United States: State Action Under The Clean Power Plan

Last Updated: November 11 2015
Article by Patrick T. Metz

As detailed in previous editions of The Climate Report, the Obama administration announced in August 2015 its final Clean Power Plan, under which the Environmental Protection Agency ("EPA") will require reductions of carbon dioxide ("CO2 ") emissions from existing fossil fuel power plants to 68 percent of their 2005 levels by 2030. Ultimately, while the Clean Power Plan sets targeted emission reduction levels for the states, each state must determine for itself how to meet its goal by developing a State Implementation Plan ("SIP"). This SIP must demonstrate how the power plants within the state's borders will meet the standard set by EPA; initial plans are due September 6, 2016, and final plans must then be delivered to EPA within two years.

And while it is still early, it is evident that some states will face more difficulty in complying than others, and that they are likely to employ a wide variety of strategies in order to hit their targets.

Staying the Course. For some states, compliance with the EPA targets may prove as easy as staying the course. In Washington and California, existing state-level CO2 reduction policies mean that the state's power plants will already emit less CO2 in 2020 than will be required by 2030. In Washington, the state's last operational coal-fired power plant is scheduled to shut down one of its boilers in 2020 and the other in 2025. In California, a demanding renewable portfolio standard and an economy-wide cap-and-trade program will allow the state to comply easily by 2030. Other states in this category include New Hampshire, Oregon, Delaware, and Maine.

Nascent Regional Efforts. For most states, however, determining how to meet Clean Power Plan goals will be a long process. Among the most discussed methods are a variety of multistate strategies, which expert analysts believe would make compliance cheaper and more efficient by enlarging the "market" for such reductions. These generally take one of two forms: under the first, states would aggregate their CO2 reduction goals across a region and comply as a group, while under the second, they would trade emissions credits or allowances among themselves.

Such strategies could take hold between states served by the same regional transmission organization, because they share a transmission grid and wholesale electricity markets. For example, reports indicate that most of the states served by the PJM Interconnection (which includes all or parts of Delaware, Maryland, New Jersey, Ohio, Pennsylvania, Virginia, West Virginia, the District of Columbia, and several other states) are holding initial discussions into how they might coordinate their compliance efforts. The Southwest Power Pool (which serves all or parts of Nebraska, Kansas, Oklahoma, New Mexico, Texas, Missouri, Arkansas, Louisiana, and several other states) held a meeting last month to introduce itself to state environmental regulators tasked with developing SIPs and pitch regional compliance as a cheaper option. Another group, comprising environmental and energy regulators in states served by the Midcontinent Independent System Operator (including all or parts of Minnesota, Wisconsin, Michigan, Iowa, and parts of Illinois, Indiana, Missouri, Arkansas, Louisiana, Mississippi, and several other states), has held a series of meetings on collaboration and even filed joint comments to EPA's proposed plan late last year.

One specific option available for states in the northeast is to leverage the existing Regional Greenhouse Gas Initiative ("RGGI") to achieve compliance. RGGI is market-based regulatory program whose members include New York, Maryland, Delaware, and the New England states and that has already capped and begun reducing CO2 emissions from the region's power sector. Pennsylvania's governor is in favor of his state joining RGGI, and many advocates are pushing the same for Virginia, New Jersey, and others.

Accelerating the Coal-to-Gas Trend. Many analysts believe that states will lean heavily on coal plant retirements and coal-to-natural gas conversions to meet their goals. In Michigan and Minnesota, for example, utilities have already announced that they will shutter coal-fired units earlier than they had anticipated, replacing the capacity with some combination of natural gas and renewable generation. But the possibility is not without its detractors: Environmentalists have long argued that upstream methane emissions in the production and transportation of natural gas reduce or cancel out any reduction in CO2 emissions that come from switching from coal to natural gas. Natural gas infrastructure, too, could pose a problem in regions like New England, where transportation supply constraints cannot be solved quickly.

Lawsuits, Holdouts, and the Federal Implementation Plan. While numerous lawsuits have already been filed against the Clean Power Plan, many expect that the most significant legal action will occur only after it has been published in the Federal Register, which is expected in late October. Unsurprisingly, many of the states expected to file or join such lawsuits also face the most daunting compliance challenges. Political leaders in states dependent on coal generation, such as Montana, Wyoming, and Utah, have bemoaned the aggressive targets set for them by EPA. Even still, states such as Arkansas, Colorado, and South Carolina are poised to employ a two-track strategy of suing while developing a compliance plan.

Other states have announced that they will not comply with the Clean Power Plan at all, including Indiana, Louisiana, Wisconsin, Oklahoma, and Texas. This does not mean, however, that their power plants will not reduce CO2 emissions. While EPA has announced that it will not sanction states by withholding a portion of their federal highway funding, EPA will impose a Federal Implementation Plan ("FIP") in lieu of a SIP. EPA released a model FIP the same day as the Clean Power Plan, and once finalized, it would become the basis for a compliance plan for states without a SIP, either because the state did not produce one or because EPA rejected its proposed SIP. And so, should the Clean Power Plan survive the series of legal challenges facing it, power plants will reduce CO2 emissions one way or another. We will find out over the next several years how states decide to

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