Today EPA released its final Clean Power Plan, its first-ever regulations aimed at reducing carbon pollution from electric power plants. The final rule contains several significant changes from the proposed rule that was released last year. These changes tighten the overall emissions reduction target, while increasing the flexibility of certain requirements and providing additional time for achievement of the pollution reduction targets. If upheld by the courts, the Clean Power Plan could substantially transform the U.S. electricity production sector. Below is a summary of the key aspects of the final version of the rule, noting changes from the proposed rule where applicable.

Emission Reduction Targets

The Clean Power Plan sets a goal of reducing carbon pollution from power plants by 32 percent below 2005 levels by 2030. This is a more stringent target than in the proposed rule, which set a national emissions reduction target of 30 percent below 2005 levels.

The deeper emissions reductions contained in the final rule reflect more stringent emissions reductions targets for some individual states. Under the Clean Power Plan, each state is given an individual carbon pollution reduction target based on that state’s historic carbon emissions and energy generation sources. Each state will then submit a plan to EPA for approval detailing the actions the state will take to achieve its target. EPA has revised its targets from some states, requiring certain states to obtain deeper levels of reductions.

Emissions Reductions Timeline

States will have until 2018 to submit their compliance plans to EPA for approval, and will have until 2022 to begin phasing in emission reductions. This represents a two-year extension from the dates contained in the proposed rule, and is responsive to one of the primary concerns of states and industry regarding the proposed rule.

Renewable Energy Incentive Program

The Clean Power Plan contains a Clean Energy Incentive Program, which is aimed at accelerating the deployment of zero-emission renewable energy, specifically solar and wind. This voluntary program offers credits for renewable energy generated in 2020 and 2021 (before the official compliance period begins in 2022) from projects constructed after participating state plans are submitted. These credits can then be used during the compliance period beginning in 2022. The inducements contained in the Clean Energy Incentive Program are expected to drive renewables to 28 percent of total national electricity production by 2030, as compared to 22 percent under the proposed rule.

Energy Efficiency

The Clean Power Plan bases each state’s emission reduction targets on its ability to achieve emission reductions using a combination of three “building blocks,” which EPA determined to be demonstrated strategies that reflect the best system of emission reductions available under the Clean Air Act. These building blocks are heat-rate improvements at coal-fired power plants, increased use of renewables, and increased running time of natural gas-fired facilities in lieu of higher-emitting sources. A fourth building block, reduced emissions from energy efficiency programs, was included in the proposed rule but was eliminated in the final rule. The removal of this building block was likely a legal decision, as it was arguably the aspect of the plan most vulnerable to legal challenge, since it expressly addressed entities outside the power plant fence line. The final rule still allows energy efficiency to be used as a compliance option in state plans, but the use of energy efficiency was not considered when setting a state’s emission target.

Reliability Safety Valve

The Clean Power Plan contains a reliability “safety valve” that will allow states to request additional time to meet their targets, or other relief, if necessary to prevent disruptions to the power supply. This provision was not in the proposed rule and is responsive to concerns of stakeholders that the rule could drive the retirement of older power plants so quickly that there would not be enough time to add replacement for this power to the grid.

Trading Mechanisms

The Clean Power Plan provides a model plan and other provisions to aid states in the trading of compliance credits for states that choose to enact trading programs as part of their compliance plans. EPA has consistently touted its intention to allow states to engage in interstate emission credit trading as a means of complying with the Clean Power Plan. The final rule provides details and mechanisms to ease credit trading among participating states.

The Clean Power Plan is the most ambitious U.S. climate change effort to date, one whose effects are likely to be felt far beyond the power generating sector. As the process turns from rule drafting to implementation, states, industry and power consumers should pay close attention to the changes that will be brought about by the Clean Power Plan.