The Ayres Law Group

5 Reasons State Compliance With Clean Power Plan Is Easy

The group of 15 states that have filed an emergency petition seeking a stay of the U.S. Environmental Protection Agency's Clean Power Plan, which would limit carbon pollution from the electricity generation sector, argue that compliance with the rule will be difficult, time-consuming and will drain state agencies’ resources. In declarations attached to the stay request, representatives from state agencies bemoan the rule’s September 2016 deadline for submission of a plan outlining how the state will meet the rule’s requirements or, at the minimum, a description of why the state requires an extension to submit the final plan to September 2018.

But the forecast of doom and gloom is greatly exaggerated. The final rule allows significant flexibility to utilities, which are tasked with making emissions reductions, but also to states, which bear the responsibility of making sure utilities act. Much of the legal infrastructure necessary for states to comply with the final rule is already in place elsewhere in the country. States simply need to know where to look for shortcuts that will make compliance by states no more difficult than other responsibilities under the Clean Air Act, such as the requirement to maintain state implementation plans for ozone, particulate matter and other criteria pollutants under Section 110 of the CAA. Here are five ways states can make it easy on themselves and utilities in complying with the Clean Power Plan.

1. Join Existing Trading Programs

Two prominent and proven examples of cap-and-trade programs aimed at reducing carbon pollution already exist in the U.S., the Regional Greenhouse Gas Initiative ("RGGI") and California’s program, known as AB 32. These programs have been in operation since 2008 and 2012, and have been fine-tuned to eliminate problems and inefficiencies. The RGGI periodically amends its model implementing rule, which contains detailed regulatory language addressing every component of a carbon budget trading program, including allocation of allowances, tracking and transfers of allowances, monitoring and reporting, auctions and offsets. In each of the nine northeastern and mid-Atlantic participating states, legislatures and regulators have put into place the legal infrastructure necessary to participate in the RGGI.

Beyond its ready-made legal infrastructure, the RGGI has proven a cost-effective and successful market-based mechanism to reduce carbon pollution from power plants. Funds raised from the 28 RGGI regional auctions held since the first auction in 2008 have resulted in over $1 billion in investments in energy efficiency, renewable energy, greenhouse gas abatement and direct bill assistance. The program has resulted in an estimated return of $2.9 billion in lifetime energy bill savings to affected customers, while reducing carbon pollution from the power sector by 40 percent from 2005 levels.[1] Over this period, the regional economy has grown 8 percent.[2] California’s AB 32 program, which took effect in early 2012, is also on track to achieve cost-effective reductions. AB 32 includes general requirements for linkage with other programs and recently linked with Quebec’s cap-and-trade program.

In drafting their state plans under the Clean Power Plan, states can and should take advantage of the RGGI and AB 32 examples by joining or emulating an existing program. Geographical proximity is not required by the EPA regulations. Any state debating a mass-based trading program need not reinvent the wheel; such a program already exists.

2. Coordinate With Other States to Develop Plans or Facilitate Trading

Under the final rule, the EPA will permit states participating in a multistate plan to submit a single joint plan, significantly reducing the burden placed on any single state of developing and drafting a state plan. By submitting a multistate plan, those states can benefit from additional flexibility by aggregating their rate or mass carbon dioxide goals, effectively creating a joint carbon dioxide goal for the fleet of power plants in those states.

Alternatively, states are free to stick with their own individual goal and submit individual plans while still coordinating with other states through the interstate transfer of credits or allowances. The EPA has even recognized that some states might prefer to participate in more than one multistate plan where the state participates in more than one ISO or RTO. All of these options permit states to pool resources in developing and implementing state plans, reducing the resource strain on any one state.

3. Choose the EPA’s Model Rule

As part of the Clean Power Plan, the EPA proposed two model rules, which, if adopted by a state would be presumptively approvable. The EPA will publish final rules for both a rate-based and mass-based model trading rule in summer 2016. Adoption of one of these rules is a quick and easy way for states to comply with the rule. The EPA will also adopt one of these two approaches as its “federal plan,” to be implemented in the event a state fails to submit an approvable plan.

Although the model rules are intended to be prepackaged, comprehensive and approvable plans, a state may also adopt stand-alone portions of the model rules as part of its own unique state plan. A system for tracking of credits or allowances, or procedures for evaluation, measurement and verification of credits, in addition to other components, can often be utilized in a variety of trading regimes and, therefore, can be extracted from the model rules for use in a state plan, even if that state plan takes a different trading approach. Utilizing the model rules, or a part of them, would ease the way for state compliance with the Clean Power Plan.

4. Take Advantage of the Clean Energy Incentive Program

Even though the initial compliance deadline is not until 2022, the final rule also provides incentives for states and parties to take early action during 2020 and 2021 through renewable energy and demand-side energy efficiency projects. The credits can be used to create a transition period beyond 2022 for implementation of the Clean Power Plan. Through the optional Clean Energy Incentive Program, the EPA will match credits or allowances generated from renewable energy or saved through energy efficiency programs in low-income communities. The EPA has proposed to allow generation of credits or allowances, including matching credits or allowances by the EPA, through the CEIP during 2020 and 2021 up to a limit (currently proposed as 300 million short tons of CO2 emissions for all states).

The CEIP provides a significant opportunity for states to get extra credit for taking early action, thus providing a more gentle “glide path” toward compliance for utilities from 2022 to 2030. The final details remain to be worked out, but the EPA has proposed to permit credits and allowances generated during the 2020-2021 period to be used during the interim (2020-2029) and final (2030 and on) performance periods, and to be banked between periods. By participating in the CEIP, states can effectively increase the pool of credits or allowances available to utilities, while extending the time for utilities and project developers to generate credits.

5. Submit a Plan Early

The EPA has set an initial deadline for submission of state plans by Sept. 6, 2016. Many states, however, are expected to take advantage of a liberal extension policy, under which the EPA will extend the submission deadline to Sept. 6, 2018, upon a minimal showing by the state. While securing an extension may at first glance seem a way to ease the compliance burden on states and utilities, such a strategy may prove short-sighted and in fact may disadvantage affected utilities by creating unnecessary market uncertainty.

Early plan submission would provide strong market signals to the utility sector, minimizing the potential for stranded investments, and would allow utilities roughly six years rather than four from the date of submission to prepare for the rule’s compliance deadline. Utilities, states and other interested parties such as renewable energy and energy efficiency project developers would benefit from the additional time, thus allowing all parties to develop cost-effective ways to meet the requirements of the Clean Power Plan.

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