On August 21, EPA introduced its much-anticipated Affordable Clean Energy (ACE) Rule to replace the Barack Obama Administration’s Clean Power Plan (CPP) Rule for regulating carbon dioxide (CO2) emissions from our nation’s aging fleet of power plants. This proposal checks off another item on the Donald Trump Administration’s deregulatory agenda and elicits a number of profound questions. What are the main differences between the ACE and the CPP? What are the implications for public health, the environment, and the electric power sector? More philosophically, why, in the 21st century, do we continue relying on a Victorian-era source of energy to power our cell phones?
The following discussion attempts to answer the first two questions in a two-part blog. Today’s post will break down and contrast the ACE against the CPP; next Monday’s post will delve deeply into the ACE’s costs, benefits, and implications for both public health and the power sector. First, a warning for the faint of heart: this post relies heavily on acronyms and delves through the looking glass into the often nonsensical world of cost-benefit analysis. Readers, beware.
Why Is EPA Regulating Power Plants?
In 2007, the U.S. Supreme Court ruled in Massachusetts v. EPA that CO2 and other greenhouse gases (GHGs) are air pollutants for purposes of regulating motor vehicles under the Clean Air Act. On remand, EPA found GHGs indeed “may reasonably be anticipated to endanger public health and to endanger public welfare.”
This “endangerment finding” means EPA is legally obligated to regulate GHGs, and not just for motor vehicles. The CAA is notoriously self-referential: Section 111 requires EPA to promulgate a list of categories of stationary sources it finds “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.” Once EPA lists a source category, under §111(b)(1)(B), it must establish “standards of performance” for emissions of air pollutants from new or modified sources in that category. These are termed “new source performance standards” (NSPS).
EPA having duly established NSPS under §111(b), we scoot on over to §111(d). This section, in a rather roundabout way, requires states to submit plans regulating existing (we’ll say “old”) sources in that same category for any air pollutant that is not already regulated under two other CAA provisions: §109 for national ambient air quality standards (NAAQS) and §112 for hazardous air pollutants (HAPs).
States submit plans establishing “standards of performance” for these old sources, which reflect the degree of emissions reductions achievable by applying the “best system of emission reduction,” or BSER, “which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.” This is a rather hifalutin way of saying: EPA figures out the best method for reducing the amount of a pollutant that, say, coal-fired plants produce. Each state then calculates by how much this method can reduce emissions, and holds facilities accountable for meeting those standards. The standard of performance in these state plans is in the form of allowable emission rate of CO2.
The CPP’s Tortuous Journey
EPA promulgated the CPP in 2015, setting a national goal of reducing CO2 pollution 32 percent below 2005 emission levels. EPA proposed reaching that goal by establishing CO2 emission performance rates for fossil fuel-fired electric steam generating units (coal and oil) and natural gas-fired combined cycle generating units.
Under the CPP, EPA would assign each state an individual rate-based and mass-based goal for cutting power plant CO2 emissions. EPA set those state goals by applying a complicated formula, which looks at regional differences in power generation and distribution, and estimated by how much these power plants can reasonably cut emissions.
To come up with this estimate, EPA needed to determine the BSER. The Agency settled on three “building blocks,” or methods that coal and natural gas power plants could use to cut emissions. These include: operating coal plants more efficiently by improving the heat rate at existing coal-fired power plants, as well as substituting increased electricity generation from lower-emitting existing natural gas plants and new zero-emitting renewable energy sources for reduced generation from higher-emitting coal-fired power plants.
States could choose between two plan types to meet their goals, but would retain considerable flexibility on selecting their preferred methods for achieving that goal. This account is admittedly an oversimplification, and plenty of CAA wonks break the CPP down further.
But all this effort turned out to be for naught. In February 2016, the Supreme Court stayed implementation of the CPP by a 5-4 vote, pending litigation in the D.C. Circuit and, if necessary, in the Supreme Court. In March 2017, the new Trump Administration issued Executive Order No. 13783, directing EPA to reconsider the CPP. EPA issued an Advance Notice of Proposed Rulemaking in December 2017, and proposed the ACE on August 21.
Given the Trump Administration’s deregulatory push, one might be curious why EPA did not attempt overturning its underlying “endangerment finding” on GHGs. A popular theory is that letting EPA completely off the hook for regulating GHGs would open energy companies up to litigation. Federal courts have thrown out a number of nuisance claims—for example, American Electric Power Co. v. Connecticut, followed by Native Village of Kivalina v. ExxonMobil Corp.—against oil and gas companies for climate change impacts. The basis is the displacement doctrine: EPA’s regulation of air pollutants under the CAA displaces federal common-law nuisance claims. A number of municipalities, particularly in California, are focusing on state-law nuisance claims for this reason.
Breakdown of the ACE
The ACE would replace the CPP with revised emissions guidelines for states to follow in developing implementation plans to reduce GHGs from fossil fuel-fired electric generating units (EGUs)—particularly coal power plants.
The ACE departs substantially from the CPP. First, EPA sets no minimum requirement for reducing GHG emissions. Second, the ACE applies only to fossil fuel-fired EGUs. Third, the new rule jettisons EPA’s “building blocks,” instead opting for heat rate improvement (HRI) measures as the BSER for reducing CO2 emission reductions at existing coal-fired EGUs. The Agency proposes a list of candidate technologies that states can use in establishing standards of performance. However, states have flexibility and may consider other measures and technologies.
Fourth, the ACE would limit emission reduction measures to individual facilities. In contrast, the CPP allowed switching to renewable, zero-emission energy sources “outside the fenceline” of existing coal power plants. EPA, under the Trump Administration, argues the CPP exceeds Agency authority by relying on measures applied to the power sector as a whole. This particular issue was already in front of the D.C. Circuit. However, the proposed rule contemplates allowing states to include emissions trading as a compliance mechanism—even though this too reaches beyond a facility’s fenceline.
Fifth, the ACE allows states variances to apply a less stringent standard or final compliance deadline, for reasons that include cost of control and the physical impossibility of installing necessary control equipment. States may also consider the remaining useful life of an existing source, which may permit them to exempt an individual plant. Sixth, the ACE extends compliance time lines and deadline dates. For example, states would have three years rather than nine months to submit their implementation plans, and increments of progress toward compliance are required of an EGU if its compliance schedule exceeds 24, and not 12, months.
The greatest single change proposed by the ACE is revisions to the new source review (NSR) program. A power plant is subject to an NSR permit—considered a tremendous burden by the electric power sector—if a proposed modification to the plant increases its annual emissions output. The ACE would exempt EGUs from major NSR unless a significant net emissions increase would result from the modification. States would also have the discretion to rely on an hourly, rather than annual, emissions test to determine whether there would be such a significant increase.
EPA’s rationale for revising the NSR program is avoiding having energy-efficiency improvements trigger major NSR permit requirements. However, critics argue these changes could incentivize new investment in existing coal plants, increasing their lifespan and CO2 emissions. Interestingly, similar efforts to reform NSR under the George W. Bush Administration were defeated in court. EPA is aware of the NSR revisions’ legal vulnerability, and includes in the ACE a provision making them severable from the remainder of the rule.
Stay tuned for Part II, in which we delve into cost-benefit analysis and discount rates! Learn a federal agency’s top tips for manipulating the social cost of carbon, and we’ll show how you can apply them in your own life to get the carbon benefits you want!