Regulations 101 — a primer on EPA’s upcoming power plant rule

Source: Tiffany Stecker, E&E reporter • Posted: Monday, June 2, 2014

President Obama’s highly anticipated power plant rules have come a long way from a relatively low-profile legal settlement in 2010.

Obama is set to unveil a proposed rule that for the first time will limit greenhouse gas emissions from the country’s power plants. He officially directed EPA to craft regulations to control greenhouse gases in his Climate Action Plan last year, but the effort to curb the largest chunk of CO2 emissions in the country has been mounting for years. In late 2010, EPA agreed to craft performance standards for new and existing power plants and refineries in a legal settlement with environmental groups and select states and cities.

After burning through numerous deadlines, EPA announced limits for new power plants in March of 2012, then reproposed the rules last September. This proposal limits newly built power plants to 1,000 pounds of CO2 per megawatt-hour for combined-cycle gas plants and 1,100 pounds of CO2 per MWh for coal plants.

The next step in Obama’s regulatory plan for climate change will land Monday morning. Unlike the rule for future power plants, this proposal will be much further-reaching, an effort to scale down the source of 40 percent of the country’s climate warming gases by regulating the plants that are in operation today. According to the schedule set last year in the Climate Action Plan, EPA must release a final rule by June 2015. Once that happens, states have a year to submit plans to EPA for how they will comply with the rule.

It may force some states to overhaul their energy policies and could favor others that have taken a head start to establish climate policies. It could cause electricity prices to rise but could also change how the electric sector — from the power plant to the grid to the home or business — operates. One of the few certainties of this regulation: It will bring a lot of lawsuits.

Here is a look at the essential elements of Monday’s proposed rule.

In this rule, EPA will set existing source standards under Section 111(d) of the Clean Air Act. Why is it important?

Except for a handful of occasions — regulating acid gases from waste incinerators is one example — Section 111(d) of the Clean Air Act has seldom been applied to law. It’s also written very broadly, both a positive and negative point for EPA, said Jason Schwartz, legal director for the Institute for Policy Integrity at New York University, a think tank that supports the regulation of greenhouse gases. While it gives the agency more or less a clean slate for what it can propose, it could also potentially increase the number of legal challenges down the road.

There’s also language in Section 111(d) that calls for EPA to partner with states to develop the rules, an important component of the plan. It also refers to Section 110, a section that has been applied to regulate traditional pollutants like nitrogen oxides and sulfur dioxide. Section 110 allows for entities to trade emissions credits and provides a variety of compliance tools, which make it easier for companies to reach a certain standard.

EPA says it wants the rule to incorporate flexibility. What does that mean?

If power plant operators were limited to fixing their facilities to trim carbon, the savings would be relatively minimal, around 3 to 5 percent, say observers of the rule. In order to get substantial savings, states will need to use a number of other mechanisms to cut carbon. These include boosting efficiency in homes and businesses, using wind, sun and biomass for renewable energy, or putting more natural gas-fired power into the grid and less coal power. They also include economic mechanisms, like a cap-and-trade system or carbon tax. Many states that have implemented climate policies, like renewable portfolio standards or efficiency measures, want the rule to include enough flexibility to recognize state efforts achieved in the absence of a national climate policy.

Legal experts call these “outside the fence line” mechanisms, and many think they could allow states to cut more at a lower cost. However, industry pundits are skeptical of EPA’s legal ability to regulate beyond the fence line, or the grounds of the power plant. The National Climate Coalition, an industry group, has said that “EPA does not have clear legal authority to go beyond the [individual] source to define [the best system of emission reduction] for purposes of its guidelines.”

How might states measure their progress to cutting carbon?

Experts say states will likely have one of two options for measuring emissions reductions. An emissions-based approach would mean states could set a limit for the carbon release per plant. In a widely circulated plan written by the Natural Resources Defense Council, a coal-heavy state like Kentucky would hypothetically limit plant emissions to about 1,600 pounds per MWh, while low-carbon New York would need to achieve emissions lower than 812 pounds per MWh to achieve a 25 percent reduction.

Another way to measure efforts could be to simply count reductions in the total amount of carbon emissions from the electricity sector in what’s known as a mass-based approach.

A mass-based approach could offer more options, said Jennifer Macedonia, a senior adviser with the Bipartisan Policy Center. States can lower overall emissions through systems like cap and trade or a carbon tax, something that is less easy to achieve through an emissions rate approach. But an emissions-rate could work better for states that foresee their emissions increasing as a function of a growing economy, said Macedonia.

How deep will the cuts be?

Media reports have suggested that EPA will implement the standards over two phases, starting out slowly and then requiring more aggressive cuts — up to 25 percent — past 2020. But a key component to how hard states have to work could be in the base-line year EPA uses. If the agency chooses to count reductions against a high-emissions year like 2005, a 25 percent reduction could be much easier than if it’s counted against 2012.

No matter how ambitious the standards are, the move is unlikely to do much for climate change on its own, say scientists. For that, there needs to be coordinated global action to reduce greenhouse gases, said Michael Oppenheimer, a professor of geosciences and international affairs at Princeton University.

Will my electricity bill go up?

At this point, predicting price increases is little more than a guessing game, said Macedonia. Costs will depend greatly on how states choose to approach the standards, as well as the price of natural gas, the demand for electricity and other market factors.

A controversial U.S. Chamber of Commerce report this week found that EPA regulations could cost about $51 billion per year in lost gross domestic product, although it included the new power plant rules in the equation. The next day, NRDC released an analysis that found that the rules could cut $37.4 billion off electricity bills by driving investments in energy efficiency.

Resources for the Future, an economic think tank, has found that prices will increase, but only minimally. If EPA allows cap and trade, energy efficiency or other measures, prices will only increase between 1 and 9 percent.

But beyond the potential for curbing climate change, the rule represents much more. An aggressive target could give the United States more leverage in international climate negotiations, paving the way for a climate pact in 2015 that would require mandatory emissions reductions from the world’s biggest carbon polluters. It vouches support for Obama’s green supporters, still unsure how the administration will decide on the Keystone XL pipeline. And it tests the federal government’s relationship with states, many of which have a contentious relationship with Washington, D.C.’s environmental policymakers.