US unveils flagship climate change rule targeting power plants

14 August 2015

US President Barack Obama announced the final version of the Clean Power Plan (CPP), the nation’s first ever climate change policy to set mandatory limits on carbon dioxide emissions from existing coal and gas-fired power plants, during a White House briefing held on Monday 3 August.

In his speech, Obama labelled these final rules as “the single most important step America has ever taken in the fight against climate change,” since power plants are responsible for some 31 percent of the US’ climate-warming carbon dioxide emissions. According to US data, there are approximately 1000 fossil fuel fired power plants in the country, and this ruling will cover 3100 units.

The CPP is drafted by the US’ Environmental Protection Agency (EPA) and is situated under the nation’s 1970 Clean Air Act (CAA). The regulation, formally referred to as 111 (d) according to the section of the CAA it falls under, was first outlined by the EPA last June and has since been subject to a public consultation process. (See BioRes, 9 June 2014)

The final CPP is designed to cut existing power plant carbon emissions by 32 percent in 2030 against a 2005 baseline, an increase from the 30 percent cut eyed in a June 2014 draft. The regulation will reduce overall US emissions by an estimated 10 percent compared to 2005 levels, slated as a key building bloc of the Obama Administration’s 2013 Climate Action Plan, itself designed to unleash a range of executive climate policy initiatives.

Reactions

A number of commentators broadly welcomed the final CPP, praising its ambition and flexibility, while over 300 business and investors have expressed strong support for the rules suggesting these will benefit the economy and create jobs. Some other private sector representatives, however, have charged that it will result in higher energy prices, less economic growth, and fewer jobs.  

“Our analysis suggests that the rule can be implemented without technical or financial impediment, and in a manner that is likely to promote more, not less, economic prosperity,” argued Andrew Steer, President and CEO of Washington-based think tank the World Resources Institute, in an effort to answer to these charges.

In the anticipated public reaction tsunami following the CPP announcement, several stakeholders raised questions around the plan’s ambition, others eyed the legal challenges the federal rule might face from state courts, while a number of commentators reflected on its potential impact on the ongoing international effort to secure a multilateral climate deal for the post-2020 period.

Negotiators are due to ink the new UN Framework Convention on Climate Change (UNFCCC) agreement at a meeting in December in Paris, France. Some commentators have suggested that the CPP might help to boost the US’ hand in the final months of negotiation, while others said it could prompt more action from partner countries.  

Regulation details

In order to reach the 2030 carbon cut goals, the EPA has set interim and final emission reduction targets for 47 of the US’ 50 states, customised to reflect specific energy mixes. States will then develop and implement plans to ensure their power plants achieve these reductions on average over the period of 2022 to 2029 and then by 2030.

States must submit initial plans to the EPA detailing how they intend to achieve the cuts by September 6 2016 and final complete plans must be put forward two years after at the latest. Washington said that the approach provides states sufficient flexibility to determine the investments required to handle the energy transition over the next 15 years. As part of their plan, states must also outline how they are going to handle electricity grid reliability.

Moreover, the final rules of the CPP incentivise states that take early action to reduce emissions before 2022, while simultaneously easing concerns that vulnerable communities will face energy price increases as a result of states’ implementation of emissions reductions. The ruling establishes a voluntary Clean Energy Incentive Program (CEIP) designed to reward states that invest in renewables, specifically wind and solar, as well as energy efficiency projects in low-income communities.

According to the EPA, the 1560 page final ruling addresses a number of problems raised with regard to its original proposal including issues related to equity, interconnected grids, calculation of emissions reductions, energy efficiency, trading, grid reliability, low-income ratepayers, and timing with regard to compliance and implementation. 

The EPA suggests that the proposed emissions reductions will make a significant contribution to pollution reductions, resulting in climate benefits worth around US$20 billion and health benefits between US$14-34 billion.

Options to meet targets

To reduce emissions states can choose to operate coal plants more efficiently, run lower carbon emitting gas plants more often than coal plants, and shift generation to zero-emitting renewables.

Demand-side energy efficiency measures outlined in the original proposal as a fourth building block were reportedly taken out of the final rule due to legal concerns that energy efficiency lay outside federal authority, since utilities cannot directly control consumer behaviour.

States can also submit two kinds of plans to reach the emissions reductions goals, one in which an emissions performance standard is applied to each unit, and another in which a state adopts a regional plan to cut emissions across the whole power sector. For the latter, states would be able to comply through customised plans of, but not limited to, emissions trading, carbon taxes, coal-to-gas switching, nuclear energy, installing renewables, or increasing energy efficiency.

The new ruling, particularly the targets framed as the mass-based form of total tonnes of carbon dioxide emissions in a given year, also paves the way for states to participate in emissions trading schemes in order to achieve their specific targets. According to the EPA, a mass-based target is more conducive to a cap-and-trade programme, since it enables the use of tradable allowances instead of emissions rate credits, which are used for rate-based goals.

In addition, the EPA has made individual states’ emission units “trade ready” by removing some cumbersome and time-consuming regulatory measures that were present in the original draft proposal.

The original draft required that states jointly agree on and submit a multi-state compliance plan to the EPA to establish a carbon market. Now, power plants in one state can trade with other affected power plants in any other state without an upfront interstate agreement, as long as the states meet certain minimum requirements with regard to carbon accounting, reporting, and monitoring metrics.

Since formal agreements are not required to participate in carbon trading, states initially averse to market measures could resort to them later, according to Michael Tubman, analyst at the Center for Climate and Energy Solutions, another DC-based think tank. The draft rule had listed interstate collaboration as a possible tool for reaching compliance, but now this final version promotes it, some stakeholders have also said.  

“The most striking change, from what I’ve seen, is the degree to which state-level and multi-state cap-and-trade systems are now explicitly encouraged,” said Robert Stavins, an environmental economics professor from Harvard, when asked about the new trade provisions. Obama had tried to introduce a nationwide cap-and-trade bill in his first term that was later scuppered by political resistance. 

The EPA claims that the final CPP is designed to potentially accommodate trading programmes that include international sources, design flexibilities such as offset provisions, sources and sectors other than power plants, power plants not covered by the CPP and other existing schemes.

Backstop federal plan

If a state does not submit an implementation plan by 2018, it will be subject to a default federal plan, which also hones in on emissions trading as a tool for states to reach their emissions reductions targets.

The 755-page default federal draft rule was released the same day as the final CPP.

According to the EPA, the federal plan provides “model trading rules” that “provide a cost-effective pathway to adopt a trading system supported by EPA.” Many analysts say that the model trading rule and the federal plan will enable the linking of individual state carbon markets since they will be based on a common denominator.

Some experts have also predicted that by 2020 the US could be home to three carbon markets: California and its Western Climate Initiative, the north east’s Regional Greenhouse Gas Initiative; and the market created by the EPA including everything else. The final version of the federal plan is expected in summer 2016, after a period of public comment, shortly before states begin submitting their implementation plans.

ICTSD reporting; “A detailed Q&A on Obama’s Clean Power Plan,” THE CARBON BRIEF, 4 August 2015; “Final US power plant rules seek to make carbon trading easier,” CARBON PULSE, 4 August 2015.

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