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EPA’s Clever Legal Trick Could Save Its Clean Power Plan

coal plant epa legal challenges

The EPA did something very unusual when it released its Clean Power Plan earlier this month. The agency also released a 104 page legal memorandum arguing that its plan to regulate greenhouse gas emissions from existing power plants is legal under the Clean Air Act.  I’ve been involved in dozens of EPA rulemakings, and I’ve never before seen EPA release what amounts to a legal brief with a proposed rule. 

Nonetheless, all of EPA’s early legal work might just pay off.  In its climate proposal, the agency did something smart: It structured the rule so that if a court doesn’t agree with certain assumptions EPA made, the other parts of the rule can stand.  This bit of legal foresight should allow EPA to take more legal risks in its final rule (which could lead to larger greenhouse gas reductions), without jeopardizing the plan’s overall viability in court.

Let me explain.

EPA’s Clean Power Plan proposes standards for existing power plants that take the form of state-specific “rate-based” emissions targets for the state’s entire fleet of plants, expressed as pounds of CO2 per MWh.  As the Clean Air Act requires, EPA set each state’s CO2 emission rate targets based on its determination of what constitutes the “best system of emission reduction” for all existing power plants. Since Congress enacted the Clean Air Act, EPA has determined what constitutes the “best system of emission reduction” more than sixty times, and for numerous different types of sources.  When making this determination, EPA typically considers various factors, including feasibility and cost, to determine the best technology for a plant to install to reduce pollution.

That is how EPA usually does it, but that is not what EPA did in its Clean Power Plan.  Instead of looking at what technology is available at the plant level (or “inside the fence-line”), EPA looked at what actions the state could take on a state-wide basis to reduce CO2 emissions from all of the existing power plants in the state. Never before has EPA taken such a broad interpretation of this Clean Air Act provision. 

Specifically, EPA determined that the best system for reducing CO2 emissions from existing power plants is for states to implement all four of the following actions—or as EPA calls them, “building blocks”:

  1. Improve the efficiency of all existing coal plants in the state by six percent;
  2. Ramp up the operation of all existing natural gas combined cycle plants in the state so that they operate at 70 percent of their capacity, and assume this increased generation offsets generation at coal plants in the state;
  3. Increase the percentage of renewables used in the state to between 2% and 25%, depending on the state, and assume that nuclear plants under construction will be built and that 5.8% percent of existing nuclear plants do not retire; and
  4. Increase the use of state energy efficiency programs to reduce electricity consumption by 9% to 12% by 2030, depending on the state.

Although EPA set each state’s target rates using these assumptions, states are given significant flexibility to decide how they will comply with their targets.  States can implement state or regional cap-and-trade programs, set unit specific limits, use state-wide averaging, or propose almost any type of approach imaginable to meet the limits.

Ironically, EPA’s numbering of these four building blocks correspond to how likely they are to make it through the courts, with Block (1) being the most likely and Block (4) being the least likely (for further discussion on this and why some of these blocks are legally suspect, see the article linked at the end of this post).

Needless to say, EPA knew it was taking a big legal risk with some of these building blocks, which is why it did something clever. The agency structured the rule so that if a court finds any of these four building blocks unlawful, the remaining blocks can remain.   

So, for example, if a court found that EPA’s renewable or energy efficiency assumptions were unlawful, the rule would just unravel a bit; it wouldn’t come completely undone.

Block 1 (increasing coal plant efficiency) alone accounts for about a 4% nationwide emission rate reduction; Blocks 1 and 2 (switching from coal to natural gas plants) together lead to about a 16% nationwide rate reduction; Blocks 1, 2, and 3 (increased renewables and nuclear) collectively lead to about a 24% nationwide rate reduction; and all four blocks together (i.e., adding in energy efficiency) amount to about a 33% reduction in the nationwide emission rate.  That means if a court threw out Blocks 3 (renewables) and 4 (energy efficiency), the rule would likely still stand and states would just have to comply with Blocks 1 and 2.  In this scenario, the nation’s existing power plants would still have to collectively cut their CO2 emissions rate by about 16%. 

There’s been a lot of complaining on Capitol Hill over the last few weeks about EPA’s overzealousness with its four building block assumptions.  But since EPA has structured the rule to survive if one or more of its building blocks are thrown out in court, why wouldn’t the agency swing for the fences with these assumptions?  I know I would if I were running the EPA.

(For further information on this issue and other potential legal problems with EPA’s rule, see my forthcoming article in The Electricity Journal here: http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2448217)

Photo Credit: EPA Rules and Legal Challenges/shutterstock

Brian H. Potts's picture

Thank Brian H. for the Post!

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Brian H. Potts's picture
Brian H. Potts on June 28, 2014

Hi Evan – thanks for your comment.  Although many of the press reports about the rule have said that EPA’s required reductions are from 2005 levels, EPA actually used 2012 data as its baseline for calculating the required reductions under each building block.      

Brian H. Potts's picture
Brian H. Potts on July 1, 2014
Mark Heslep's picture
Mark Heslep on January 11, 2016

Since the Republicans cut back the wind production tax credit, which cost the entire nation less than one Federal Congressional subsidy to one nuclear plant in Georgia (Vogtle) per year,”

The above is a very large error.  Recognize that the wind PTC actually cost the US Treasury actual revenue in the billions, as opposed to the federal loan guarantee to Vogtle 3-4, which cost the Treasury nothing. 

CRS: The Renewable Electricity Production Tax Credit, July 2015

“The Joint Committee on Taxation (JCT) estimates that in 2014, foregone revenues (or “tax expenditures”) for the PTC were $1.2 billion.  Between 2014 and 2018, the JCT estimates that foregone revenues associated with the PTC for renewable electricity will total $16.4 billion,…”

And the Wind PTC has been extended by Congress.

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