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Climate Change Blog

The Clean Power Plan: Just the Basics

On Monday, August 3, 2015, EPA released its much anticipated “Clean Power Plan,” which calls on each state to reconfigure its electrical generation portfolio to achieve the standards of performance for carbon dioxide (CO2) emissions that EPA has determined to be achievable from an idealized generation portfolio for each state. Together with the concurrently finalized new source performance standards (“NSPS”) for power plants, the Clean Power Plan is the centerpiece of the Obama Administration’s climate change efforts. The Clean Power Plan is an unprecedented use of EPA’s authority under section 111(d) of the Clean Air Act (“CAA”), which will face numerous legal challenges. While we will explore the legal challenges brought to the Clean Power Plan in subsequent posts, this post only sets forth the basic features of EPA’s final rule.

What is EPA’s Statutory Justification for the Clean Power Plan?


Section 111 of the CAA establishes EPA’s authority to issue control technology-based rules for listed categories of air emission sources. Section 111(b) calls on EPA to establish and directly enforce emission limits achievable through application of the “best system of emission reduction” (“BSER”) on all new sources that “cause[ ] or contribute[ ] significantly to air pollution which may reasonably be anticipated to endanger public health and welfare.” Following the adoption of an NSPS under section 111(b), EPA has authority under section 111(d) to establish procedures that require states to submit plans establishing standards of performance for existing sources within its jurisdiction that would be subject to the NSPS if they were new sources. When the state creates a section 111(d) plan, the CAA allows it to consider “among other factors, the remaining useful life of the existing source to which such standard applies.” If the state fails to submit a satisfactory plan, EPA is authorized to adopt one instead.  

The rule packages signed by the EPA Administrator on August 3, 2015, simultaneously adopt both the section 111(b) NSPS governing carbon dioxide emissions from new power plants and direct the adoption of the plans for existing sources under section 111(d). It is the latter of these two rule packages that EPA has called its “Clean Power Plan.” The Administrator also signed a proposed rule describing the federal plan that EPA intends to impose on any state that does not submit an adequate state plan by the deadlines set forth in the Clean Power Plan.  

What types of power plants are regulated under the Clean Power Plan?


EPA requires each state plan to consider all “affected EGUs,” which are defined by the rule to be steam generating units, IGCC, or stationary combustion turbines that commenced construction before January 8, 2014, that have a nameplate capacity of 25MW or greater and a base load rating of more than 250 MMBtu/hr, as well as stationary combustion turbines that meet the definition of either a combined cycle or combined heat and power combustion turbine.

What are the requirements for power plants regulated under the Clean Power Plan?


The exact requirements for any specific power plant cannot be determined yet; they will depend upon how each state chooses to implement EPA’s assigned emission performance rates.

What are EPA’s emission performance rates under the Clean Power Plan?


The Clean Power Plan establishes two sets of emission performance rates: one that applies to the interim period (2022-2029) and the final 2030 goal. These performance rates are as follows:

Affected EGU

Interim Rate

(lbs CO2/MWh)

Final Rate

(lbs CO2/MWh)

Steam generating unit or IGCC 1,534 1,305
Stationary CT 832 771

 

EPA determined that these emission rates reflect BSER based on the application of three “building blocks:”

  1. Improving heat rate at coal-fired EGUs;
  2. Substituting lower-emitting generation from natural gas combined cycle (“NGCC”) units; and
  3. Substituting generation from new zero-emitting renewable energy.

Because the building blocks that EPA has determined constitute the BSER include “beyond the fence line” measures—an approach that many challengers contend exceeds EPA’s legal authority under the CAA—EPA does not necessarily expect that any individual affected EGU will achieve the prescribed performance rate. Rather, the states are called upon to develop and submit implementation plans that demonstrate the state’s overall generation portfolio will result in CO2 emission rates that do not exceed these standards.

There are several significant changes in EPA’s building block approach from the proposed rule:

  • EPA determined that building block 4 from the proposal, which relied upon energy efficiency measures, could not be included in the BSER, so the final standard is based on only three building blocks. 
  • EPA’s proposal called for an across-the-board 6% heat rate improvement at coal-fired power plants, while the final rule is based upon regional heat rate improvements for the Eastern (4.3%), Western (2.1%), and Texas (2.3%) interconnections. 
  • EPA’s target NGCC capacity factor is based on 75% of summer capacity, instead of the 70% nameplate capacity used in the proposal. 
  • Building block 3 no longer includes the preservation of existing nuclear capacity because EPA determined that preservation of existing nuclear capacity will not result in further emissions reductions.

EPA also finalized alternative state performance goals as both rate-based and mass-based goals. According to EPA, these alternative goals are intended to maximize states’ flexibility in implementing the BSER. EPA describes the state-specific goals as “an alternative yet equivalent expression of the BSER.”

What are the state-wide goals for my state?

Each state has a different set of interim and final goals based on EPA’s analysis of the building blocks. EPA has set forth the state goals both as target CO2 emission rates and as mass-based goals that could be used if a state wants to implement a cap-and-trade program. EPA has released a series of state-specific fact sheets that provide the details of what will be required in each state.

What are the state’s options to implement EPA’s emission performance rates?


States have four basic options to implement EPA’s emission performance rates:

  1. Apply EPA’s emission performance rates to each affected EGU;
  2. Create a rate-based plan where affected EGUs attain the CO2 emission rate set by EPA through a combination of on-site emission reduction measures and emission rate credits (“ERCs”);
  3. Create a mass-based plan where the affected EGUs demonstrate compliance through participation in a cap-and-trade program; or
  4. Make no submission and wait for EPA to impose a rate or mass-based plan consistent with the proposed federal plan.

When must states submit their plans?

States are required to submit their final plans to EPA by September 6, 2016. If the state cannot complete its plan by this date, it may make an initial submittal to the EPA containing (1) a description of the approach to be taken in the final plan; (2) an explanation of why the state requires additional time to finalize the plan; and (3) a demonstration of completed and continuing community engagement during plan development. States that make a submission meeting these criteria will be granted an extension and their final plans will be due on September 6, 2018.

When will power plants need to comply?

The final emission goals must be met by 2030, while the interim goals will apply between 2022 and 2029. EPA has established 3 “steps” in the interim period: (1) 2022 through 2024; (2) 2025 through 2027; and (3) 2028 through 2029. While states will be required to establish some sort of emission limitations for affected EGUs beginning in 2022, states have flexibility in how they structure emission limits or mass-based caps during the interim period and do not have to follow EPA’s “steps.” However, if a state fails to submit a plan, the interim period “steps” will be a component of a federal plan drafted for the state.  

What are the incentives for states to write their own plans?

There are two significant incentives for states to write their own plans. First, a state plan may include “state measures” as part of the demonstration that EPA’s emission performance rate is being met. For example, while EPA has determined that demand-side energy efficiency is not part of BSER, states could adopt energy efficiency programs as part of their own plans. Such measures would not be part of a federal plan created by EPA, meaning that states have opportunities to lower the degree of emissions reduction required for affected EGUs.

Second, EPA has created incentives for early action and investment in renewable energy and energy efficiency through a system of early reduction credits and the Clean Energy Incentive Program (“CEIP”). Under the CEIP, EPA will match emission rate credits issued by the states for renewable energy or energy efficiency projects that achieve emission reductions in 2020 and 2021. However, CEIP incentives are available only to projects that commence after the state's submission of a final plan or September 6, 2018, if no final plan is submitted before that date. Were states to meet the initial 2016 deadline for implementation plan submittals, they would provide two additional years for construction of projects that could benefit from the CEIP.  

Is the Clean Power Plan a cap-and-trade program?


Maybe. The Clean Power Plan itself does not require cap and trade. However, it appears that many states may find that adoption of a cap-and-trade program will be the most efficient way to comply with EPA’s emission performance rates. In fact, the preamble to the final rule states “EPA believes that it is reasonable to anticipate that a virtually nationwide emissions trading market for compliance will
emerge . . . .”

We will provide more details on each of these topics and many others in an upcoming series of blog posts. Join V&E lawyer Margaret Peloso  and others for a live Twitter chat on Thursday, August 20th from 11:30 a.m. to 12:30 p.m. CDT to answer your questions about the #CleanPowerPlan. Please submit questions to @VinsonandElkins or @Margaretepeloso using #VEchats or email Margaret Peloso.

Posted by Margaret Peloso at 08/12/2015 5:55 PM

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Author

Margaret E. Peloso

Margaret E. Peloso Partner