On August 3, 2015, the U.S. Environmental Protection Agency (“EPA”) announced its “Clean Power Plan”: the final version of its proposed rule issued in June 2014 to set carbon dioxide (“CO2”) standards for existing power plants.1 The package also includes a proposed federal implementation plan for states that do not develop their own plan, and a companion new source performance standards rule for new power plans.  The Clean Power Plan includes a steeper cut of emissions than discussed in the proposed version—32% from 2005 levels by 2030—due to a larger decline in coal use and more utilization of renewable energy.  In developing the final Clean Power Plan, EPA shifted to applying a national emissions rate to similar types of power plants in different states, which led to more uniform and less varied state greenhouse gas (“GHG”) reduction targets.  The Clean Power Plan also takes a new view at how the energy sector will transform over time.  EPA explains that previously, the proposed rule envisioned “a large, early shift of coal generation to natural gas”; now, EPA asserts that the Clean Power Plan will drive a “more aggressive transition to zero-carbon resources.”

  1. General Requirements of the Clean Power Plan

The Clean Power Plan requires individual states to meet carbon emissions reductions standards based on their respective energy production and consumption profiles for two subcategories of existing fossil fuel-fired electric generating units (“EGUs”):  coal- and oil-fired units and natural gas-fired combined cycle generating units.  EPA imposes an emissions reduction goal for each state based on that state’s power generation structure, but each state decides how to achieve the goal.  The Clean Power Plan contains interim and final statewide goals in two forms:

  1. Rate-based state goals measured in pounds per Megawatt hour (lbs/MWh)
  2. Mass-based goals measured in short tons of CO2.

The states must develop implementation plans describing the means by which they will meet their goals and must submit the plans by 2018; if a state fails or declines to do so, EPA will impose a federal plan.  Each state will have flexibility to select the measures it prefers to achieve the CO2 emission performance rates or the statewide mass-based CO2 goal.  The Clean Power Plan also allows states to develop multi-state approaches, including emissions trading schemes.  The federal plan, which serves as a backstop for state plans, contains enforceable emission limits for individual affected power plants. States must begin to cut emissions by 2022 at the latest and must continue cutting emissions through 2030.

  1. Changes from the Proposed Rule

The more uniform GHG reduction targets included in the final rule are expected to mean greater cuts in coal-heavy states, as EPA now projects that coal will be 27% of the nation’s energy mix in 2030, as compared to the 30% estimated under the proposal.  To make up this deficit, the Clean Power Plan pushes aggressively for the adoption of renewable generation, projecting a 28% share of renewables in 2030, up from the proposed rule’s projection of 22%.

The Clean Power Plan also extends the deadline for states to submit their final compliance plans by two years to 2018, creates multiple interim compliance periods, and pushes back the start of the first interim compliance period to 2022.  EPA hopes that these revisions will ease concerns that the proposed deadlines are unachievable and will help avoid steep emissions cuts that could threaten grid reliability.  EPA is requiring states to address reliability in their plans and is including a reliability “safety valve” that will allow plants to run more than anticipated to protect reliable electric service.

EPA decided to retain the requirement that new coal-fired generation units install carbon capture and sequestration (“CCS”) technology, though the Clean Power Plan mandates a lower level of CO2 capture than did the proposed rule.  EPA has also included a change that will remove under-construction nuclear plants in Georgia, South Carolina, and Tennessee from the target-setting formula and allow their generation rates to be used as part of compliance demonstrations.

  1. Reception and Next Steps

Coal industry interests such as the National Mining Association have already begun challenging the Clean Power Plan, explaining that it lead to more expensive energy and “burden Americans with increasingly high-costs for an essential service and a less reliable electric grid for delivering it.”  Many observers are also questioning whether the CCS requirement can be considered  an “adequately demonstrated” technology.

Members of Congress and several state officials already have stated opposition to the Clean Power Plan, specifically those representing coal-producing and consuming states.  The governors of Indiana, Louisiana, Oklahoma, Texas, West Virginia, and Wisconsin have indicated they will not submit a state implementation plan.  Cabinet members and attorneys general in Alabama, Michigan, Mississippi, and Wyoming also have expressed concerns about the Clean Power Plan.

Lawsuits from both states and industry are expected to be filed as soon as the Clean Power Plan is published in the Federal Register.

The Clean Power Plan will become effective sixty days after publication in the Federal Register.