EPA’s Clean Power Plan Proposed Rule May Result in More Renewables and Energy Efficiency in Pennsylvania
June 5, 2014
Most of the reporting on the EPA’s June 2nd Clean Power Plan Proposed Rule has been wrong so let’s begin setting the record straight. No matter how many times articles say otherwise, the proposed rule does not require a 30% reduction in power plant carbon emissions by 2030 from 2005 levels; does not use 2005 as a baseline year for calculating requirements; and does not set a single national carbon standard for existing power plants.
The misinformation is not surprising, since the proposed rule itself is 645 pages, without counting technical supporting documents, and since so many rushed to be first with reports. If you have the appetite, here is the link to one big carbon regulatory meal: https://www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule.
Who wins and who loses in the Clean Power Plan Proposed Rule? Simply put, natural gas, renewable energy, energy efficiency, and nuclear power are all winners under the proposed rule, while coal loses. Though coal consumption for power generation would certainly not increase and would likely decline under the proposed rule, it may be that this rule will only modestly add to the list of coal plants that have already been scheduled for closure between now and 2025.
At the heart of the proposed rule are 49 separately calculated, different state goals for reduction of the carbon emission rate or carbon intensity of electricity in those 49 states. Under these goals, Washington state must reduce its carbon emission rate by 72%, while North Dakota must cut its rate by 11%. No goal was set for Vermont or Washington DC, because neither has any fossil-fueled power generation.
Given that Washington state has a massive 72% reduction goal, most would think that it must be a big loser in this rule. Actually, no. The state legislature has passed a bill that requires the last major coal plant in the state to be closed by 2025. When calculating the Washington state carbon emission rate goal, EPA took into account that state law and the required closure of the coal plant.
The EPA calculates that, if each state meets its 2030 carbon emission rate goal, then the rule would cut national, power plant carbon emissions by 30% from 2005. And this calculation of the effect of the rule quickly distorted much writing about what the rule does and does not do. Indeed, the baseline emission rate for each state was calculated using 2012 data, the most recent available.
When determining by how much a state must reduce its carbon emission rate, the proposed rule takes into account factors like existing natural gas capacity and its capacity factor, already scheduled coal plant closings, current state renewable energy or energy efficiency standards and their requirements.
The EPA also projects that electricity demand will average an annual increase of 0.9% over this period. One implication of the Clean Power Plan Proposed Rule and the EPA’s proposed carbon rule for new plants is that virtually all of the increased electricity demand that can be expected by 2030 would be met by natural gas and renewable energy generation.
The next step for the EPA is to publish a final rule by June 2015. At that point, states will have essentially one to two years, and as many as three years if they are part of a regional compliance plan, to submit to EPA a state compliance plan. States have considerable flexibility in writing that plan, with allowable means of reaching required goals including more efficient operation of coal plants, greater utilization of existing natural gas plants, construction of new gas plants, existing and new renewable energy, existing and new energy efficiency, new nuclear plants or protecting economically threatened existing nuclear plants. States are also free to propose cap and trade programs, join existing regional programs like the Regional Greenhouse Gas Initiative that operates in parts of New England, New York, and Maryland, or enact a carbon tax.
We will go out on a limb and predict that no state will propose a carbon tax, but many states are likely to expand policies promoting renewable energy and energy efficiency. In Pennsylvania, those programs include the Alternative Energy Portfolio Standards and Act 129 or energy efficiency standard.
The costs and benefits of the Clean Power Plan Proposed Rule are already subject to wildly differing estimates. The United States Chamber of Commerce issued a study, prior to the publication of the proposed rule, that asserted the rule would decrease Gross Domestic Product by the equivalent of 0.2% and raise residential electric bills by about $100 per year. The Chamber study, however, assumed the plan would be designed to cut carbon emissions by 43%, as opposed to 30%, and the Chamber projected annual electricity demand would increase by a rate of 1.4% through 2030, while EPA projects a 0.9% annual rate of electricity demand increase.
The Clean Power Plan Proposed Rule does not set plant-by-plant emission standards but establishes an electric system standard. Opponents of the plan may well assert that the Clean Air Act does not give the EPA the authority to use an electric system standard. The EPA has recently enjoyed success in defending its Cross State Air Pollution rule and its Air Toxic or MACT rule in the federal courts. Any legal challenge to the Clean Power Plan Proposed Rule that reaches the United States Supreme Court probably will find four justices ready to defer to the EPA and uphold it and three justices ready to overturn it.
And so the legal fate of the rule likely depends on Chief Justice Roberts and Justice Kennedy. Both supported the EPA’s Cross State Air Pollution Rule in a 6-2 ruling (with Justice Alito recused). To defeat the Clean Power Plan Proposed Rule, opponents would likely have to win the vote of both the Chief Justice and Justice Kennedy. That’s not impossible but the odds are less than 50%.
If EPA sticks to its schedule, the final rule will be issued in June 2015 and litigation will be filed shortly thereafter. The Supreme Court will then probably rule on it in 2016 or 2017. That means the outcome of the 2016 Presidential election could also determine whether the Clean Power Plan Proposed Rule is implemented.
This Eckert Seamans Energy and Utilities Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice. If you have any questions about the content of this post, please contact John Hanger at jhanger@eckertseamans.com; (717) 237-3744 or Dan Clearfield at (717) 237-7173; dclearfield@eckertseamans.com.