“Just Saying No” Won’t Stop the Clean Power Plan
By Elena Saxonhouse, Sierra Club
When the US Environmental Protection Agency first proposed its Clean Power Plan to clean up carbon dioxide pollution from power plants, many celebrated the opportunity to fight climate change, minimize other deadly pollutants like soot and smog, lower energy bills, and transition the nation to clean energy. But some state leaders immediately announced their opposition, even before learning the final details of the Plan released on August 3rd. Indiana, Wisconsin, Louisiana, Oklahoma, and others have jumped on the “Just Say No” train, a phrase repurposed by Senator Mitch McConnell to urge states to defy the Clean Power Plan. Some state leaders promised flatly that they would refuse to comply with the Plan, while others set up procedural barriers to slow the process.
So what would these states “say no” to, now that we know what the final rule says? What will it mean for polluters, clean energy providers, and citizens of states that refuse to implement the Clean Power Plan? Fortunately, a state’s refusal to craft a plan to reduce carbon dioxide will not halt the clean energy revolution that EPA’s Plan intends to spark. It might even speed it up. To understand the effect of saying “no,” you need to first understand the variety of pathways available to states that say “yes.”
State Compliance Plan Options
The general framework of the Clean Power Plan is similar to the way many other Clean Air Act programs work. EPA sets standards to keep pollution in check and states must either craft a plan for how they want to meet those standards, or submit to a federal plan for doing so.
The final rule sets one carbon dioxide “emission performance rate” for existing fossil steam (primarily coal-fired) power plants and another for natural gas-fired plants. One of the simpler ways states can comply is to make those standards enforceable against individual power plants. EPA gives states the option of limiting the total CO2 from its plants (expressed in short tons), or limiting the plants’ CO2 per unit of energy produced (expressed in CO2/MWh). EPA refers to programs limiting CO2 as “mass-based”, and those limiting CO2/MWh as “rate-based.” The facilities themselves are responsible for meeting the standards, either directly, or through purchasing credits to make up any gap. (How the credit system works is a little complicated; we won’t get into it here.) EPA also offers the option that states can blend the CO2/MWh rate between their coal and gas plants and set a statewide rate. Or, states can pick their own CO2 or CO2/MWh limits for each regulated source, provided they demonstrate they will get reductions equivalent to EPA’s limits.
Rather than putting the entire onus on power plants to achieve the needed CO2 reductions, states can also adopt a “state measures” approach, calling upon other state programs – like those that increase renewable energy use – to reduce the state’s total CO2 pollution. If the other state programs fail, the responsibility falls back to the power plants themselves.
EPA’s Plan for States that Don’t Submit their Own Compliance Plans
The array of options available to states is summarized here. But what will happen in states like Indiana or South Dakota if they make good on threats not to implement the Clean Power Plan?
The first chance for these states to formally thumb their noses at EPA will be September 6, 2016, the date that the rule requires states to submit either their implementation plans or an “initial submittal” requesting an extension of up to two years. An initial submittal must tell EPA what kind of state plan is under consideration from the above options, what steps the state has taken to develop the plan, how the state has meaningfully engaged with vulnerable communities in developing the plan, and how the state will finish the plan during the requested extension. It seems safe to say that a state that has actively forbidden its environmental agency to work on a plan to reduce CO2, like Oklahoma has, would not be able to satisfy this requirement. And states that do not go that far, but otherwise delay the state planning process, will also be at risk of missing the deadline. At the point that the state fails to deliver an adequate initial submittal, EPA may immediately propose a federal plan that would apply to the regulated power plants in the state.
EPA has informed states that it intends to act promptly to impose a federal plan as needed—as soon as the deadline for the initial submittal passes unheeded— and that it will finalize a model federal plan by the summer of 2016 so that it can quickly get federal plans in place after that deadline passes. “It is the agency’s intention to [issue] federal plans promptly for states who do not submit plans or initial submittals by September 6, 2016,” EPA notes. “It is reasonable to propose this federal plan now so that federal plans will be ready to be promulgated quickly in cases where states have failed to submit a plan or their plans are found unsatisfactory.” EPA in its proposal commits to issuing a final federal plan for a state no more than 12 months after its finding that a state failed to submit a complete and approvable initial submittal.
Some procedural details: The model federal plan EPA proposed along with the final Clean Power Plan will not apply to any one state. Rather, EPA must propose a plan for each state that will receive a federal plan. Following proposal of that state’s plan, there would be a public comment period, and then EPA would finalize the plan.
Even after EPA has finalized a federal plan, states may submit a state plan which, if approved, replaces the federal plan. Or, states can choose to take on just one part of the program and leave the rest of the program under EPA governance. For instance, in a mass-based program, a state could accept EPA’s plan but adopt its own method of distributing CO2 allowances, such as auctioning them and returning the proceeds to electricity customers. (EPA plans to issue them for free.)
A Federal Takeover? Not at all
When the Clean Power Plan was proposed, some suggested that EPA would have to take over a state’s energy policy to impose a federal plan. But the model federal plan proposed by EPA would do nothing of the sort. Like a number of successful clean air programs before it, the federal plan would set standards for individual polluting sources and, if a source is too polluting to meet those standards, it can purchase pollution allowances (in the case of a CO2 standard) or clean energy credits (in the case of a CO2/MWh standard) to make up the difference. Simple as that. No one besides the coal and gas plants regulated by the rule has to play any role. The plants’ CO2 or CO2/MWh limits would be enforceable by EPA, states, and citizens. This type of program is how EPA solved the worst of the acid rain problem, and brought down smog-forming nitrogen oxides. It plans to treat carbon dioxide in a similar way. It’s important to note that Sierra Club has expressed concerns that unintended hotspots for conventional pollutants might arise from CO2 trading programs, and EPA has made meaningful changes aimed at addressing these concerns in the final rule. You can read more on that here.
Because it wants to see as uniform a national program as possible, EPA currently intends to finalize the same type of plan (mass-based or rate-based) for each state that doesn’t submit its own plan. For the same reason, EPA doesn’t seem too bent out of shape about states not submitting their own plans. EPA notes that instead of developing a plan, states can “simply choose to accept a federal plan” as an option. EPA says that “states are in no way penalized for not submitting a plan,” and the statute’s reference to states that “fail” to submit a satisfactory plan should not “carry any pejorative connotation.”
What States Say No To
So the just-say-no states, if they stick to their guns and submit nothing for EPA’s review, are saying no to the ability to fine-tune their program with the many available tools for flexibility.
They are also saying no to making the most of EPA’s Clean Energy Incentive Program, and the economic development that may come with that. The Clean Energy Incentive Program is an optional early action program that provides an opportunity for wind and solar projects, and energy efficiency programs in low-income communities, to earn clean energy credits known as emission reduction credits (“ERCs”), or the equivalent CO2 allowances, for energy generated or saved in the years 2020 or 2021. For more on that program, see our post here on clean energy and the Clean Power Plan. Once the Clean Power Plan implementation gets underway, ERCs and CO2 allowances are likely to be valuable commodities that can be used by regulated power plants to achieve compliance. Without the CEIP, credits are only available for energy generated or saved in 2022 or later.
The other special feature of the CEIP is that the project earns matching credits from EPA. For every two MWh of energy produced by a renewable energy project in 2020 or 2021, the project will receive one credit from the state and one bonus credit from EPA. For every two MWh of energy saved by a low-income energy efficiency project (such as weatherizing homes) in 2020 or 2021, the project will receive two credits from the state and two bonus credits from EPA. EPA’s intent is that the program will create incentives to act early on wind, solar, and energy efficiency projects to earn these valuable credits.
Here’s the catch for states that don’t develop a state plan. While they can still participate in the CEIP under a federal plan, projects are only eligible for CEIP credits if they commence construction (in the case of wind and solar projects) or commence operation (in the case of energy efficiency), after a state submits its final plan to EPA, or after September 18, 2018 for states that choose not to submit a plan by that date and are instead subject to a federal plan. This means that states that submit their plans by 2016 offer clean energy developers in their states two more years of eligibility. (Yes, you are correct if you are thinking that any state that waits until 2018 to submit a plan also loses out on some pool of early action credits, not just the states that don’t submit a plan at all.) EPA plans to issue credits up to the equivalent of 300 million CO2 allowances. EPA hasn’t yet proposed how to translate between the emission reduction credits and CO2 allowances, but plans to do so in a later rulemaking. So states that “just say no” are likely saying goodbye to a lot of clean energy opportunity.
EPA currently plans to allocate matching credits based on the emissions reductions from 2012 levels the Clean Power Plan requires in each state relative to the other states, whether a state has its own plan or is under a federal plan. However, unused credits may be returned to a pool that is made available to states on a first-come, first-served basis, so these may not be available to states that act late.
States that want to take full advantage of the credits offered by the CEIP would need to act early to submit an approvable state plan to EPA. On the other side of the coin, states that prefer not to implement the CEIP may lose that choice with a federal plan. The federal plan proposal makes the CEIP mandatory, though states may have some flexibility in implementing the program if they gain EPA’s approval to manage their own allocation of CO2 allowances or emission reduction credits
There are other differences for states that accept the federal plan as it is currently proposed. One example is how the federal plan treats zero-carbon energy in states that implement a rate-based standard. States that develop their own plans would have a broader suite of options as to what measures count for compliance than would states with a federal plan. So states should take a close look at what kind of programs they might be giving up by accepting a federal plan before announcing all-out opposition.
No State Left Behind
In the end, states that “refuse” to submit a compliance plan are not thwarting EPA’s efforts to clean up carbon pollution. Nor are they subjecting the regulated power plants in their state to inflexible standards, or their energy policies to a federal takeover. Rather, the carbon reduction program in those states will look much like other Clean Air Programs that already exist. There will be more certainty as to what a federal plan would look like in any given state than a state plan. Although EPA has yet to finalize its proposed federal plan, the proposal includes the standards that would be imposed on every single regulated source if any state were to take a federal plan (to be published when EPA releases the Technical Support Documents for the rule). On the other hand, a state that accepts a federal plan has more limited options for program design.
What type of carbon dioxide reduction plan will have the greatest environmental and public health benefits on the swiftest timeline, and be the most equitable for communities in any given state is a complicated question. In some states, that may be a state-developed plan. In others, an EPA plan might look better. One thing we do know is that state leaders’ threats to ignore the Clean Power Plan will have more political than practical impact. While the naysayers bury their heads in the sand, the nation’s transition to clean energy will roll forward.