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EPA’s Proposed Power Plant Regulations – Simpler Than You Think

Posted in Environmental

The U.S. Environmental Protection Agency (EPA) released its long-anticipated proposal for regulating greenhouse gas emissions from existing power plants on June 2, 2014, to much fanfare.  The proposal is simpler than it looks.  Here are the key points.

1.  The Proposed Rule is Only 38 Pages Long.  It’s the “Justification” That Takes up Space.  Many observers have been overwhelmed by the sheer volume of material associated with the EPA’s proposal – a 607-page preamble, a “legal memorandum” defending the proposal, a “regulatory impact analysis” discussing the proposal’s impacts and several “technical support documents.”  All of that material is important, but if you want to understand the heart of what EPA is proposing, focus on the draft regulatory text – the actual proposed rule.  Read the other material if you want to understand EPA’s justification for the rule.

2.  The Gist of the Proposed Rule: Target Rates and State Compliance Plans.  The rule applies to state governments, not to power plant owners and operators.  The rule requires each state to submit a plan to EPA showing how that state will reach a target CO2 emission rate for its existing power plants (coal, oil and gas) by 2030, as well as how the state will reach an interim target rate for the years between 2020 and 2029.   Thus, the rule has two parts: the “target rate,” and the requirement that each state submit a plan for reaching the target rate.  The target rate is going to be the most controversial aspect of the rule.  EPA set a different target rate for each state, and the manner in which it did so is what the fight is going to be about.  As for how to achieve the target rate, that is a bit less controversial because EPA has given the states a lot of flexibility.  In essence, the states can get to their targets however they want – by mandating heat rate improvements, by implementing a cap-and-trade system, by reducing demand for electricity – as long as they demonstrate that their plan will in fact get them there.

3.  The Easiest Way to Comply:  Follow RGGI.  The easiest way for states to comply with this proposed rule is to develop and participate in a program like the Regional Greenhouse Gas Initiative (RGGI).  Participating in a RGGI-type cap-and-trade program may not get every state all the way to its target rate, but it will help many states get a long way toward that goal.  Equally important, RGGI is a relatively simple cap-and-trade system.  That means that implementing a RGGI-like program faces fewer bureaucratic and legal obstacles than some of the other compliance mechanisms available to the states.

4.  The Proposal Raises at Least Three Overarching Legal Questions. 

First, does EPA have authority to issue the rule in the first place?  This question turns on the language of Clean Air Act (CAA) Section 111(d).  Some lawyers contend that rather than authorizing EPA to regulate power plant greenhouse gas emissions, Section 111(d) actually prohibits such regulations.  But EPA’s response is a strong one:  Section 111(d) is subject to more than one possible interpretation and it is not unreasonable (for a variety of reasons) to read the provision as allowing EPA’s rule.  And that is the analysis that courts will conduct:  Does the statute unambiguously preclude EPA from issuing the rule?  If courts agree with EPA that the answer is “no,” they will almost certainly agree that the statute permits EPA to issue the rule.

Second, can EPA defend the target rates?  EPA set the target rates by choosing a “best system of emission reduction,” or BSER, and then applying that BSER on a state-by-state basis.  Notably, EPA chose a BSER that involves a combination of “unit-level” emission reduction measures (heat rate improvements at coal plants) and “grid-level” emission reduction measures (such as cap-and-trade programs).  Many commentators contend that EPA cannot include “grid-level” measures in the BSER, while others insist that EPA must include such measures.  Courts will resolve the disagreement by asking whether the statute unambiguously precludes EPA’s approach, and if not, whether that approach is otherwise reasonable and consistent with the statute.  A related question is whether EPA applied the BSER properly – did it choose reasonable rates?  Some parties will likely argue that EPA’s target rates are not stringent enough; indeed, that was the initial reaction from many in the environmental community.  But a deeper issue is whether it was permissible for EPA to set different target rates for different states.  That issue deserves careful scrutiny going forward.

Third, is each compliance option available to the states equally lawful?  Here, a critical issue is whether the text of the CAA requires states to impose emission limits solely on power plants or whether, as EPA concludes, states can achieve their emission targets by imposing obligations on other types of entities.  This issue deserves careful scrutiny going forward, but many states may choose to avoid the question altogether by pursuing a RGGI-type program as the backbone of their compliance plans.

These legal questions are a big part of why EPA’s preamble and technical support documents also discuss various “alternative” proposals.  You can think of those alternative proposals as EPA’s “backup plan” – a less stringent version of the proposal in case EPA decides that its preferred approach faces insurmountable legal or political obstacles.

5.  Next Steps.  After EPA publishes the preamble and proposed rule in the Federal Register, interested parties will have 120 days to submit comments.  EPA is expected to finalize the rule (possibly in modified form, reflecting the comments it receives) by June 1, 2015.  States would be required to submit their compliance plans to EPA by June 30, 2016, but one-year extensions would be available and there is even more time available for states that submit a multi-state compliance plan – such as a RGGI-type proposal.   Emission reductions have to begin by 2020, so as to meet the interim target rates.