EPA Responds to Stakeholder Comments with Key Changes in the Final Clean Power Plan

In a message delivered by the White House on Saturday, President Obama called the final Clean Power Plan (CPP) “the biggest, most important step we’ve ever taken to combat climate change.” It certainly is big, and it will take some time to fully digest the final 1560-page rule; but, based on our initial review, U.S. Environmental Protection Agency (EPA)’s changes to the CPP make it more feasible and less vulnerable to legal challenge though compliance may still be challenging for a number of States.

After over a year of stakeholder engagement and review of more than 4 million comments on the proposed rules, the EPA made some fundamental changes to the Clean Power Plan. These changes, presumably, will make the associated rules more palatable for the regulated community while still achieving the long-term environmental targets. EPA’s modifications to the CPP are responsive to some of the most prevalent criticisms of the proposed rule—that the timetable for reductions was too aggressive, that States needed clear mass-based targets, and that the calculation of the State-specific emission reduction goals was inconsistent.

Key Changes from the Proposed Rule

  • Pushes back compliance timetable
    • EPA pushed back the deadline for each State to submit its initial compliance plan to September 2016, with a final plan due in September 2018 if the State is able to secure an extension, which is EPA’s expectation for most States; EPA also removed its requirement for up-front agreements for inter-state trading programs
    • Compliance period begins in 2022, two years later than originally proposed
      • Smoother reduction targets leading up to 2030 reduction goal
      • 2030 goal is more aggressive, seeking a 32% reduction from 2005 CO2 emission levels as opposed to the 30% reduction that EPA originally proposed
      • The additional time allows utilities more time to incorporate advanced energy technologies such as energy storage, advanced photovoltaic systems, and carbon capture and storage into their compliance strategies
      • Emission reductions that occur from 2020 to 2022 will be rewarded through a newly created Clean Energy Incentive Program
  • Uses uniform CO2 performance rates for coal and natural gas to set State targets
  • Adds explicit mass-based targets
    • States will have the option to choose to meet rate-based or mass-based goals through their compliance plans
      • EPA translated category-specific emission performance rates into rate-based (pounds of CO2 per megawatt hour) and mass-based (short tons of CO2) targets, which will make the development of market-based in-state or inter-state trading programs easier to develop, which can reduce compliance costs
    • Proposed federal plan and model rule include the option of rate-based or mass-based emission trading programs
  • Removes demand-side energy efficiency as a “building block” for defining the Best System of Emissions Reductions (BSER)
    • This change reduces EPA’s risk, as setting standards based on end-customer actions is legally vulnerable
    • EPA anticipates that demand-side energy efficiency measures, due to their low costs and large potential, will still be a significant component of State compliance plans
  • New nuclear plants are not counted toward reduction goals until they are operational
    • Addresses a concern from several states that their targets were too aggressive because EPA assumed new nuclear plants would be constructed
  • Addresses reliability concerns
    • Requires states to consider reliability issues in developing their compliance strategies

Impacts of Key Changes

With the delayed compliance timeline, the courts will have additional time to review legal arguments against the rules without having to place them under a stay. This could benefit EPA in implementing the CPP without its schedule being upset by legal challenge.

The longer timeline will also lead to less of a dependence on fuel-switching to natural gas as a compliance mechanism. The added time will allow the costs of renewable energy to continue to drop and new technologies, including energy storage, to become more economically viable. (This shift to renewables is also positive from a water resource perspective as the energy mix shifts away from water-intensive thermal energy generators.)

While EPA pushed back the compliance date for submission of State plans slightly, as we noted in a previous article, this timeframe is still quite aggressive given the level of analysis, stakeholder engagement, and, potentially, state-level legislative action required. Each State will be impacted in a very different way based on current energy mix. Again, we suggest that States begin developing their compliance strategies as soon as possible in order to meet their deadlines.

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