Summary: The National Association for Clean Air Agencies (“NACAA”) has released a model Clean Power Plan (“CPP”) rule as a resource for state air agencies. The model rule highlights possible strategies for incorporating energy efficiency into state plans, and therefore provides valuable insight into the types of measures that companies can expect to face if the CPP moves forward.

Under the CPP, each state must develop a plan for achieving its particular carbon dioxide emissions reduction target established under the rule. The NACAA model rule is intended to serve as a resource for the state air agencies that must develop those state plans. Following the Supreme Court’s stay of CPP implementation pending resolution of the legal challenges against the rule, the final word on the CPP will likely not be forthcoming until 2017. In the meantime, however, many state agencies continue to consider their options and lay the groundwork for their future state plans. NACAA is an influential national association of state air pollution control agencies, and its model rules and policy analyses are widely reviewed by state air regulators. The NACAA model rule is therefore likely to influence many of the final state plans submitted to EPA.

Of particular interest for companies in energy-intensive industries, the NACAA model rule contains an extensive discussion of potential energy efficiency provisions that could be included in a state’s plan (see here for our analysis of the potentially crucial role energy efficiency measures may play in CPP implementation). Although energy efficiency is not directly incorporated into EPA’s calculations of states’ CO2 emissions goals (unlike the three official ‘Building Blocks’: heat rate improvements at coal plants; transition from coal to natural gas; and new renewable capacity), energy efficiency measures may still be used to comply with the goals. EPA argues that energy efficiency is often the most cost-effective method for reducing emissions, and therefore the Agency expects it will play a major role in CPP compliance. In fact, EPA is so confident that states will aggressively pursue energy efficiency measures that it projects a gain of 52,000 to 83,000 jobs in the demand-side energy efficiency sector, and estimates that the impact of energy efficiency measures could rival the effect of Building Blocks 2 and 3.

The NACAA model rule focuses on five types of energy efficiency measures:

  • Energy Efficiency Resource Standards (EERS): These standards require electricity providers to meet a certain portion of their projected future electricity demand by load reductions achieved through energy efficiency (twenty-three states already have mandatory EERS, and four have voluntary EERS);
  • Energy savings performance contracting: This is an energy efficiency funding mechanism that allows building owners to use savings from avoided energy consumption to pay for new energy-efficient equipment and energy efficiency services;
  • Building codes: States would establish energy performance standards for key building components in new and/or renovated buildings (states commonly adopt private organizations’ codes by reference, such as ASHRAE Standard 90.1);
  • Above-code building certifications: States would require or incentivize higher energy efficiency than required by the applicable building code (such as EPA ENERGY STAR for commercial buildings, or LEED certification); and
  • Industrial energy efficiency: States could incorporate mechanisms “to encourage and recognize” facilities that have met the ISO 50001 standard for continuous improvements in energy efficiency. The model rule also notes that the U.S. Department of Energy’s Superior Energy Performance (“SEP”) program builds on ISO 50001, and could also be incorporated into state CPP plans.

The industrial energy efficiency category is particularly relevant for virtually all industrial sectors, such as manufacturing, chemicals, pharmaceutical, fertilizer, glass, petroleum refining, data center, and cement industries. The NACAA report notes that “industrial sector electricity use accounts for approximately 35% of delivered electric power in the United States.” As a result, “the industrial sector presents a significant opportunity for CO2 reductions from affected EGUs through increased energy efficiency.”

Notably, the model rule does not suggest passage of state regulations requiring energy efficiency reductions by industrial sectors. However, states are free to pass such requirements to meet their CPP obligations, and industry should remain cognizant that some states may pursue that approach.

Ultimately, any state energy efficiency strategies used for compliance with the CPP must be quantifiable, verifiable, non-duplicative, permanent, and enforceable with respect to each affected entity. See Evaluation, Measurement, and Verification (EM&V) Guidance. Industry should scrutinize any energy efficiency measure proposed by a state against this guidance.