How Are States Planning to Comply With the Clean Power Plan?

The Environmental and Energy Study Institute (EESI) held a briefing discussing how states are planning to comply with the Clean Power Plan, which limits carbon dioxide (CO2) emissions from existing power plants. Under the authority of the Clean Air Act, the Clean Power Plan represents the first time the United States has placed limits on greenhouse gas emissions from power plants, currently the nation’s largest source of carbon pollution. The final Plan, released by the Environmental Protection Agency on August 3, is more ambitious than the draft version, calling for a 32 percent reduction in CO2 emissions by 2030 from 2005 levels (instead of the 30 in the proposal). The EPA predicts that such a reduction will help the nation avoid 3,600 premature deaths and reduce yearly electricity bills by an average of $84 per ratepayer in 2030. The final Clean Power Plan also gives states an additional two years (until 2022 instead of 2020) to begin cutting CO2 emissions, and has taken into account states' feedback to recalculate their specific carbon reduction targets.

Now that the final version has been released, what are the best compliance strategies for states to meet the emission reduction goals, and what kind of assistance will EPA be able to provide?

• Joe Goffman, Associate Assistant Administrator for Climate, EPA Office of Air and Radiation, highlighted the main changes between the proposed Clean Power Plan (CPP) and the final version. Notably, the compliance timeframe was extended from 2020 to 2022, demand-side energy efficiency (in which consumers reduce their consumption) is no longer a building block (but can still be an important compliance mechanism), and agreements for interstate trading no longer have to be established up front.
• Under the CPP, power plants are subject to the same standards no matter where they are located. In order to allow states the maximum possible choices in compliance strategies, the EPA has provided states with the opportunity to set either rate-based goals (measured in pounds per megawatt hour, lb/MWh) or mass-based goals (measured in short tons of carbon dioxide).
• The Best System of Emission Reduction (BSER) outlined by the EPA has three building blocks: (1) improving operational efficiency at power plants, (2) shifting generation from higher-emitting electricity-generating units to lower-emitting natural gas power plants, and (3) shifting generation to clean energy sources (e.g., renewables, nuclear, and Combined Heat and Power).
• States must file their plans or their requests for an extension of up to two years by September 2016, begin their compliance period in seven years, and reach their emissions reductions goals by January 1, 2030 (in 15 years).
• A noteworthy component of the final Clean Power Plan is the interstate trading option. Trading-ready mechanisms allow states or power plants to use creditable reductions in other states to meet their own carbon reduction goal. This eases administrative burdens, and reduces costs for both consumers and utilities.
• The EPA's Clean Energy Incentive Program (CEIP) incentivizes early investments that reduce end-use energy demand in low-income communities or that generate wind and solar power during 2020 and 2021.
• Bill Becker, Executive Director, National Association of Clean Air Agencies (NACAA), highlighted the more equitable state goals, the ‘reliability safety valve,’ and the extended interim period as components of the new Clean Power Plan which were received positively by most states. Becker also noted that many states are still concerned over the submittal deadlines, the indirect credit for early actions, and the overall complexity of the final Plan.
• The feedback period in between the initial proposal and the final rule was beneficial in that it led to improvements in the Plan itself, and also laid the foundation for establishing working relationships among various stakeholders and regulators.
• Over 30 states are already halfway toward meeting their 2022 interim goals, while 20 states are already halfway toward achieving their 2030 targets.
• The NACAA is developing an extensive model plan to help states comply with the EPA’s Clean Power Plan. The model will include chapters on specific mitigation measures, both inside and outside EPA’s three building blocks, as well as detailed regulatory and preamble language for each pathway. NACAA had previously developed an extensive Menu of Options for states (see our June 5, 2015 briefing)
• President Obama has requested $25 million to provide state and local pollution control agencies with the resources to comply with this Clean Air Act rule. Becker warns that if this resource allocation does not go through Congress, then states will have to implement this very resource-intensive program without any federal aid, which would make state planning much more difficult.
• David Terry, Executive Director, National Association of State Energy Officials (NASEO), endorsed the energy efficiency strategies, stating that energy efficiency initiatives are the most effective and cost-efficient carbon reduction tools.
• According to Terry, the most noteworthy element of the final Clean Power Plan is that states are given a wide array of compliance options. NASEO has begun to shift its focus from addressing national issues with the Plan towards providing assistance with compliance on a state-by-state basis.
• NASEO is launching a new program in November designed to streamline the "question-and-answer" process between states, the EPA, and industry experts.
• Noting the relatively unpredictable impact of new technologies, such as LED lighting and micro-grids, Terry stressed the long history of private-sector energy savings brought on by performance contracting (in which a third party pays for a building's energy efficiency retrofits and is repaid through the resulting savings in energy costs).
• Charles Gray, Executive Director, National Association of Regulatory Utility Commissioners (NARUC), said the Clean Power Plan is a great opportunity for states to exercise regional, inter-state collaboration efforts. Because electricity grids do not follow state lines, inter-state collaboration is likely to be an effective tool for meeting compliance obligations.
• If a state fails to submit an effective state plan by the three-year deadline, then it must comply with a uniform Federal Implementation Plan (FIP) that is less flexible and has fewer compliance options than the state-specific plans. Although states have the option to defer to the federal plan, Gray argues that most states, even states that are attacking the Clean Power Plan in court, will prefer developing their own individual state plans.
• Gray noted that, so far, there seems to be a propensity for mass-based plans (measured in short tons of carbon dioxide and generally easier to implement), but various credits associated with nuclear plants may shift that trend towards rate-based plans (measured in pounds per megawatt hour).

In the Clean Power Plan, EPA has given states the freedom and flexibility to choose how they will accomplish their required emission reductions. Using the Clean Air Act, EPA identified the "best systems of emission reductions," which it divides into three "building blocks." These building blocks are: improving the efficiency of existing power plants, switching to lower-emitting natural gas electricity generation, and building new zero-emission renewable energy generation. States will have many options, including energy efficiency programs, to meet the reduction goals. The Clean Power Plan also includes a Clean Energy Incentive Program, which grants emission credits to states that make early investments in solar or wind power, or develop energy efficiency programs in low-income communities, prior to 2022. States submit a final plan, or an initial submittal with an extension request, by September 6, 2016.Final complete state plans must be submitted no later than September 6, 2018.

The National Association of Clean Air Agencies (NACAA) is working to provide model compliance language to help states develop their plans. The National Association of Regulatory Utility Commissioners (NARUC) and National Association of State Energy Officials (NASEO) are helping to disseminate the language.

This briefing is the third in a series examining the Clean Power Plan and its implications.