EPA Regulation Under Clean Air Act Section 111(d): An Overview
By presidential memorandum issued in June 2013, President Obama directed EPA to issue regulations of carbon pollution from existing power plants under section 111(d) of the Clean Air Act. President Obama requested EPA to issue a proposed rule by June 2014 and a final rule by June 2015.
What does section 111(d) do?
Section 111(d) requires each state, with assistance from EPA, to develop “standards of performance” for existing stationary sources and an implementation plan to achieve those standards. The term “standard of performance” is defined as “the degree of emission limitation achievable through the application of the best system of emission reduction  (taking into account the cost of achieving such reduction).”
What are the respective roles of EPA and the States?
States have the primary responsibility to develop plans to achieve the performance standards. Because the statute permits states to design and submit their own implementation plan, EPA will develop a guidance document suggesting how states may implement the performance standards and the factors EPA will consider in evaluating the sufficiency of a state implementation plan. EPA likely will provide guidance to states as to what criteria it will assess in determining whether an implementation plan is of equivalent stringency to the federal model plan. States will be required to submit their proposed implementation plans for EPA approval by June 2016.
What may EPA consider in issuing guidance under section 111(d)?
The statute directs EPA to consider the cost of achieving emission reductions. EPA is also required to permit states to factor into their analyses the remaining economically useful life of the existing source to which the standard applies.
Will EPA develop a “model plan” to guide States?
In past section 111(d) proceedings, EPA has developed a model plan that, if states choose to adopt it, would be easily approved. EPA has noted, however, that given that some states have already adopted a range of policies and programs to reduce electricity sector GHG emissions, a model plan may not be appropriate in these circumstances. EPA is considering whether to develop a “toolbox” of implementation measures that states could adopt, in place of a traditional model plan.
Will EPA regulate on a source-by-source or a system-wide basis?
One of the most hotly contested issues regarding the forthcoming regulations under section 111(d) concerns the scope of EPA’s authority to regulate. Those favoring a robust regulatory regime argue that EPA has the authority to, and should, adopt a “system-based” approach to regulating GHG emissions from existing plants. Under such a system, EPA would design an industry-wide, national regulatory regime, which states would implement through their own plans. Those who subscribe to this view take the position that “best system of emission reduction” means the best emissions-reducing regulatory system. A system-based approach would reduce emissions at the source but would also include a broader portfolio of measures that would affect areas other than the source itself. Others contend that EPA may adopt only a “source-based” approach, which would prescribe emission reduction measures that would be taken at only the affected sources themselves. From this perspective, the term “best system of emission reduction” means a technology-based system, applied on a unit-by-unit basis.
Whether EPA takes a system-based or a source-based approach will have a large effect on the framework that states will work within when designing their implementation plans for EPA approval. EPA has acknowledged its options in this regard, and it is not clear which form EPA’s regulatory program will take.
Which Regulatory Flexible Compliance Mechanisms Might EPA Permit?
EPA and states have a number of regulatory tools available to permit flexible compliance with the mandates of section 111(d). As noted above, the statute requires the best system of emission reduction; given that flexible, market-based compliance mechanisms, in general, have been demonstrated to be far more cost-effective than command-and-control regulation, EPA may permit states to adopt one or more of the flexible compliance mechanisms described below.
EPA will steer states toward adopting one of three regulatory models:
- Command and Control: In this system—the simplest and generally recognized to be the least economically efficient system—specific sources are prohibited from polluting beyond a specific emissions limitation. The limitation may limit emissions based on mass basis or on an emission rate.
- Averaging: Carbon pollution is limited by setting an average emission rate standard across sources. States might be credited with average emission rate reductions afforded by construction of new renewable fuel sources, thus encouraging the substitution of new renewable sources for fossil fuel-fired generation.
- Cap-and-Trade: A model for this type of program would be the Acid Rain Program under Title IV of the Clean Air Act. Under that program, each affected utility is allocated allowances based on their historic fuel consumption and a specific emission rate. Allowances may be bought, sold, or banked. Such a program could be either intrastate or interstate in scope.
Within these regulatory systems, there are a number of regulatory options which, if adopted, can make the system more efficient—by allowing generators more compliance flexibility—and more effective—by further reducing emissions:
- Banking and Borrowing: Banking and borrowing are flexible compliance measures that allow averaging or trading across time. Reductions beyond the prescribed standard in one year can be “banked” for future compliance, and a noncompliant plant may be able to “borrow” credits from its future allotment.
- End-Use Energy Efficiency: Emissions reductions achieved through end-use energy efficiency measures may be credited toward section 111(d) compliance. Energy efficiency programs are a cost-effective way to reduce emissions but pose unique problems with enforceability and quantification of benefits.
- Credit for Early GHG Reduction Programs: EPA might credit reductions in GHG emissions achieved by states through their own intrastate emissions reduction programs or through participation in a regional emissions reduction program. Under such an approach, a state participating in the Regional Greenhouse Gas Initiative (RGGI), for example, might receive proportional credit for GHG emission reductions achieved by the RGGI at large, even if that state did not itself achieve the emission standard set by EPA.
- Coordination Among States: Given that many aspects of the electricity grid are regional in nature, an action taken in one state may affect GHG emissions from a power plant in another state. Recognizing this characteristic, EPA may permit coordinated submittal of state implementation plans that demonstrate performance on a regional basis. A coordinated plan may allow the section 111(d) regime to better coexist with existing regional emissions reductions programs, such as RGGI.
Who Will Be Subject to the Regulations?
Any new regulations could be limited to coal-fired power plants, all fossil-fuel power plants, or all electricity generators including renewables. Engineering studies show that coal-fired plants present the greatest opportunity for emissions reductions, through both plant modifications and partial substitution of electricity from plants using natural gas or renewable fuel. Although non-emitting sources such as renewables would not be directly regulated, the regulations might include incentives for expansion of renewable production in order to achieve emissions reductions at regulated sources. The regulations’ applicability across sets of sources will affect the manner in which industry complies with the new rules and, depending on the scope of applicability, will create industry incentives which may stimulate modification of specific plants, retiring of specific plants, or partial substitution of a more efficient source for a less efficient source.
How Will Emissions Reductions Be Measured?
The statute calls for performance standards to reduce emissions from existing stationary sources, but it does not prescribe the metric by which emissions reductions are to be measured. Within this framework, states might decide to regulate generators based on an emissions rate—likely on an emissions per megawatt hour (MWh) basis—or based on a statewide or plant-specific mass-based cap. EPA’s recently re-proposed new source performance standards cap emissions from new coal-fired and natural gas-fired units at rates ranging from 1,000 to 1,100 pounds of CO2 per MWh. It is unclear whether the forthcoming section 111(d) regulations will follow suit by setting emissions rate standards, or will set a mass-based emissions limitation.
Section 111(d) leaves states with the primary authority to establish standards for emissions from existing sources. That regulation is aided by a federal “backstop,” which provides that EPA may impose a federal standard if the state does not, and may enforce a state standard if the state does not. Beyond this, EPA and the states retain substantial authority to shape the emission control program, including using market-based compliance mechanisms.
An important question facing EPA is what degree of specificity to include in its guidance to states. Less specificity in EPA’s guidance document would encourage states to employ more varied approaches in meeting the requirements of section 111(d). On the other hand, less specific guidance from EPA may not give states a clear picture of how EPA will evaluate an implementation plan for compliance with the statute, and may not give states enough information about flexible compliance options available to states.
More specific guidance from EPA may provide more certainty to states in ascertaining how EPA will evaluate the sufficiency of implementation plans, and may reduce the chances that EPA will reject a state plan as insufficient. A guidance document with too much specificity, however—for example, a bare emissions limitation with no room for flexible compliance mechanisms—could be challenged on the ground that an inflexible standard is not the “best” system of emissions reduction, as that term is used in section 111(d).
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