On Monday, August 3, 2015, President Obama announced the Environmental Protection Agency’s (EPA) final Clean Power Plan rule, which will sharply cut emissions of greenhouse gases (GHGs) from existing power plants in the United States. The final rule will reduce nationwide GHG emissions from power plants to 32 percent below 2005 levels by 2030, though targets will vary by state. This mandate is more stringent than the 30 percent bar set in EPA’s June, 2014 proposed rule (although deadlines for finalizing state plans have been relaxed), and represents the most significant climate change regulation to date in the United States. 

The rule achieves the nationwide emissions reduction by determining the reductions resulting from implementation of the “best system of emission reduction” (BSER) available at the power plants in each state, and requiring the states to develop their own BSER implementation plans to effect these reductions. EPA has identified three “building blocks” that constitute BSER which states may utilize in developing their plans: (i) improving heat rate efficiency of existing coal-fired power plants; (ii) substituting natural gas-fired electric generation for coal-fired generation; and (iii) substituting renewable generation for coal-fired generation. These “building blocks” are only guidelines, leaving states free to achieve their goals through other methods such as demand-side energy efficiency. The rule also permits (but does not require) states to form multi-state emissions trading mechanisms, in which states that can cheaply surpass their targets can sell emissions “credits” to states that cannot meet their targets; given the complexity and difficulty of compliance that many states will face, it is likely that regional emissions trading markets will form. States must submit and finalize their plans between 2016 and 2018—the original proposal included only narrow exceptions to extend state deadlines to 2018—and implement them between 2022 and 2029. 

The rule was promulgated under Section 111 of the Clean Air Act (CAA), which was enacted in 1970 with a focus on health-hazardous air pollutants such as nitrous oxides and sulfur dioxide. In 2007, the Supreme Court held in Massachusetts v. EPAthat the CAA also covers GHGs, and EPA has since regulated emissions from automobiles and newly constructed power plants under the law. However, these regulations have faced numerous legal challenges from regulated entities, and EPA has already been sued by a group of states and power producers seeking an injunction on implementation of the Clean Power Plan rule. The rule is also subject to significant political opposition, including the potential refusal of many states to prepare the plans required under the rule. 

These legal and political barriers, combined with the long timeline for phase-in of the rule’s requirements, mean that there is substantial uncertainty regarding whether and when the Clean Power Plan will ultimately come into effect. In the interim, state environmental and energy agencies and regulated entities will explore compliance options. Regardless of outcome, the final rule signals another step toward complete regulation of GHGs under the CAA.