United States: EPA Proposes Clean Energy Incentive Program Design Details

On June 30, 2016, the United States Environmental Protection Agency ("EPA") published a proposed rule titled Clean Energy Incentive Program Design Details ("Proposed Rule"). The Clean Energy Incentive Program ("CEIP") is a voluntary aspect of the Clean Power Plan ("CPP"), an EPA rule finalized in 2015 that regulates carbon dioxide ("CO₂") emissions from existing power plants. The Proposed Rule serves as a guide for states that choose to participate in the CEIP. EPA will accept public comment on the Proposed Rule until August 29, 2016.

Participation in the CEIP authorizes states to distribute allowances or to issue emission reduction credits ("ERCs") to eligible clean energy projects, including low-income community projects (demand-side energy efficiency and solar projects implemented to serve low-income communities) and zero-emitting renewable energy projects (wind, solar, geothermal, and hydropower in all communities). EPA then awards matching allowances or ERCs, which the CEIP project could sell or transfer to power plants that would use them for compliance with the CPP's CO₂ emissions limits.

The Proposed Rule addresses obligations for states that choose to participate in the CEIP and the requirements for CEIP-eligible projects. In addition, the Proposed Rule clarifies that EPA will award matching allowances or ERCs up to a national limit of 300 million short tons of CO₂ emissions, which will be apportioned among CEIP-participating states based on the amount of reductions from 2012 CO₂ emission levels that the affected power plants in each state are required to achieve relative to those in other CEIP states. The matching pool will be divided evenly, with 50 percent made available for renewable energy projects and 50 percent made available for low-income community projects.

The CEIP was intended to incentivize early actions for CO₂ emission reductions prior to the start of the CPP compliance periods in 2022, but the CPP was stayed by the U.S. Supreme Court on February 9, 2016. EPA's decision to move forward with developing the Proposed Rule thus creates some confusion. For example, it remains unclear at this time whether CEIP projects would still need to generate renewable energy and energy savings during 2020 and 2021 to be eligible. Many have argued that all compliance deadlines associated with the CPP must be postponed in light of the stay, but EPA continues to assert that whether and to what extent tolling is appropriate will not be addressed until after the resolution of ongoing litigation challenging the CPP.

Additional information about the Proposed Rule is available here.

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