On April 2, 2014, Governor Steve Beshear signed HB 388 into law after it was passed unanimously by Kentucky General Assembly. HB 388 guides the Energy and Environment Cabinet’s (EEC’s) development of a state plan to control carbon emissions from existing power plants. The enactment of HB 388 is in response to President Obama’s Climate Action Plan and the expected promulgation of greenhouse gas emissions standards for existing power plants under Section 111(d) of the Clean Air Act.

As part of his Climate Action Plan announced on June 25, 2013, President Obama directed EPA to develop greenhouse gas emissions standards for both new and existing fossil fuel-fired electric generating units (EGUs). As previously reported in the Air Quality Letter, on Jan. 8, 2014, EPA published proposed standards for new EGUs, and this proposal is undergoing public comment. EPA was also directed to propose standards for existing EGUs by June 1, 2014. EPA is currently developing these standards under Section 111(d) of the Clean Air Act. Section 111(d), historically, has been a seldom used provision of the Clean Air Act, but it affords EPA substantial discretion to establish emission standards in coordination with state regulatory authorities. Under Section 111(d), EPA will promulgate a guideline document that establishes environmental performance, compliance timing and other requirements. The guideline document is then used by state regulatory authorities to develop state plans that are ultimately subject to EPA’s approval. The heart of the aforementioned guideline document is the emission guideline, which is set to reflect “the application of the best system of emission reduction… that has been adequately demonstrated.” In developing the emission guideline, EPA has spent considerable time evaluating whether the emission guideline is limited to within-the-fence-line measures, such as pollution control equipment or unit-specific emissions standards, or whether EPA may rely on beyond-the-fence-line measures, such as efficiency improvements and emissions trading schemes.

In light of the uncertainty surrounding EPA’s expected proposal, the Kentucky General Assembly enacted HB 388 to guide EEC’s development and implementation of a state plan. Specifically, HB 388 directs EEC to consider, among other factors, the “consumer impacts including any disproportionate energy price increases in lower income populations,” “the economic impacts of closing the [EGU], including expected job losses,” and the “physical difficulties with or the impossibility of implementing emission reduction measures.” Specific to coal-fired EGUs, HB 388 directs EEC to set performance standards to include efficiency and other measures that can be undertaken at each coal-fired EGU without “switching from coal to other fuels; co-firing other fuels with coal; or limiting the utilization of the [EGU].” In addition, EEC must coordinate with the Kentucky Public Service Commission to “ensure that the plan minimizes the impacts on current and future industrial, commercial, and residential consumers; and does not threaten the affordability of Kentucky’s rate or the reliability of electricity service.”

Several environmental groups opposed HB 388 arguing that the bill was premature without an EPA rulemaking proposal and would unduly limit EEC’s flexibility to formulate a state plan. Despite this opposition, the Kentucky General Assembly unanimously passed HB 388 with votes of 37-0 in the Senate and 99-0 in the House. The Air Quality Letter will continue to monitor EPA’s development of greenhouse gas emission standards for existing EGUs and EEC’s development of a corresponding state plan.