EPA’s Replacement for CPP Gives States More Leeway, Revises NSR, Upsets Critics

With President Donald Trump touting it, administration critics blasting it, and lawmakers taking sides on it, the Environmental Protection Agency on August 21 released a proposed rule to replace the Clean Power Plan (CPP) with a proposal that would give states more options for regulating coal-fired generation and make it easier to retain coal plants in the face of market changes.

Those market changes, such as reduced costs for natural gas-fired generation and renewable resources, are coming regardless of the EPA’s actions and coal-fired generation units are being squeezed out by competition in many regions of the U.S., not the CPP or restrictive regulations, several groups and consultants have asserted.

Also on the horizon are legal challenges, with a group of state Attorneys General asserting that they will take EPA to court on the proposal to dismantle the CPP. Illinois Attorney General Lisa Madigan issued a statement that she is part of a coalition of states, cities, and other jurisdictions that agreed to defend the CPP and challenge the replacement plan. “I will take legal action to ensure the federal government does its job to protect our environment and our health,” Madigan said.

The coalition includes California, Connecticut, Delaware, the District of Columbia, Hawaii, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington, as well as several large cities.

Environmental groups and others that have supported the CPP have commented that its legal fate, even if it is upheld, overturned, or replaced, may not result in vast greenhouse gas (GHG) emission changes because organized wholesale markets and the economics of generation dispatch have pushed cleaner resources to the fore. Areas outside of independent system operator and regional transmission organization boundaries, however, have a lot of municipal and rural electric cooperative utilities that have plenty of coal-fired generation units in operation.

In its regulatory impact analysis (RIA) of the proposed rule, EPA examined different scenarios relative to a base case that includes the CPP. The RIA projects as much as a 30% decrease in new natural gas-fired, combined-cycle generation units, a 6% drop in total nuclear generation and a 4% drop in new renewable generation resources. The RIA forecasts a slight reduction of 1% to 3% in total use of gas-fired generation, depending on state compliance scenarios and timing.

The RIA projects small changes, of 1% or less, in delivered coal prices and natural gas prices compared with the base case CPP.

When asked to comment on the projections, the Natural Gas Council said the competitive generation market “already recognizes that natural gas offers the best way to simultaneously reduce emissions, ensure reliability and keep costs lower for consumers.” The group pointed to increased use of gas-fired generation leading to 26-year lows in the energy sector’s GHG emissions.

“Effective federal environmental policy should recognize these natural gas attributes and allow states the ability and flexibility to turn to natural gas to achieve their environmental goals,” said the Natural Gas Council, which is comprised of the trade groups representing different sectors of the gas industry.

EPA officials said that compared with the CPP, the proposed rule has a solid legal footing by keeping regulations focused on coal-fired power plants and not generation dispatch carried out by grid operators or alternative compliance options such as increased use of renewable resources. By staying within the constricts of the Clean Air Act and scaling back the reach that was proposed in the CPP, “we think we’re on very firm legal ground,” said Bill Wehrum, assistant administrator for EPA’s Office of Air and Radiation.

In a media call, Wehrum and Acting EPA Administrator Andrew Wheeler said it is noteworthy that the Supreme Court in 2016 issued a stay of the CPP, the first ever such move by the high court while a regulation was pending judicial review. The Supreme Court was concerned about EPA reaching beyond its authority under the Clean Air Act and that concern has been addressed in the proposed rule to replace the CPP, Wheeler and Wehrum said.

The replacement from EPA, dubbed the Affordable Clean Energy (ACE) rule, will be subject to a 60-day comment period and the agency will hold a public hearing on the plan. It would then be rolled out as a final rule, with implementation and compliance carried out over several years, assuming any subsequent presidential administration does not change course.

That is a tight timeline for such a major rulemaking, and groups are likely to seek more time to address the proposal during the comment period.

Clear View Energy Partners LLC is forecasting a final rule sometime in the first half of 2019, meaning court review later in that year and continuing into 2020. The U.S. Court of Appeals for the D.C. Circuit may agree with the proposal’s critics that climate change demands a response from policymakers, but the firm is not convinced that the court would direct EPA to make that interpretation of the existing statute when the agency does not do it on its own.

That could be key, because “even if voters elect a new President in 2020, should federal courts uphold ACE, it may take Congress (rather than a regulatory pendulum swing by a greener President) to replace or otherwise strengthen the rule,” said Christine Tezak, managing director at Clear View.

The EPA proposal establishes federal emission guidelines for states to use in developing plans to address GHG emissions at power plants within their borders. The measure would be carried out through primary actions: defining “best system of emission reduction” for existing power plants as on-site, heat-rate efficiency improvements; providing states with a list of technologies that can be sued to establish performance standards in state plans; updating the New Source Review (NSR) permitting program to encourage efficiency improvements at existing power plants; and aligning regulations under Clean Air Act section 111(d) to give states adequate time and flexibility to develop their plans.

Unlike the CPP, EPA is not setting a presumptive standard for emission control performance. The CPP, issued by EPA under former President Barack Obama, was designed to reduce GHG emissions from fossil fuel power plants 32% below 2005 levels by 2030. It provided states with deadlines for action and some flexibility in how they could achieve emission-reduction goals. Twenty-seven states and other organizations challenged the ruling in court.

The CPP also waded into generation dispatch measures at independent system operators and allowed states to meet emission control goals through demand reduction or energy efficiency efforts and increased use of renewable resources. EPA does not have authority under the Clean Air Act to regulate in such areas, and the ACE proposal implements the law as Congress designed it, Wehrum said during the media call.

While a lot of groups want EPA to regulate power grid operations to minimize emissions or see that more wind and solar power are added it does not have that authority and “by proposing the rule that we did today, we bring the agency back to what Congress intended for us to do,” Wehrum said.

The proposal gives states flexibility to address the unique aspects of all coal-fired plants within their jurisdiction, officials said, noting that some plants are older and smaller with lower efficiency ratings and others are newer and have updated emission control technologies in place. EPA is putting out the federal framework for guidance and letting states carry out their plans as they see fit, Wehrum said.

States would have three years from the date of any final rule to prepare and submit a plan for complying with the BSER guidelines from EPA. Once a state plan is submitted to the agency, EPA would have one year to review it and rule on its fitness or approve it. If a state plan is not submitted or if EPA rejects it, the agency would have two years to develop a federal plan for that state.

The ACE proposal “provides the states and regulated community the certainty they need to continue environmental progress while fulfilling President Trump’s goal of energy dominance,” Wheeler said in a statement. The plan “would restore the rule of law and empower states to reduce greenhouse gas emissions and provide modern, reliable, and affordable energy for all Americans,” he said.

The CPP was praised by some states with more aggressive environmental goals and regulations on the power generation sector and challenged by others. Those roles are likely to be reversed with the replacement plan, though it is not clear if the state legal challenges of the CPP will be subject to a court decision.

EPA estimated that the ACE plan could reduce carbon dioxide emissions by up to 1.5% from projected levels without the CPP, or the equivalent of taking 5.3 million cars off the road. The agency’s analysis suggests that when states have fully implemented the proposal, carbon dioxide emissions from the power generation sector could be 33% to 34% below 2005 levels, which would be slightly better than the emission reduction targets of the CPP.

Wehrum commented that predictions are difficult due to the flexibility afforded states under the ACE proposal. “It is hard to predict what states will do,” and they have plenty of latitude compared with the CPP, but EPA believes that the ultimate emission totals under the replacement plan will not be much different than totals expected under the CPP, he said.

EPA’s analysis found that coal-fired power plants can reduce emissions by making on-site efficiency upgrades, or heat rate improvements that lower emissions for each amount of power generated to be included in the list of technologies states can consider.

It also is proposing a new applicability test for determining whether a physical or operational change made to a generation unit may be a “major modification” triggering NSR rules. The proposal adopts revisions to the NSR permitting program to give states the option to adopt an hourly emissions increase test for such projects. Under that approach, only projects that increase a plant’s hourly rate of pollutant emissions would need to undergo a full NSR analysis. This proposal would ensure that coal-fired power plants can appropriately and efficiently reduce their CO2 emissions without undue burden or disruption, EPA said in a fact sheet on the proposal.

Under current regulations, the NSR permitting program impedes plant operators from making efficiency improvements at their units, and the proposal would modify the regulations to bring the NSR rules in concert with the ACE rule, Wehrum said.

Among the groups addressing the proposal was the Bipartisan Policy Center (BPC), which noted that all but eight states have made progress toward reaching emission goals under the CPP, due mainly to market changes and not the planned regulation. It is unclear if that progress would continue without the backstop of a federal emissions-reduction requirement, said Tracy Terry, director of energy at BPC.

As Wehrum said during the media call, Terry said the fate of a lot of coal-fired generation will depend in large part on what states decide to do with the leeway granted through the ACE, assuming the final rule is similar to the proposed rule and upheld legally. While heat rate improvements and efficiency gains through the NSR element could be a boon for some units, “the rule isn’t necessarily a slam dunk for coal, Terry said.

BPC is forecasting a bigger divergence in state approaches to coal-fired generation as a result of the proposal. “In addition, there are a number of coal-heavy states with gubernatorial elections in November. The outcomes of those races could have an impact on how the rule is eventually implemented in those states,” Terry said.

Tezak of Clear View said the upside for coal demand appears modest since EPA’s replacement plan does not appear to offset the strong market trends pushing more gas-fired generation and renewable resources.

President Trump traveled to West Virginia August 21 to speak at a rally, and the White House issued a statement that the ACE proposal promotes energy dominance while ensuring environmental protections are in place. EPA projects that the rule would reduce compliance costs by as much as $6.4 billion compared with the CPP, the White House said.

Trump’s 3/28/17 executive order directed EPA to review the CPP and determine if it should suspend, revise or rescind the rule. EPA went the revision route, emphasizing the more limited federal role and deference to states to carry out the plan as they see fit.

Rural electric cooperative utilities, coal industry groups and lawmakers from coal-heavy states praised the move away from the CPP. The National Rural Electric Cooperative Association said the ACE proposal appears to provide co-ops with a more achievable plan that adheres to EPA’s historic approach to regulations under the Clean Air Act. “This is necessary to provide electric co-ops the certainty and flexibility they need to meet their consumer-members’ local energy needs,” said Jim Matheson, CEO of NRECA.

The Obama administration plan was a complex and burdensome overreach that took responsibility away from state regulators, said Scott Segal, an attorney at Bracewell and director of the Electric Reliability Coordinating Council, a coalition of utilities. “The replacement rule is premised on the fact that states are in a better position to judge the inventory of measures available to reduce carbon emissions within their power sectors.  That’s consistent with decades of integrated resource planning that takes places at the state level, the shared responsibilities under the Clean Air Act, and the traditional federalism that governs utility regulation in most states,” Segal said.

Investor-owned utilities are proud of the progress made to reduce emissions from their generation fleet while keeping rates affordable and providing reliable service for customers, a spokesman for the Edison Electric Institute said.

“At this time, we are still reviewing and analyzing the details of EPA’s proposed rule to replace the Clean Power Plan, and look forward to working with EPA, states, and other stakeholders throughout this rulemaking process,” the EEI spokesman said.

The chairman of the Senate Environment and Public Works Committee, Sen. John Barrasso (R-Wyo.) said he is glad the Trump administration is replacing the CPP, which was a poor policy choice and illegal.  “I look forward to reviewing the administration’s proposed replacement. The state of Wyoming and other stakeholders should have a chance to give their feedback and look at this issue with a fresh lens,” Barrasso said, noting that he participated in a “listening session” EPA held in Wyoming as it considered the next step for addressing the CPP.

The ACE proposal “is a significant step towards reversing one of the most costly, burdensome, and ineffective regulations issued by the previous administration. It marks a return to sanity and to the rule of law when it comes to environmental regulations,” said Rep. Lamar Smith (R-Texas) and chairman of the House Science, Space and Technology Committee.

Several Democrats in Congress and environmental groups criticized the proposed CPP replacement as failing to address climate change and allowing more emissions from coal-fired power plants. “That’s a recipe for climate disaster, and we’ll fight this dangerous retreat with every tool available,” said Rhea Suh, president of the Natural Resources Defense Council.

“If I were grading the Trump Administration’s proposal to replace the Clean Power Plan, I would give it an ‘F,’ said Sen. Tom Carper (D-Del.), ranking member on the Senate Environment and Public Works Committee. “This egregious climate denial plan fails to protect the American people from the serious risks of climate change, fails to produce the same health and energy saving benefits that were achieved under the Clean Power Plan, and could send clean energy jobs to China,” Carper said.

Rep. Frank Pallone (D-N.J.), ranking member on the House Energy and Commerce Committee, said the proposal shows the Trump administration’s preference for choosing polluters’ profits over public health and safety.  “This is just another in a long line of Trump administration subsidies designed to keep old, dirty, inefficient generators operating well past their design life” and stifle innovation and clean energy investments, Pallone said. “This is a dangerous proposal, and I will do everything I can to fight it.”

By Tom Tiernan TTiernan@fosterreport.com

 

This article appears as published in The Foster Report No. 3213, issued on August 24, 2018

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