On August 3, 2015, the White House and the Environmental Protection Agency (“EPA”) released the final Clean Power Plan, which establishes national carbon emissions standards for existing power plants pursuant to section 111(d) of the Clean Air Act.  The Plan is estimated to reduce carbon dioxide emissions by 32 percent from 2005 levels by 2030, at an estimated annual incremental compliance cost of between $5.1 billion and $8.4 billion in 2030.  These emissions reductions will be phased in on a gradual 8-year “glide path” between 2022 and 2030.

Under the Plan, EPA sets state-specific rate-based and mass-based goals that must be achieved.  States will develop and implement tailored plans designed to achieve these goals through reductions in three “building blocks”: (1) improved efficiency at power plants; (2) shifting generation from higher emitting coal to lower emitting natural gas power plants; and (3) shifting generation to zero-emitting renewables.  EPA also issued a proposed federal plan to serve as a model for states when creating their individual plans and which, when finalized, will also serve as a backstop for states that do not have approved plans.  State plans are due in September of 2016, although states in need of additional time may request extensions of up to two years.

In response to public comments received, the final rule includes a number of significant changes from EPA’s initial proposal.  The key changes are summarized in EPA’s “Key Changes and Improvements” document.  For example, the final rule, which added a mass-based goal for each state, is designed to better accommodate cross-state trading programs.  EPA’s proposed federal plan also includes model trading rules for states to use when establishing trading programs under the Clean Power Plan.  Another significant change is EPA’s removal of the “building block 4” demand-side efficiency reductions; the final rule instead focuses on supply-side measures to reduce carbon emissions.  This change is the result of significant industry opposition to “beyond the fenceline” demand-side reductions, which many argued were in excess of EPA’s authority under the Clean Air Act.  The final rule, however, does not get rid of demand-side reductions altogether.  Instead, EPA introduced a voluntary incentive program to reward and encourage early reductions achieved through investments in certain renewable energy and demand-side energy efficiency projects.  The final rule also takes steps to ensure grid reliability, including the addition of a “reliability safety valve,” which would delay the rule for individual states on a case-by-case basis should unforeseen circumstances arise.

The legal challenges to the Clean Power Plan will be significant and take years to resolve.  Under Section 307(b)(1) of the Clean Air Act, petitions for review of national rules such as the Plan must be filed in the U.S. Court of Appeals for the D.C. Circuit within 60 days of the rule’s publication in the Federal Register. A coalition of State Attorneys General and industry petitioners has already announced that it intends to challenge the Clean Power Plan.

The first critical issue in the litigation is whether the petitioners will be able to secure a stay of the Plan pending review.  Under D.C. Circuit precedent, a stay of a regulation pending review requires the petitioners to show (1) a likelihood of prevailing on the merits, (2) irreparable injury to the petitioners, (3) the substantial harm, if any, to other parties if relief is granted, and (4) the public interest favors a stay.  See, e.g.  New York v. EPA, 2003 WL 25706732 (D.C. Cir. Dec. 24, 2003) (staying a Clean Air Act rule to amend New Source Review).  The D.C. Circuit has already rejected a challenge to the proposed Clean Power Plan, In re Murray Energy Corp., No. 14-1112 (D.C. Cir. June 9, 2015), but that was due to a lack of jurisdiction because the rule was not yet final.  Thus, the legal issues concerning whether the final Clean Power Plan exceeds EPA’s authority remain in play.   Motions for a stay of a regulation generally must be filed within 30 days of the filing of a petition, so the key legal issues should be aired soon.  See D.C. Circuit Handbook of Practice and Internal Procedures at 33 (as amended through June 1, 2015).

EPA also announced on August 3 the Final Carbon Pollution Standards for New, Modified and Reconstructed Power Plants pursuant to section 111(b) of the Clean Air Act.