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Six Things to Look for in the Final Clean Power Plan

By Jason Grumet, Tracy Terry

Wednesday, July 29, 2015

In coming days, the U.S. Environmental Protection Agency (EPA) is expected to release its final rulemaking to regulate carbon dioxide (CO2) emissions from existing power plants under Section 111(d) of the Clean Air Act. The rule, known as the Clean Power Plan, received more than 4.3 million public comments since the proposal was released about a year ago.

EPA officials have stated in numerous public hearings and meetings that the final rule will likely differ substantially from the proposal. At an April 2014 event hosted by the Bipartisan Policy Center (BPC), EPA Administrator Gina McCarthy expressed enthusiasm for a dynamic rulemaking process stating, “I think many times we get criticized because there is so much change between proposal and final,” McCarthy said. “But, that’s when I dance in the streets because I think that’s exactly what it’s supposed to be.”

August 3, 2015

Significant changes would be a sign of a functioning regulatory process. Too often, the notice and comment process becomes a defensive exercise designed to vindicate an agency’s initial posture as opposed to a creative give and take. Given the complexity and importance of the Clean Power Plan, it is critical that the EPA has opted for a rigorous and interactive process.

Below is a list of six key issues to look out for when the final Clean Power Plan is released and BPC’s predictions of the likely outcomes. Some of these predictions are based on supplemental publications the EPA has released, such as the October Notice of Data Availability (NODA). Others are little more than educated guesses.

Does the EPA change the timing and phase-in of compliance timelines?

The proposed Clean Power Plan establishes final 2030 state goals for power plant CO2 emissions,1 as well as a phase-in of interim emission rate goals to be met on average between 2020 and 2029. Many commenters have argued that the interim goals are too stringent in some states, creating a “2020 cliff” that requires a large portion of the emission reductions in the early years. Other commenters have urged the EPA to sustain the 2020 requirements to ensure that each state makes reasonable progress towards the final, 2030 state goals. EPA officials have indicated their intent to reconsider the interim goals and glide path at several congressional hearings.

What to look for: Does the EPA change the timing or phase-in of the interim goals?

BPC Prediction: The EPA will provide a more modest glide path for states, reducing near-term obligations by pushing back initial compliance from 2020 to 2022. But, the EPA will maintain the overall level of reductions required by 2030. State plan deadlines will also likely be extended.

Does the EPA update any of the four building blocks and adjust relative stringency of state goals?

BPC Prediction: EPA is going to make adjustments to all 4 building blocks.

In the proposed Clean Power Plan, each state is assigned a 2030 state goal based on four building blocks that address: (1) heat rate improvements at coal-fired power plants, (2) increased use of natural gas, (3) renewable energy and nuclear power, and (4) end-use energy efficiency. While each state’s goal is based on the same formula, the resulting emission rate levels differ from state to state. Many states and stakeholders submitted comments to the EPA about the building block assumptions and the resulting state goals.

Efficiency improvements at coal-fired power plants? Some have questioned whether coal-fired power plants can cost-effectively improve their heat rate by 6 percent, on average, as the EPA assumes in building block 1.

What to look for: Will EPA reduce the level of efficiency improvements at coal-fired power plants that is assumed in the stringency formula?

BPC Prediction: The EPA is likely to make modest adjustments to the level of heat rate improvements assumed in building block 1.

Treatment of Natural Gas? Some commenters questioned whether all natural gas combined cycle (NGCC) units can ramp up to 70 percent capacity factors in the timeframe that the EPA assumes in building block 2. Others raised concerns that states that have invested in NGCC units have more stringent goals than states with few or no existing NGCC plants, since states without gas plants were not assumed to be able to ramp up gas generation.

What to look for: Will the EPA change its assumptions about how quickly existing natural gas-fired generators can ramp up generation to displace coal-fired generation?; Will the EPA change the relationship between the stringency of a state’s goal and the state’s existing NGCC infrastructure?

BPC Prediction: The EPA is likely to change its NGCC assumptions to require states with little or no existing natural gas units to face increased building block 2 reductions. The EPA’s NODA explores the idea of requiring all states to shift a minimum percentage of its fossil generation to existing NGCC, new NGCC, or natural gas co-firing.

The EPA may also somewhat weaken the 70% capacity factor assumption for existing natural gas facilities. The EPA took comment on a 65% capacity factor assumption in the proposed rule.

Treatment of Existing and Under-Construction Nuclear Plants? Some commenters questioned whether the EPA should consider under-construction nuclear plants in the goal-setting formula to set stringency and why nuclear power is treated differently than other zero-carbon generators, such as wind and solar.

What to look for: Will the EPA change how existing, zero-carbon nuclear electricity is treated in the goal calculation?;Will the EPA change what it assumes about nuclear power plants that are under construction, but not online, at the time of the rulemaking?

BPC Prediction: The EPA has signaled publically that it will adjust nuclear assumptions, including its accounting of “at-risk” nuclear, to better reflect the benefit of zero-emission nuclear power. The changes could include dropping under-construction nuclear out of the baseline, better enabling these facilities to contribute toward compliance. Or, the EPA could change the goal-setting formula to treat nuclear the same as other zero-carbon generating sources.

Treatment of Renewable Energy? In the proposed rule, the EPA assumes in building blocking 3 that states can displace some fossil generation by increasing levels of renewable energy to close the gap between the state’s historical level of renewable generation and a regional average. Some commenters questioned whether this methodology fairly captured states’ renewable potential and fairly treated states that had made early investments in renewable energy.

The EPA has publically signaled that this building block is likely to change. In the proposed rule and the NODA, the EPA asked for comment on alternative methodologies based on states’ renewable resource potential or the renewable potential across a multistate region.

What to look for: Will the EPA adjust its methodology for calculating renewable energy potential under building block three?

BPC Prediction: BPC predicts that the final renewable energy building block will change to incorporate alternative methodologies that better reward states that have made substantial investments in renewable energy and encourage new investments in states with fewer existing renewable resources.

Treatment of End-Use Energy Efficiency. In the proposed rule, the EPA assumes in building block 4 that all states can use end-use energy efficiency to decrease demand for electricity. Some commenters questioned the extent to which emission reductions from the customer side of the meter should contribute to state goal calculations and whether off-system reductions could make the rule legally vulnerable.

What to look for: Will the EPA adjust its methodology for increasing the stringency of power plant CO2 emission reductions based on end-use energy efficiency?

BPC Prediction: The EPA may seek to reduce risks and remove building block four from the goal calculation. This move would likely not prevent energy efficiency from being used as a compliance strategy. 

Will the EPA adjust the base year used to calculate state goals and/or address state-specific data concerns?

The proposed rule uses electricity sector data from 2012 to calculate state goals. Some states and stakeholders have raised concerns about whether the 2012 data accurately reflects the generation fleet in their state. Commenters have asked the EPA to consider using a different data year or to average over multiple data years. In addition, there have been requests for specific edits to the underlying data to correct state-specific data concerns.

What to look for: Will the EPA make changes to its underlying dataset or address state-specific concerns about the data? 

BPC Prediction: The EPA will likely make a series of modest data updates to account for specific state concerns. The EPA may also adjust the baseline to take into account of the average emissions over 2-3 years (e.g.: 2010-2012).

Will the EPA allow multi-state trading among states with “trading-ready” plans? 

In the proposed rule, the EPA included an option for states to submit multi-state compliance plans. These formal, interstate agreements would allow for interstate trading of credits in rate-based plans or allowances in mass-based plans. Many states and stakeholders have indicated that if states decide to allow for interstate trading, they likely will want to do so without negotiating formal multi-state agreements.

Instead, the idea of “trading-ready” plans has emerged in dialogues across the country.2 “Trading-ready” plans would allow covered entities to seek reductions across state lines as long as state plans meet minimum compatibility requirements. For example, a mass-based “trading-ready” plan would 1) allow for plants to accept tons from other states, 2) use a common tracking system or connect to other states’ systems, and ideally 3) use a common metric (short tons or metric tons) for measuring tons of CO2. In order for “trading-ready” plans to work with rate-based policies, the final rule may have to allow for trading between states that do not merge their state goals. State plans would then need to meet more complex minimum compatibility requirements, such as 1) a common currency or a conversion appropriate to the state’s rate-based goal and 2) a common tracking system or a tracking system that can connect to other states’ systems.

What to look for: Does the EPA allow for interstate trading among states that submit individual “trading-ready” plans rather than a multi-state plan?; Does the EPA allow rate-based trading across states that have not merged their goals? 

BPC Prediction: The EPA is likely to allow trading-ready plans to address the growing interest in this approach.

How does the final rule address electric reliability issues?

In the months since the proposed Clean Power Plan was released, some states and stakeholders have focused on the issue of electric reliability. Some have asked for the EPA to establish mechanisms to ensure reliability is considered when state plans are drafted. In addition, some have asked the EPA to specify what forms of relief would be available if unforeseen reliability issues create potential conflicts with compliance. This has included calls for the addition of a reliability safety valve (RSV) or reliability assurance mechanism (RAM) in the final rule.

What to look for: Does the EPA establish a reliability safety valve, reliability assurance mechanism, or other provisions designed to protect electric reliability? 

BPC Prediction: The EPA is likely to encourage states to address reliability in their state plans and is also likely to outline a process for working with the Federal Energy Regulatory Commission (FERC) to ensure reliability.

How will the EPA treat new generating units?

The Clean Power Plan is intended to regulate existing power plants under Section 111(d) of the Clean Air Act. New units that commence construction after the date of the proposed rule will be regulated under Section 111(b) of the Clean Air Act. In the proposed rule, the EPA took comment on whether states could choose to include new units in implementation approaches for existing units in 111(d) state plans. For example, a state may want new and existing gas-fired generators to face the same obligation to avoid a competitive disadvantage at existing natural gas assets.

What to look for: Does the EPA specify whether states can or must include new units under their 111(d) state plans? 

BPC Prediction: The EPA is likely to allow states to include new units under their 111(d) state plans, but is unlikely to require states to do so.

Overall BPC Predictions

Overall Stringency

BPC Prediction: Despite a variety of “puts and takes” in response to voluminous comments, the final rule is likely to maintain a similar level of national stringency as the proposal, which promised a 30% decrease in power sector CO2 emissions from 2005 levels by 2030.

State Goals 

BPC Prediction: It is likely that some states will see substantial changes to their final and interim goals. Overall, the variance in state goal stringency is also likely to decrease.

111(b)

Does the EPA change requirement that any new coal use carbon capture and sequestration (CCS)?

The EPA plans to release its final rule regulating CO2 emissions from new power plants under Section 111(b) of the Clean Air Act at the same time as the final Clean Power Plan. The proposed rule requires new coal plants to reduce their emissions using CCS, either by using CCS technology almost immediately to meet a 12-month average emission rate or by allowing coal plants to begin using CCS within seven years of startup to achieve a seven-year average emission rate.

BPC Prediction – Wild Card. Restrictions in the 2005 Energy Policy Act have led a number of lawmakers to question the EPA’s assertion that CCS is “adequately demonstrated.” In light of the fact that the EPA predicted that the 111(b) CCS requirement would have “no costs and no benefits,” since there are no new coal facilities projected to be built in the assessment window, look to the EPA to reduce its legal vulnerability by altering its definition of the best system of emission reduction to lessen reliance on CCS.

BPC will continue to work to illuminate the complex issues in this debate in the weeks and months ahead.


1 The proposed rule allows states to convert rate-based goals, lbs of CO2/MWh, to mass-based goals, tons of CO2.

2 See papers on “trading ready”, state compatibility, and common elements.

KEYWORDS: 111(D) REGULATIONS, CLEAN POWER PLAN, ENVIRONMENTAL PROTECTION AGENCY, GINA MCCARTHY