.

“This is really powerful. It’s a game-changer for the international process. This makes clear we’re really serious about climate.” – Ned Helme (from “Will the new EPA rules for coal plants inspire other countries?” in the Washington Post blog).

While the science demands even bigger emissions reductions over time to stay on a path to a global 2 degree Celsius goal, this rule offers an important down payment. Further, it does so through a reasonable, well-supported approach that seems well-positioned to hold up in the courts, and also the court of public opinion. In the sections below, CCAP provides a brief summary of the approach EPA uses to define the state emission rate standards and on the flexibilities provided in the rule to support low-cost compliance and a steady transition towards a lower-emitting electric sector. Finally, we suggest some topics to watch as the debate unfolds that could impact program effectiveness.

Defining the Best System of Emissions Reductions (BSER)

Section 111 of the Clean Air Act defines “standard of performance” to mean a standard for emissions of air pollutants that reflects the degree of emission limitation achievable through application of the “best system of emission reduction” that, taking into account the cost of achieving such reduction and any non-air quality health and environmental impacts and energy requirements, the Administrator determines has been adequately demonstrated. The proposed rule defines the best system of emissions reductions (BSER), making use of four well-demonstrated mitigation options, or “building blocks”: 1) heat rate improvements; 2) dispatch changes from inefficient coal to existing underutilized natural gas combined cycle facilities; 3) investments in new renewable energy and new and preserved nuclear capacity; and 4) investments in demand-side energy efficiency. These building blocks are then used to define a proposed emission rate standard for each state. Key points on the BSER analysis:

  • EPA applies conservative assumptions on the availability and cost of the different building blocks so as not to overstate the degree to which each one can contribute to the BSER.
  • EPA’s assessment of the different building blocks acknowledges the uneven distribution of mitigation opportunities across the country, both due to resource endowment and the degree to which states have already adopted policies and measures that reduce carbon dioxide emissions.
  • Rather than defining the BSER as the maximum application of the available building blocks in each state, EPA leaves some wiggle-room so that states and sources have flexibility to ramp up use of preferred mitigation options while using less of others.  (In addition, states have the flexibility to make use of additional mitigation measures that were not included in the BSER determination such as co-firing with natural gas or building new natural gas combined cycle capacity.)
  • In defining the BSER and the proposed emission rate standard for each state, EPA explicitly considered early action. For example, Iowa, South Dakota, Minnesota and Maine, states that are leading their peers in terms of renewable energy deployment, were assigned renewable energy goals that are below their 2012 levels. This means they need fewer emissions reductions to meet their overall state standards because they have already exceeded the renewable energy portion of their target. Similarly, states that already shifted their dispatch away from coal and towards increased utilization of natural gas by 2012 would have less potential additional opportunity and therefore their proposed state-specific goal reflects fewer emissions reductions from this building block. Moreover, states that already have energy efficiency resource standards set to reduce energy use by 1.5 percent per year or better are not asked to achieve more energy savings and emissions reductions from this building block.

Flexible Compliance

While EPA’s proposal requires each state to meet rate-based CO2 emissions performance goals by setting emissions standards for affected electric generating units and possibly through other enforceable measures, the proposal offers states a significant amount of compliance flexibility. Each state can factor in a range of state-specific considerations in defining the form of the standard and in allocating the standard to individual sources. In doing so, states can develop strategies to minimize costs and account for factors such as reliability and remaining useful life. Key areas of flexibility are as follows:

  • While EPA contemplates four specific building blocks in setting the state compliance goals, states are permitted to make use of the full set of emissions reductions opportunities that reduce emissions at electric generating units. This includes combined heat and power (CHP) that reduces emissions at affected electric generating units.
  • States can choose their preferred form of standard, either the rate-based performance goal or an equivalent mass-based standard. Either type of standard can be used in combination with existing and/or new state policies that can also help lower emissions and support compliance under a “portfolio approach.” Using either type of standard, states can design flexible compliance programs that will encourage low-cost solutions.
  • States have the option of complying on their own, or in coordination with other states under a multi-state approach. A multi-state program can help further lower costs by spurring the most economical mitigation options across a wider compliance region.
  • EPA offers states extra time to prepare their plans. While initial state plans are due by June 30, 2016 for all states (13 months after the final rule is issued), those choosing to implement the standards on their own can have until June 30, 2017 to get the needed legislation and/or rules in place. States committed to implementation through a multi-state approach can get an additional year to submit a final plan.
  • EPA grants states (and covered sources) a long lead-time to prepare for compliance. States must achieve an interim (cumulative) standard over the 2020-2029 compliance period and the final standard must be met by 2030 and thereafter. This long compliance horizon allows for investments in energy efficiency and new lower-emitting generating capacity and permits orderly reductions in higher-emitting electric generation.
  • For states and utilities that have acted early to reduce their carbon emissions, EPA proposes to allow emissions reductions from existing renewable energy programs to count towards compliance during the performance period. In addition, the EPA proposes to allow other actions taken after the date of the proposed rule and that yield emissions reductions during the performance period to count towards compliance. This includes newly implemented actions that result from existing state requirements, programs and measures.

Some topics to watch from an effectiveness standpoint include the following:

  • How is double counting addressed under a rate-based approach for both energy efficiency and renewable energy?
  • Is early action credit granted for emissions reductions achieved prior to the compliance period? EPA is proposing NOT to grant such credit, but is taking comment on doing so.
  • How is the 8-year review cycle called for under 111(b)(1)(B) treated in the 111(d) context?
  • Is it better to have more emissions reductions (30 percent from 2005 levels) by 2030, as proposed, or a less aggressive standard (roughly 25 percent below 2005 levels) by 2025?

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