Clean Power Plan: EPA Issues Final Carbon Reduction Rule for Exis

Jane E. Montgomery

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Clean Power Plan: EPA Issues Final Carbon Reduction Rule for Existing Stationary Sources

by: Jane E. Montgomery, Amy Antoniolli of ArentFox Schiff LLP - Energy and Environmental Law Adviser

Tuesday, August 4, 2015

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On August 3, 2015, the United States Environmental Protection Agency (EPA) released the final version of the Existing Source Performance Standards (ESPS) component of the Obama Administration’s Clean Power Plan (CPP), setting the first-ever carbon dioxide emission reduction goals for States. Environmental Protection Agency, Carbon Pollution Emission Guidelines for Existing Stationary Sources, 40 CFR Part 60, Docket No. EPA-HQ-OAR-2013-0602, RIN 2060-AR33 (April 3, 2015). When fully implemented by 2030, the CPP is expected to reduce CO₂emissions from the power sector by 32% over 2005 levels. The final version includes significant changes from the original proposal, 79 Fed. Reg. 34829 (June 18, 2014).

Specifically, the CPP establishes CO₂ emission rates for two subcategories of existing fossil fuel-fired electric generating units: coal- and oil-fired steam generating power plants and combustion gas turbines (together, EGUs), along with state rate-based and mass-based goals. To support the standard and its implementation at the state level, EPA encourages emissions trading. In fact, while EPA simply allowed emissions trading under the proposed rule, the agency now views it as an integral part of the CPP. EPA still allows states to use a suite of flexible mechanisms to create state-specific compliance programs, though, unlike the proposed rule, certain of these mechanisms will not be federally enforceable.

The CPP has been controversial since its debut 14 months ago. The table below contains a snapshot of the key features of the final rule and deviations from EPA’s 2014 proposal:

Feature	Final Rule	Proposal
ESPS
Types of Goals	State-specific rate-based goals State-specific mass-based goals Source-specific CO₂emissions performance rates for two subcategories: coal- and oil-fired steam generating units, and natural gas fired combustion turbines	Only state-specific rate-based goals
Final State Goals	Deadline of 2030 States may not exceed the 2030 emission goal at any point thereafter	Deadline of 2030
Interim State Goals	EPA would argue the “Carbon cliff” is eliminated and replaced with “glide path” Phase in period of 2022 – 2029, with 3 compliance periods of 2022-2024, 2025-2027, 2028-2029 States can either meet prescribed emission rates during the compliance periods or develop their own “average” “glide path”	Sharp reductions in 2020, termed “carbon cliff” Phase in period of 2020-2029
Best System of Emission Reduction (BSER) (Described in Greater Detail Below)	Only 3 building blocks Building block 4 replaced with Clean Energy Incentive Program (CEIP), described further below Goal cannot be achieved by actions that occur only at the affected EGUs	4 building blocks
Building Block 1: Heat Rate Improvement	Heat rate improvements at coal fired EGUs established for different regions: 4.3% for Eastern Interconnection, 2.1% for Western Interconnection, 2.3% for Texas Interconnection	Heat rate improvements of 6% at coal fired EGUs nationally
Building Block 2: Increased utilization of Natural Gas Combined Cycle Units (NGCCs)	Redispatch from coal-fired power plants to NGCCs by increasing NGCC capacity factor to 75% of summer capacity	Redispatch from coal-fired power plants to NGCCs by increasing NGCC utilization to 70% of nameplate capacity
Building Block 3: Renewable Energy (RE) and Zero-Carbon Energy	Quantified regionally (same regions as above) on incremental generation basis, using historical deployment patterns in addition to economic potential No inclusion of nuclear generation Incorporates hydropower	Quantified regionally on “total” capacity basis using economic potential 5.7% existing nuclear generation in states where nuclear is “at risk.” Does not incorporate hydropower
Building Block 4: Energy Efficiency (EE)	Eliminated as a BSER building block	1.5% incremental savings per year due to demand-side EE.
Clean Energy Incentive Program	CEIP is an optional program awarding ERCs (up to a limit of 300 million tons of CO₂emissions) for certain RE or EE projects during 2020-2021 Only available for projects commenced after submission of state plan for location of project	Not included
State Plan Deadlines	Individual and multi-state Preliminary Plan due September 6, 2016 Interim plan due September 6, 2017 Final plan due September 6, 2018	Individual 2016 with an option for 1-year extension Multi-state 2016 with an option for 2-year extension
State Plan Approaches	States can adopt an “emission standard approach” placing all of the requirements on the EGUs and plan is “federally enforceable”; or States can adopt a “state measures approach” incorporating measures reliant on entities other than EGUs, with certain measures that are not federally enforceable All measures that reduce MWhrs generated from EGUs are available to show compliance with state goals Includes nuclear, biomass, trading programs, and much more	Compliance Plan Portfolio Approach
Federal Implementation Plan	EPA provides a federal implementation plan (FIP) for states that do not submit an approvable plan FIP will be one of either a rate-based emission trading program or a mass-based emission trading program	None specified
Trading Program	EPA provides “panoply of tools” to facilitate trading program Multi-state or single state Measure in trading program is Emissions Reduction Credit, or ERC EPA, in its FIP, provides a rate-based and mass-based trading program for states that do not comply	EPA encouraged trading programs but did not specify elements of the rule which facilitated such trading
Reliability	First interim goal is moved to 2022, and interim goals are phased in more gradually States must demonstrate they have considered reliability in the state plan EPA allows amendments to state plans in the event of unanticipated reliability challenges There is a “safety valve” for individual sources where there is a conflict between SIP and maintenance of reliability	First interim goal of 2020 Unanticipated events resulting in reliability challenges not addressed

EPA also has finalized rulemakings setting carbon pollution standards for new power plants (the NSPS) and for modified and reconstructed power plants. These will be discussed in future posts.

Next Steps

The final rule is accessible at: http://www.epa.gov/airquality/cpp/cpp-final-rule.pdf. States must work with stakeholders to formalize state plans. In the meantime, there will undoubtedly be challenges to the rule