United States: President Obama, EPA Unveil Final Greenhouse Gas Emissions Reduction Rule

Last Updated: August 7 2015
Article by Stephen M. Spina and Arjun Prasad Ramadevanahalli

Although legal hurdles remain, EPA's Clean Power Plan envisions sweeping changes to the electricity generation sector designed to mitigate climate change concerns through reduction of carbon dioxide emissions by 2030, and it tasks states with determining how to adjust their energy mix and resources to meet state-specific emissions targets.

On August 3, US President Obama and the US Environmental Protection Agency (EPA) released the final Clean Power Plan (CPP or final rule), an ambitious regulation establishing state-specific standards for reduced carbon emissions from fossil fuel-fired power plants. Promulgated under the EPA's authority under Section 111(d) of the Clean Air Act, 42 U.S.C. § 7411(d), the regulation is the first-ever federal limitation on carbon emissions and marks the culmination of the Obama administration's efforts to reduce emissions from power plants and to encourage renewable energy development, with the stated goal of lessening the impact of climate change.

The final rule is an updated version of a proposal released in June 2014 that called for a reduction in power plant carbon dioxide emissions of 30% below 2005 levels. The final rule targets a 32% cut in power plant carbon dioxide emissions (using 2005 as the baseline) by 2030. The final rule promises to have a significant impact on the electric power sector.

The primary issues that the CPP addresses are summarized below.

CPP Features

The final rule establishes interim (between the years 2022 and 2029) and final (by 2030) carbon dioxide (CO2) emission reduction goals for 48 states and the District of Columbia for two subcategories of fossil fuel-fired generators—fossil fuel-fired electric utility steam generating units (generally, coal- and oil-fired power plants) and natural gas-fired combined cycle generating units. The final rule offers states a range of options to comply with the standards. Specifically, states can choose to comply with a rate-based goal measured in pounds per megawatt hour (lb/MWh) or mass-based goals measured in total short tons of CO2. Additionally, the final rule promulgates guidelines for the development of state plans to achieve the emission standards.

The final CPP gives states two extra years to develop their implementation plans. By September 2016, states must submit either a final plan or an initial plan with a request for an extension. States requesting an extension will have until September 2018 to submit final plans, either alone or in cooperation with other states.

Under the CPP framework, state plans may incorporate (1) subcategory-specific CO2 emission performance rates; (2) state rate-based CO2 emission reduction goals; and (3) state mass-based CO2 goals that represent the equivalent of each state's rate-based goal, which the EPA says provides flexibility and will facilitate states' choices in developing their plans. Notably, the final rule states that the inclusion of mass-based goals paves the way for states to implement intra- and interstate mass-based trading programs that states, utilities, and power generating companies can use to meet emissions goals.

The EPA calculated its state emissions reduction targets through the application of a Best System of Emissions Reduction (BSER), which consists of the following three measures (referred to as "Building Blocks") that represent approaches to reducing CO2 emissions rates from existing generators:

  1. Improving heat rate at affected coal-fired steam generators
  2. Substituting increased generation from lower-emitting existing natural gas combined cycle (NGCC) units for reduced generation from higher-emitting affected coal- and oil-fired generating units
  3. Substituting increased generation from new zero-emitting renewable energy generating capacity for reduced generation from affected fossil fuel-fired generating units

The final rule also addresses, among other things, the following issues:

  • Clean Energy Incentive Program: The CPP establishes the Clean Energy Incentive Program (CEIP), an optional program intended to prioritize early investment in energy efficiency projects and drive faster renewable energy deployment. Under the CEIP, states will have the opportunity to award emission rate credits (ERC) to providers that make early investments in renewables, as well as in demand-side energy efficiency programs implemented in low-income communities.
  • Reliability: The final rule requires states to demonstrate that the development of their final plans considered reliability concerns. Additionally, the rule provides a "safety valve" for generators when there is a conflict between state plan requirements and electric grid reliability. The safety valve includes an initial period of up to 90 days in which the emissions of a reliability-critical generator that must exceed its obligations under the approved state plan due to a reliability need will not be counted against the state's overall goal or emission performance rate or count as an exceedance that would otherwise trigger corrective measures.
  • Community Engagement: The EPA emphasized that the final rule would be particularly beneficial to "vulnerable" communities (which, for the purposes of this rulemaking, the EPA considers to be low-income communities and communities of color) that are disproportionately impacted by climate change and air pollution. Accordingly, the EPA urged states to evaluate the effects of their emissions reduction plans on such vulnerable communities. In this regard, the EPA stressed the importance of engagement between states and affected communities during the development of state plans.

Implementation

State plans are due in September 2016, but as mentioned above, states that need additional time to finalize their plans can request extensions of up to two years following the submittal of an initial plan. The final rule also pushes the initial compliance deadline to 2022 instead of 2020, as in the proposed rule. States are required to report to the EPA with all of the programmatic milestone steps the state will take between the time of the state plan submittal and the year 2022 to ensure that the plan is in effect as of 2022. States must submit a report to the EPA in 2021 that demonstrates that the state has thus far met the milestones to which it committed after submitting its final plan.

Potential Impacts and Next Steps

The CPP and related actions by the EPA will likely have wide-ranging impacts for various participants in the energy industry. For example, concurrent with the final rule, the EPA also issued Carbon Pollution Standards for new, modified, and reconstructed power plants that establish performance standards to limit greenhouse gas emissions from certain fossil fuel-fired electric utility steam generating units and natural gas-fired stationary combustion turbines. With regard to nuclear generation, the EPA determined in the CPP that generation from nuclear units under construction would not count towards state targets. However, the final rule provides that new nuclear construction and capacity uprates at existing nuclear units will be eligible for use in adjusting states' CO2 emission rates, similar to the treatment the CPP affords existing renewables. The Nuclear Energy Institute (NEI) had previously commented that such new nuclear capacity should also include nuclear plants relicensed to operate beyond 60 years and any nuclear plants that had not received license extensions to operate beyond their original 40-year license term as of the beginning of the 2012 baseline year. The NEI also cautioned that nuclear plant operation beyond 40 years "cannot be treated as a foregone conclusion," stressing that license renewal is a "major investment decision."

The CPP will also likely have significant impacts on the fuel mix for states' existing generation portfolios and for future oil and natural gas production. Building Block 2 (described above) is based on the increased use of NGCC plants, reflecting redispatching of generation away from higher-emitting fossil-fueled generators, such as coal- and oil-fired steam generators. However, the EPA also estimates that the final rule will not spur incremental natural gas production. Additionally, it is unclear at this time how the provisions in the final rule may interact with existing generators' obligations. For example, it is unclear if generators may be forced to reduce operating capacity under state plans while still being contractually committed to serve as a capacity resource in an organized market.

To the extent that generators will have their outputs reduced under the implementation of state plans, the final rule does not provide for the Federal Energy Regulatory Commission (FERC), or any other agency, to provide generator owners with the ability to recover losses from forced operational reductions through rates in the form of "make-whole" compensatory relief. However, the final rule does include a reliability safety valve and other measures needed to maintain electric system reliability. States must show they have considered reliability in developing their state implementation plans, such as consultation with appropriate state reliability or planning agencies, and states can amend their approved plans to address unforeseen reliability challenges.

While it is unclear at this time whether there will be further review of the CPP, forthcoming legal challenges are likely, and the precise implementation of the final rule will depend on the decision-making of relevant state authorities.

FERC, the EPA, and the Department of Energy have entered into an agreement to jointly monitor the implementation of the CPP while state plans are developed, but the agreement does not require more than monitoring and communication among the parties and the states, imposing on FERC general bulk power reliability monitoring duties (with which FERC is already charged under its regulations implementing the 2005 amendments to the Federal Power Act).

Going forward, we urge industry participants and affected parties to closely monitor these issues as they develop.

The final rule is available here.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions