Despite political rhetoric, 41 states exploring Clean Power Plan options 

Source: Emily Holden, E&E reporter • Posted: Tuesday, May 19, 2015

At least 41 states are in talks with neighbors about how they might cut power-sector carbon emissions under U.S. EPA’s Clean Power Plan, despite appeals from Republicans in Congress for state officials to refuse to comply, according to regional coordinators.

Fifteen states are bringing court challenges to the rule, and based on comments from GOP governors and attorneys general, it appears that number could grow closer to two dozen once EPA finalizes the regulation this summer.

But while those high-level politicians threaten to fight the standards or follow advice from Senate Majority Leader Mitch McConnell (R-Ky.) and “just say no,” air and electric regulators are still considering their options and discussing how they can coordinate with other states.

“Our experience from states that are going to make a legal challenge, they have said nothing publicly, but still behind the scenes they’re saying, ‘OK, what are our options?'” said Doug Scott, former chairman of the Illinois Commerce Commission and vice president of the Great Plains Institute. GPI is organizing Clean Power Plan talks in the Midwest and tallied up the 41 states involved in discussions around the country.

Seven states involved with GPI’s Midwestern Power Sector Collaborative have asked EPA to set up a voluntary carbon credit trading system so states or generators that fall short of their goals can purchase allowances from states that exceed them.

Regulators from Illinois, Michigan, Minnesota and Michigan signed on to that letter to EPA last month, with high-ranking officials in Missouri, Kentucky and Wisconsin participating as observers. That group also involves electric utilities and environmental advocates. Also in the Midwest, the Midcontinent States Environmental and Energy Regulators has held talks.

In Denver last week, representatives from 13 Western states met in private sessions convened by former Colorado Gov. Bill Ritter’s Center for the New Energy Economy. CNEE has held about half a dozen such meetings since June, involving North Dakota, South Dakota, Wyoming, Colorado, New Mexico and states to the West, said Jeff Lyng, a senior policy adviser for the group. EPA officials from headquarters and three regional offices have been involved.

Sprawling array of interstate talks

At the recent gathering, more than 90 participants from state offices and utilities focused on “building a common understanding of the rule,” Lyng said.

Similar meetings have occurred within the Western Interstate Energy Board (WIEB), which involves Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming.

WIEB contracted the consulting firm Cadmus to explore how states could use a “modular” approach to trade credits for renewable energy, energy efficiency and redispatch from coal power to natural gas (ClimateWire, May 4).

In the Southeast, Duke University’s Nicholas Institute for Environmental Policy Solutions has been coordinating talks and issued a policy brief urging states to adopt “common elements,” or common definitions of carbon-cutting measures and methods for proving how much they reduce emissions. The paper says states could leave the door open for trading without submitting proposals together formally (ClimateWire, March 17).

The Georgetown Climate Center has engaged with a broader group of stakeholders that included state officials from California, Colorado, Maryland, Minnesota, Missouri, Montana, New York, Oregon, Pennsylvania, Tennessee, Virginia and Washington.

And in the Northeast, the nine states in the Regional Greenhouse Gas Initiative cap-and-trade system have been coordinating.

To add to those efforts, nearly every recent national or regional conference of state officials, including the National Association of Clean Air Agencies and the National Association of Regulatory Utility Commissioners, has involved panels or EPA listening sessions on the rule.

“A lot of state commissioners, public utility commissioners and environmental regulators of course know other state commissioners, so there’s probably been untold legions of calls between individuals,” added Ken Colburn, a senior associate for the Regulatory Assistance Project, an organization of former state air and electric regulators that is consulting states on compliance options.

What might work with the neighbors?

As states move ahead with these discussions, they aren’t hashing out what they could offer each other so much as considering whether there are opportunities for coordination.

“What I’ve seen is states really just trying to figure out how different things might work rather than talking to them about specific agreements,” Scott said.

Talks about multi-state coordination on the rule have focused not on formal interstate agreements but on ways for states to trade compliance credits. States would not mesh together their goals and work in tandem but show EPA how they offset one another’s efforts to reach individual targets.

Many states have appealed to EPA to lower their target rates, and if they get their wishes, “that might change your whole dynamic about working with a particular neighbor,” Scott said.

EPA assigned a different goal to each state, except Vermont, which is excluded from the rule. States must reduce their annual CO2 emissions rates — or the amount of the gas that is released per unit of power produced — between 11 and 72 percent.

States that have spent years investing in renewable energy and switching to natural gas from coal power have complained that the targets are inequitable. Some states with the least stringent goals are next door to states with much higher standards, which can create unintended rivalries.

For example, North Dakota has the lowest required reduction, 11 percent, but neighboring Minnesota faces a decrease of 41 percent. Missouri has a goal of 21 percent, while Arkansas is looking at 44 percent. Kentucky and West Virginia have goals of 18 and 20 percent, respectively, while Virginia must make a 38 percent reduction.

Can mutual cost-savings trump state politics?

Many expect EPA to even out some of those disparities. But the Obama administration has pledged in international negotiations to reduce power-sector emissions 30 percent by 2030, so if EPA weakens some state targets, it will likely need to make others tougher. The standards in the final rule could make some states sore losers and discourage them from working together.

“Politics are also about emotion and the perception of fairness, and just because something makes economic sense doesn’t mean that it’s fair,” said one person working closely with states.

Regardless of the ending targets, some states are already hostile toward the rule, limiting options for regional plans from the start.

“When we’re meeting with states, we have to be really sensitive in that we’re getting opinions all over the map, and that can be within a single state,” said Gary Helm, lead strategist for emerging markets for the grid organization PJM Interconnection. “When you go to the energy office, when you go to the environmental [regulators], when you go to the [electric] commission, they’re not always on the same page.”

Reports from grid organizations and think tanks routinely stress that regional collaboration limits costs. If one state has a tough goal and a neighboring state has an easier goal and the ability to build cheaper zero-carbon energy, both states can benefit, they argue. Modeling has shown, though, that interstate options aren’t always the best deal for each individual state. West Virginia would see higher CO2 prices under an analysis of interstate options conducted by PJM.

But “if a state chooses to do a state-only program even though the costs are lower if they are in a trading program, they are leaving money on the table,” Helm said at a panel hosted by the Electric Power Research Institute.

Scott says cost savings may trump politics if states can prove with modeling that they would be better off working together.

“Nobody is going to want to be in a position of turning a blind eye to something that could save ratepayers in their state a lot of money over a go-it-alone approach, where each individual plant or each individual utility is left to fend off these costs wholly on their own,” he said.