EPA's Proposed “Affordable Clean Energy” (ACE) Rule

October 31, 2018

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Introduction

In 2015 the Environmental Protection Agency (EPA) promulgated its Clean Power Plan (CPP) requiring most states—although notably not Alaska and Hawaii—to impose restrictions on CO2 emissions from electricity generating units (EGU). A majority of the states sued, and the Supreme Court issued a rare stay of the administrative rule pending resolution of the legal challenges. In October 2017 the agency proposed to repeal the CPP, in December 2017 it issued an Advanced Notice of Proposed Rulemaking for a replacement rule, and in August 2018 it issued this Notice of Proposed Rulemaking, which offers an alternative Affordable Clean Energy (ACE) framework. The planned final rule will both repeal the stayed CPP and replace it with the ACE rule.

The ACE proposal includes several components. It determines that improved heat-rate efficiency is the Best System of Emissions Reduction (BSER) for GHG emissions from coal-fired power plants, and lists several “candidate technologies” that states can use when developing their state implementation plans. It provides new implementation procedures for emissions guidelines under Clean Air Act section 111(d)—not just for the purposes of the ACE rule, but also for future uses of section 111(d). States will now have three years, rather than nine months, to submit implementation plans. The rule also alters the “major modification” trigger for New Source Review (NSR), in order to allow EGU operators to make needed improvements to power plants without having to undertake a prohibitively expensive comprehensive retrofit.

Compared to the CPP, the ACE rule generally gives greater flexibility to states in developing their implementation plans, and it lowers the cost of compliance for EGUs. Approximately 600 coal-fired EGUs at 300 facilities would be covered by the rule. The proposed definition of BSER conforms to EPA’s practice prior to the stayed CPP, in that it describes technologies that can be implemented within the fence line of existing facilities. In contrast, the CPP’s definition of BSER would have required states to shut down some coal fired power plants and to find replacement sources of electricity with much lower CO2 emissions.

EPA’s preliminary Regulatory Impact Analysis (PRIA) calculates that, compared to the status quo ante (i.e., no CPP in effect), the ACE rule will reduce CO2 emissions in 2025 by between 13 and 30 million short tons, resulting in $1.6 billion in monetized domestic climate benefits. Unlike the CPP, the ACE does not depend on overseas climate benefits to justify the rule. This does not mean that the overseas benefits do not exist—just that they are not counted towards the total net benefits in making the case for the rule. The ACE may also reduce SO2 and NOx emissions by up to 2 percent.

Compared to a scenario where the CPP does go into effect, the PRIA found that the ACE rule has slightly higher CO2 emissions, and therefore slightly lower domestic and foreign climate benefits. It also has slightly higher SO2 and NOx emissions, and therefore slightly lower “co-benefits.” The ACE rule is projected to reduce compliance costs by up to $6.4 billion, and to result in retail electricity prices that are 0.2 to 0.5 percent lower than would prevail under the CPP. EPA estimates the net benefits of replacing CPP with ACE are approximately $3.4 billion, representing the amount by which the present value of cost savings exceed the estimated reduction in domestic benefits.

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