EPA Proposes Replacement for Obama’s Signature Climate Initiative

Susan E. Dudley
By Susan E. Dudley
August 22, 2018

In October 2017, the Environmental Protection Agency (EPA) proposed to repeal the Obama Administration’s Clean Power Plan (CPP). Yesterday, EPA announced its proposed replacement, the Affordable Clean Energy (ACE) rule. Here’s a little background to help sort through the hype surrounding the proposal.

Background

In April 2007, the Supreme Court launched EPA on the road to regulating greenhouse gases (GHGs) when it ruled that GHGs “fit well within the [Clean Air Act’s] capacious definition of air pollutant” from vehicles. It directed EPA to determine whether these emissions “endanger public health and welfare” and, if so, to issue regulations under the Act. EPA issued an “endangerment finding” in 2010, which not only led to fuel economy standards that are being reconsidered today, but to a reinterpretation of its authority to regulate GHG emissions from stationary sources.

When EPA issued the CPP in October 2015, it was widely hailed as President Obama’s signature climate initiative. EPA and its supporters estimated that, with the CPP and other policies, GHG emissions would be reduced 32 percent from 2005 levels by 2030. But critics argued that it exceeded EPA’s authority by defining the Clean Air Act (Section 111) standard of “best system of emissions reductions” (BSER), not at the plant level, but “outside the fence-line.” The CPP would have required states to shift power generation away from coal and fossil fuels to natural gas and renewable sources of energy—effectively deciding that the “best” technology for a coal plant was simply not to exist. In February 2016, in response to a lawsuit from 27 states, the Supreme Court took the unprecedented step of staying the rule, preventing it from going into effect while lower courts evaluated the merits of the challenges.

EPA’s Legal Justification for the ACE Rule

EPA is basing its repeal and replacement of the CPP largely on legal grounds. Section 111(b) of the Clean Air Act requires EPA to set a standard of performance that “reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.”

In yesterday’s notice, EPA concurred with arguments that the CPP interpretation of BSER exceeded that definition. Instead, EPA proposes to interpret BSER as that which “has been adequately demonstrated to control emissions of a particular pollutant from a particular type of source” (emphasis added).

Elements of the ACE Rule

The proposed rule includes two distinct but related actions: it sets standards for states to follow for reducing GHGs from existing power plants, and it revises the New Source Review (NSR) program to facilitate improvements to existing plants.

Defining BSER for GHG emissions from existing coal-fired power plants as “heat-rate efficiency improvements,” or on-site efficiency upgrades that reduce the amount of GHGs released per unit of electricity generated, EPA proposes a list of “candidate technologies” rather than a numeric performance standard. States will be able to rely on this list when developing emissions standards and control measures for stationary emission sources in their jurisdictions. EPA argues this approach “focuses on how sources can perform better and does not attempt to force an accelerated shift to renewables at the grid-wide level.”

Aware that NSR provisions that impose more stringent standards on new or modified plants can discourage them from implementing modifications that would increase efficiency and reduce emissions, ACE proposes a new test for what physical or operational changes would constitute a “major modification” triggering NSR standards. It would “give states the option to adopt an hourly emissions increase test for such projects [so that] only projects that increase a plant’s hourly rate of pollutant emissions would need to undergo a full NSR analysis.”

Benefits and Costs

EPA’s preliminary regulatory impact analysis examines three “illustrative implementation scenarios” against two baselines: with and without the CPP. It estimates that compared to the no-CPP baseline, the ACE rule will reduce carbon dioxide (CO2) emissions in 2025 by between 13 and 30 million short tons. From the no-CPP baseline, EPA estimates net present values of reducing CO2 emissions over the 2023-2037 period as ranging from 2.0 billion in net benefits to $6.6 billion in net costs (Table ES-14).  From the CPP baseline, the range is $3.4 billion in net benefits to $5.4 billion in net costs (Table ES-10). When ancillary co-benefits associated with reducing emissions are considered, the comparison to the no-CPP baseline looks better (Table ES-12 shows ranges from $0.9 billion in costs to $13.2 billion in benefits), while the comparison to the CPP baseline looks worse (Table ES-15 estimates present value net costs ranging from $12.8 billion to $72.0 billion). Critics have seized upon these latter figures to argue that the rule will lead to thousands of premature deaths per year, but as I’ve noted elsewhere, co-benefit figures must be taken with a grain of salt.

These estimates assume no trading among sources (which can yield more cost-effective controls). By limiting the definition of BSER to the plant level, EPA itself is not establishing trading, however states may find that their plans can include such provisions and still be consistent with the Clean Air Act.

Legal Wrangling Aside, Market Forces Will Decrease GHG Emissions

In announcing the proposal, EPA emphasized that it is redefining the states’ role to be more consistent with that envisioned in the Clean Air Act. It says, “States will be given the flexibility to design a plan that, in the state’s judgment, will work best under its particular circumstances.” Many states, including the 27 that sued over the CPP, will likely welcome this change, but others, including the 18 states that supported the generation-shifting requirements of the Obama rule, likely will not. They, along with environmental organizations and non-coal power companies, are bound to sue once EPA issues a final rule.

While these conflicts are debated in the years ahead through the rulemaking process and in the courts, GHG emissions from the power sector are projected to decline. Market forces and technological changes (including fracking) have led to cheaper natural gas and renewable resources, closures of coal-fired plants, and a decline in CO2 emissions in recent years. Despite the Trump administration’s separate initiatives to prop up the coal industry, these trends will likely continue into the future—with or without regulatory changes.