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This post originally appeared on the Global Energy Institute's Fuel for Thought.
Yesterday, the Environmental Protection Agency (EPA) released its long-awaited proposal to replace the Obama Administration’s Clean Power Plan (CPP)—the Proposed Affordable Clean Energy Rule, or “ACE.”
Finalized in 2015, EPA’s CPP final rule raised a host of legal concerns, including that it swept away decades of agency precedent and dramatically stretched the EPA’s authority under the Clean Air Act (CAA). EPA’s expansive interpretation of CAA was called into question by many, including the U.S. Chamber (backed by 166 state and local chambers) and more than half of the affected states, which litigated against the rule. The Supreme Court also weighed in and, in an unprecedented move, suspended the CPP final rule more than two and a half years ago, a clear sign of its legal vulnerability. That’s an important point that is being missed in the discussion surrounding the new plan.
We’ve never been a fan of regulating greenhouse gases under the CAA because it was not designed to address emissions of greenhouse gases. Nevertheless, EPA is to be commended for producing a new proposal that, unlike the CPP, falls clearly within the statutory confines and past precedent of the CAA, and its action this week lays the most detailed blueprint yet for what comes next.
In a statement, Global Energy Institute President and CEO Karen Harbert said in part:
The Chamber has long maintained that there is a better way to address carbon dioxide emissions than the Clean Power Plan regulation, which was halted by the Supreme Court in 2016. Today’s announcement is an important step toward a more collaborative process that fits within EPA’s statutory authority and will result in achievable progress through more practical, state-driven programs. This revised approach will help continue the trend of lower electric power sector emissions while preserving America’s energy edge and respecting environmental law.
So now that we have a specific, tangible proposal to evaluate, let’s take a high-level look at some of the key improvements made in EPA’s ACE:
- EPA doesn’t stray beyond the bounds of the Clean Air Act: The original CPP was built on an unprecedented reading of CAA that compelled owners of coal- and gas-powered facilities regulated by EPA to purchase electricity from other facilities, fuel switch, or even build new low-emitting generating capacity. This “outside-the-fence” interpretation allowed EPA to set far more stringent requirements on states, but the agency’s highly questionable authority to implement such a framework was a focal point of litigation, and likely a contributing factor in the Supreme Court’s extraordinary stay of the rule.
Consistent with other EPA regulations under CAA, ACE is based on what can be achieved “inside the fence” of the power plant. This scope is consistent with the plain text of the statute, accompanying regulations, and historical EPA practice.
- States are truly in the driver’s seat: When former EPA Administrator Gina McCarthy announced the final CPP in August 2015, she touted the rule’s deference to states, boasting that it “puts utilities and states where they belong—in the driver’s seat.” That was news to the 27 states that filed lawsuits to stop the regulation (not to mention the 24 trade associations, 37 electric co-operatives, and three labor unions).
The ACE proposal makes clear that it is up to states to use its guidelines to develop and submit their plans for establishing—and complying with—performance standards under the rule. Further, it affirms that states have broad flexibility to identify the appropriate factors to consider when doing so, based on the unique circumstances of their state and the regulated sources that operate there. Cooperative federalism, a central feature of the CAA, is central to the proposed replacement rule.
- “Flexibility” isn’t just a tagline: Last year, we wrote the following about the original CPP:
If there were a hall of fame for regulatory marketing catchphrases, the word “flexibility” would surely have its own wing. EPA took this to an entirely new level with CPP, heavily employing “flexibility” as a central theme in both the agency’s public promotion and legal defense of the rule. From President Obama to EPA Administrator Gina McCarthy on down to the agency’s regulatory and litigation dockets, “flexibility” was the watchword of CPP supporters…Environmental groups proclaimed that “the wide array of flexible compliance options…undermines” state and industry arguments that the CPP was illegal. Our tally indicates the words “flexible” and “flexibility” appeared in the final version of the (304-page) rule a whopping 280 times, certainly some kind of a record!
In reality, however, the CPP’s “flexibility” was in effect a pick-your-poison mandate on states that presented them with nothing but objectionable options. In contrast, the proposed ACE rule states: “EPA envisions that, under the proposed program, the states would set standards based on considerations most appropriate to individual sources or groups of sources . . . As such, states have considerable flexibility in determining emission standards for units, as contemplated by the express statutory text.” By recognizing and deferring to states to develop and implement their standards in a manner that best suits their unique circumstances, the ACE proposal would institute a truly flexible framework that will allow for continued emissions reductions without undue harm on utilities and consumers.
- New Source Review is addressed: The New Source Review (NSR) program is a preconstruction permitting program that requires power plants and other major facilities to obtain permits prior to making “major modifications.” It has long been recognized that the NSR program and its implementation processes often impose unnecessary costs, uncertainties, and delays that discourage rather than encourage investment and modernization of industrial facilities. In some cases, the NSR program has even resulted in perverse incentives wherein some affected entities are discouraged from investing in pollution-reducing upgrades and expansions that improve reliability, efficiency, and safety. While the Obama-era CPP recognized these obstacles, it provided no relief to utilities being required to make upgrades. Instead, it encouraged states to “use demand-side measures or increase reliance on RE [renewable energy]” as a means to avoid NSR permitting triggers.
The ACE proposal rightly would give states an opportunity to address the NSR elephant in the room by encouraging them to invest in the latest, most efficient technologies without automatically triggering costly and burdensome NSR requirements.
- Remaining useful life considerations are permitted: When Congress wrote CAA, it recognized the potential that certain EPA regulations could force facilities to close long before their financing was paid off or the benefits of EPA-required improvements were realized. It therefore required EPA to allow states “to take into consideration, among other factors, the remaining useful life” of an existing source when complying with EPA CAA rules. The CPP ignored this requirement, prohibiting states from instituting flexible compliance measures based on the remaining useful life of a power plant. EPA’s ACE would restore this important statutory requirement and explicitly affirms that states can and should consider unit-specific factors, including the unit’s remaining useful life.
- Emissions will continue to decline: Under EPA’s ACE, emissions of carbon dioxide and criteria pollutants will continue to decline more rapidly than if CPP were withdrawn and not replaced. EPA estimates that under the proposal carbon dioxide emissions from the power sector could be 0.7% to 1.4% lower in 2030 than otherwise. Emissions of sulfur dioxide and nitrous oxides also would be between 1% and 2% lower and mercury emissions between 0.5% and 1% lower in 2030. When fully implemented, 2030 power sector carbon dioxide emissions could be about 33% below the 2005 level (compared to 32% below without any regulation and 35% below under CPP).
- Vastly improved regulatory process: Finally, it’s important to recognize and applaud EPA for the vastly improved regulatory process through which this proposal was developed. CPP was a rule of great magnitude and complexity, with substantial economic consequences that would be felt not just by traditionally regulated utilities but by the broader U.S. economy. Despite this, opportunities for dialogue and input were limited. In particular, the design of the final CPP was remarkably different than what EPA had originally proposed, meaning that stakeholders had no opportunity to provide feedback on countless new assumptions and implementation challenges.
This time the EPA took the extra step of first proposing an Advanced Notice of Proposed Rulemaking (ANPR) which identified and solicited comment on a wide range of issues. That formal step allowed the agency to address potential concerns before its release of today’s ACE proposal, and in doing so provided an invaluable additional layer of feedback in the form of more than 270,000 public comments—both supportive and critical—that weighed in on the many components of this consequential rulemaking.
This list provides just a sampling of key differences between the original CPP and EPA’s new ACE proposal. The Chamber and its allies in the business community look forward to a more detailed review and comment on this proposal in the coming days and weeks, so stay tuned.