EPA seen easing power plant rule’s near-term pressure on states

Source: Jean Chemnick, E&E reporter • Posted: Friday, October 31, 2014

U.S. EPA signaled this week that its final Clean Power Plant rule would be asking less of states early on to reduce emissions of power plants’ greenhouse gases.

The notice of data availability (NODA) released by EPA this week proposes tweaks that would both strengthen and weaken the stringency of its original draft, industry lawyers closely following the rulemaking say.

The strengthening changes seem less likely to be adopted than a major change that may effectively weaken many states’ emissions targets, they say.

The NODA provision that seems to have the widest base of support among states and industry stakeholders would adjust the assumption about how quickly existing power plants with combined cycle natural gas technology can ramp up to 70 percent capacity and displace coal-based power.

The original proposal assumes the shift can be made by 2020 and assigns states early emission-reduction responsibilities that phase in then.

That means that states like Texas — with many combined cycle natural gas units running at 50 percent capacity or lower to provide peaking power — would be required under the original draft to make hefty near-term emissions cuts. Many states would be required to complete most of their overall reductions under the rule by 2020 rather than the final 2030 deadline.

But stakeholders have told EPA that utilities will need more time to build transmission infrastructure to let them run gas plants more.

“It’s not as easy as turning a dial,” said Jeff Holmstead, who represents industry clients of Bracewell & Giuliani.

States from New Hampshire to Arizona to North Dakota have said in posts to the rule’s docket that this front-loaded standard — sometimes referred to as the rule’s “cliff” — would leave them vulnerable to supply disruptions and rate hikes (Greenwire, Sept. 11).

And while the original draft allows for emissions averaging between 2020 and 2029, states that are not ready to meet the interim target in 2020 would have to overperform later to make up for it.

“Even states and companies that are generally supportive of the proposal have been telling EPA that the things EPA assumes can be done by 2020 just can’t be done that fast,” Holmstead said.

Attorney Kyle Danish of Van Ness Feldman said EPA appeared to be “pretty serious about getting rid of that cliff problem.”

“It seems to me that the goal for EPA mostly has to do with getting a certain amount of overall reductions by 2030,” he said, adding that the timing of the cuts might be less important.

EPA’s notice this week asks for comment on an alternative that would give states extra time to phase in fuel-switching reductions, treating them more like reductions expected from new renewable energy and demand-side efficiency programs. The change would affect the rule’s early targets — the actual means of achieving those targets is left to states in their implementation plans.

Bill Bumpers of Baker Botts LLP, who represents power-sector clients, said he expected EPA to make some changes to its interim requirements in the final rule.

“I think it would be impossible for quite a few states to meet the 2020 interim goals,” he said. Even if they did, he said, “it would mean huge economic disruption, because it would mean the retirement of a lot of coal plants, hundreds and hundreds of people unemployed in a very short order.”

Rather than just phasing in the fuel-switching reductions more gradually as EPA proposes in the NODA, he said, the agency should throw out the interim targets altogether and focus solely on 2030.

Notice won’t weaken rule — EPA

But while industry representatives generally supported the introduction of a “glide path” for reductions expected from increased gas use, the agency says the NODA does not signal a lessening of the rule’s stringency.

Air chief Janet McCabe told reporters this week the document “is not about making the proposal more or less stringent.”

The NODA also stresses that point: “The effect of the ideas presented here may have different impacts in different states, increasing the stringency of the [best system of emissions reduction] as expressed in the state goals in some states while decreasing it in others.”

The document asks for comment on other alternatives that would strengthen state requirements, including an expansion of the way reductions from natural gas use are used in assigning state responsibilities. This would be done by considering new combined cycle natural gas plants and opportunities for co-firing gas at coal plants when setting state targets.

The document also floats the idea of setting a minimum reduction from natural gas use for all states — even states that currently have no gas plants.

But even proponents of EPA’s rule say those options could put the rule on shaky legal footing. New gas plants are already covered by a new power plant proposal EPA released in September 2013, and the agency would have difficulty justifying assigning states like West Virginia — which has no gas plants — a natural gas reduction target.

But if EPA doesn’t take steps to reduce the role gas can play in helping states comply and instead extends the timeline for those reductions, it will be writing a less stringent rule.

The NODA also takes comment on some alternatives to the way the draft treats renewables and demand-side efficiency. One proposed tweak that would likely increase the rule’s stringency would change the way those reductions are counted — assuming that renewables and efficiency would go to displace fossil fuel use rather than to satisfy new demand. But other changes would have a mixed effect on state targets that would be harder to quantify.

Sign that EPA’s ‘listening’

The Minnesota Pollution Control Agency’s David Thornton was pleased to see EPA offer an alternative approach to calculating state renewable energy reductions that considers regional markets more closely.

“I think this is a really positive development,” he said of the NODA, adding that “it’s indicative of how closely EPA has been listening in the last few months.”

The NODA’s “regional” approach is an attempt to mirror how renewable energy investment crosses state lines, with policies in one state sometimes spurring investments in another.

EPA also hints that it might look at a range of years — 2010 through 2012 — when setting state emissions base lines. The June draft looked only at state emissions from 2012 — a particular problem for Minnesota, because its largest coal-fired power plant was not operating that year.

The document also shows that EPA may tweak its draft to give states credit for reductions made between 2015 and 2020 — something Thornton said would give his state the confidence to move ahead with policies in the coming few years.

Maine Utilities Commissioner David Littell said the NODA put forward some good technical changes but added that it didn’t really address the problem of state parity. States like his own — which is part of the Northeast’s Regional Greenhouse Gas Initiative — have already made substantial reductions that are not given credit, he said.

“When you’re in a region where you’ve addressed carbon over 40 percent since 2005 and even more substantially since 1990 and EPA’s proposing a program that essentially takes that for granted and then requires additional reductions, the equity issue between the regions is a significant concern,” he said.

Coal-dependent states actually have more potential to make reductions than EPA’s rule suggests, he said.

David Doniger, who directs the Natural Resources Defense Council’s climate and clean air program, said it would be the environmental community’s task to urge EPA to strengthen its rule, not weaken it.

“There’s a pretty wide landing pad in the original proposal, and this proposal adds some new ideas that they heard from stakeholders that makes that landing pad wider still, so they could end up further north or they could end up further south of where the proposal was,” he said. “We’re going to push them to go north.”