Obama Administration EPA Rule Announcement

Whether one believes or denies global warming is being caused by humans, today will be remembered as the day the U.S. set an actionable framework by executive fiat for reducing harmful carbon emissions from existing power plants running on fossil fuels. 

What Environmental Protection Agency Administrator (EPA) Gina McCarthy unveils in establishing limits on CO2 pollution with draft amendments to Section 111(d) of the Clean Air Act could be a huge boost to providers of clean energy solutions. Or it could mire the states deploying them in costly litigation that detracts from America’s commitment to mitigating risks of climate change.

The legal risks multiply in step with the overall ambitiousness of EPA’s draft rules. But so too do the risks of waiting to mitigate global warming.

So much has been written about today’s long-awaited action that there is sure to be a flurry of claims and counterclaims clouding the cost-effective solutions that can come from it. To help you navigate through the noise, I’ve cast a wide net; below you’ll find a brief checklist for gauging the potential of 111(d) draft rules.

I’ve drawn from papers and interviews from analysts such as Nathan Richardson at Resources for the Future, Megan Ceronsky at the Environmental Defense Fund and other experts at Advanced Energy Economy, Natural Resources Defense Council and the Nicholas Institute for Environmental Policy Solutions at Duke University. 

Will the sun set on coal-fired power plants if draft carbon rules from the U.S. EPA survive legal challenges?  CREDIT: EDF.org

Remember that the EPA cannot mandate how utilities achieve the proposed emissions reductions. It is only setting guidelines for what states must do. That said, if the EPA does not like what it sees over the next two years before President Obama leaves the White House, it can send state regulators back to their drawing boards. If it ends up rejecting efforts by a state it can try to dictate what must be done.  That could open the door to a carbon tax. If that happens, batten down the hatches.

Comments are welcome.  Let the debate begin -- after you read EPA's proposed rules.

1.       How will targeted emissions cuts be expressed? Might it be in tons of carbon or as a rate of tons of carbon emissions per megawatt-hour of electricity generated?

EPA could establish a target any number of ways. Whichever means it chooses, the target will be instrumental in plowing a path toward President Obama’s pledge of reducing carbon emissions 17% from 2005 levels by 2020 he made at the 2009 round of global warming talks in Copenhagen. Early reports in major newspapers had the EPA aiming for a 30% reduction by 2030.

2.       What is the baseline for carbon emissions?

Obama’s pledge in Copenhagen using 2005 as the baseline would arguably be consistent. But that gives short-shrift to states and utilities operating in states that have been hard at work reducing emissions dating back to the 1990s. Of course, a more recent date would help the laggards, notably those dependent on burning coal. Early news reports indicated the EPA would stick with the President's 2005 baseline.

3.       What is the timetable for achieving emissions targets?

At this point, the timeline toward the 2020 Copenhagen date seems unrealistic, unless it’s an interim goal. The fundamental changes needed in the nation’s electric generation mix all but demand a 15-20 year window if the draft rules are to hold up under any reasonable test of what’s achievable without significantly boosting electricity prices.

4.       What tools can utilities and states deploy to reach the reductions?

Mandating a technology is too restrictive given the variety of existing mix of generating technologies. A fixed emission target might seem logical and better than specifying qualifying technologies. But that would likely fail just about any test for cost-effectiveness.  So that leaves markets for greenhouse gas emissions credits such as those that exist in California and the Regional Greenhouse Gas Initiative in the Northeast.

5.       Will EPA group coal-fired and natural gas-fired power plants into the same emissions source category? And will it authorize trading any emissions credits between the two?

If coal and gas power plants are considered to be in the same source category, then one might assume they could trade emissions with each other. Many analysts assert such trading is probably the lowest-cost emissions-reducing opportunity available to the U.S. Here is just one place where the lobbying clout of coal producers and utilities heavily dependent on coal could influence the outcome. How the EPA proposes handling this could be the most far-reaching element of the draft rules.

6.       How much of a role can energy efficiency play?

Study upon study demonstrates the cheapest way to reduce emissions is to cut back –as soon as practical -- on consumption. This could be a huge opening for energy efficiency throughout the economy involving all users. And this begs how much of a role demand-response programs should be credited with.

7.       How much ‘credit’ will states earn for having renewable energy requirements in place?

The 27 states and the District of Columbia which have requirements for a specific amount of electricity from renewable or alternative electric generating systems sold by a certain date surely will seek credit for their programs. What the seven states with voluntary targets can earn remains to be seen. As for the remaining 12 states that have taken no formal action, perhaps this will motivate them in that direction.

8.       How might EPA’s announcement breathe new life into -- and create new -- regional markets for greenhouse gas emissions credits?

Much has been learned from the experiences in California under its Global Warming Solutions Act and in the nine Northeast states comprising the Regional Greenhouse Gas Initiative (RGGI). The proposed carbon rules could be the shot-in-the-arm that RGGI could use. But RGGI’s pitfalls illustrate how difficult, and volatile, such as market can be across state borders. New Jersey was a member of RGGI until Gov. Chris Christie orders it to pull out.

9.       How many of these variables will closely track what California is already doing?

Environmental advocates are quick to point to the progress California has made facing all the challenges posed by these draft rules. But what is often left unsaid is the role of the state’s high electricity prices. They alone are motivating governments, businesses and residential consumers to adapt because the economic consequences are crystal clear. Not so elsewhere.  Take Virginia, which has neither competitive electricity markets nor end-user incentives for renewables nor energy efficiency. With some of the lowest rates in the country without cheap hydro-electric plants, Virginia might see significant rate increases – unless it enables markets for the services and products to help users better manage their usage.

10.   What legal grounds will emerge for states and/or the coal and utility industries to challenge the draft rules?

We certainly won’t know this right away, but prepare yourself for a lot of claims. Some claims won’t stand up in court after the Supreme Court upheld by a 5-4 vote in 2007 the EPA’s power to regulate carbon dioxide as a dangerous pollutant. (Don’t forget that the Clean Air Act refers to carbon dioxide’s effects on “weather” and “climate” in the definition of “air pollutant.”) The better question may be: what are the limits in the flexibility states should have? That is perhaps the biggest unknown. I could not find where any such principal has been tested in court. If you have, please do chime in.