EPA Issues Affordable Clean Energy Rule

The U.S. Environmental Protection Agency ("EPA") issued the Affordable Clean Energy ("ACE") rule on July 8 to repeal the Clean Power Plan ("CPP") because EPA determined that the Clean Air Act does not authorize generation shifting to be required as part of the Best System of Emission Reduction ("BSER") for existing electric generating units under Section 111(d). This determination is independent of the rest of ACE, meaning that the repeal will stand or fall on its own, even if a court decides that the rest of ACE has to be remanded or vacated.

In ACE, EPA dealt with some of the other key arguments that were made in the CPP case. For example, ACE is evidently based on a conclusion that EPA's authority to issue a Section 111(d) standard is not foreclosed by the Mercury and Air Toxics Standard for electric generating units issued under Section 112 of the Clean Air Act, and that a new endangerment finding was not required to proceed under Section 111. However, EPA supported the determination that Section 111(d) allows them to apply controls to a particular covered source only, rather than looking to the operation of the grid as a whole by adopting positions on the clear statement doctrine and Federal Power Act jurisdiction conflicts that were asserted in challenges to the CPP.

ACE adopts BSER for coal-fired electric generating units only. It does not adopt any standards for other fossil fuel-fired units such as gas-fired steam turbines, combustion turbines, integrated gas combined cycle ("IGCC"), various low-capacity generators, and various combined heat and power and cogeneration units. Coal-fired units will have to undergo a process where the state will consider the heat rate improvement measures listed on the menu provided by EPA (and perhaps additional measures) to adopt a source-specific emission standard. States have three years to conduct this review and submit the results to EPA in the form of a state implementation plan with compliance schedules that may vary according to the particular requirements for each electric generating unit.

There is a lurking question whether certain states will be able to use this authority to require deeper emission reductions than EPA contemplated. EPA tried to address this issue by providing a presumptive range of reductions (and associated cost effectiveness) that should be achieved with heat rate improvement measures.

The CPP petitioners are seeking dismissal of the CPP case in the DC Circuit with support from EPA. If the CPP case is dismissed, it is possible that at least some industry parties will file new petitions for review of ACE as a way to preserve arguments about EPA's authority to issue any rule.

UK Government Commits to Net Zero Greenhouse Gas Emissions Reduction Target

Following a Special Report produced by the Intergovernmental Panel on Climate Change ("IPCC") on October 8, 2018, the UK Climate Change Committee ("CCC") was asked to advise the UK government on the implications of the Paris Agreement 2016 and the Special Report for the United Kingdom's long-term emissions. The CCC was, in particular, asked whether further UK action was needed to meet goals of the Paris Agreement. The CCC's advice on May 2, 2019, was to legislate as soon as possible to achieve net-zero greenhouse gas ("GHG") emissions. This view came just a day after Parliament had declared a climate change emergency following a series of protests by the environmental activist group Extinction Rebellion.

Parliament passed the Climate Change Act 2008 (2050 Target Amendment) ("Order") on June 26, 2019. The Order, which came into force on June 27, 2019, has increased the United Kingdom's 2050 net GHG emissions reduction target from 80% to 100% compared to 1990 levels. In doing so, the United Kingdom has made a far-reaching, unilateral commitment and has become the first G7 economy to legislate on net zero emissions.

The Order provides no guidance or indication regarding the feasibility of meeting this new binding target. Critics have noted the action taken merely acknowledges the issues but fails to put into place practical measures to tackle them. In the words of Lord Deben, chairman of the CCC, "international ambition does not deliver domestic action." The CCC emphasised that the government must "get real," establish "bold plans," and take "real action" to ensure the United Kingdom is on track with its legal obligations to reduce GHG emissions.

In its Report to Parliament on July 10, 2019, assessing the UK progress in preparing for climate change, the CCC has highlighted that the government has "failed to increase adaption policy ambition and implementation," that "the National Adaption Programme does not address all" risks, and that "the priority given to adaptation" has been decreasing over the last 10 years. The CCC argues that "on the basis of the evidence available, England is not prepared for even a 2 degree Celsius rise in global temperature, let alone more extreme levels of warming." The CCC puts forward 12 recommendations, with the 12th specifically recommending that clear deadlines be set to ensure that "listed companies and business owners report on climate-related risks and opportunities."

The July Report sets out in more detail what risks businesses are facing. It highlights that "a few large investors are beginning to put pressure on the companies they invest in to change their reporting practices and give greater consideration to climate change. Credit Ratings Agencies are also starting to incorporate climate risk into their assessments of credit worthiness." The Bank of England has also identified that the majority of banks are beginning to treat the risks from climate change like other financial risks.

Chris Stark, the CCC's chief executive, has pointed out that the majority of the reduction shares have come from the closure of coal-fired power stations, but there are only so many of them. He notes that the government is going to need to focus on other means, including achieving zero plastic waste by 2042, carbon capture, and bringing forward the date for a ban on all-petrol and diesel fuel-powered vehicles from 2040 to 2035.