Q&A: EPA Regulation of Greenhouse Gas Emissions from Existing Power Plants

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In his June 25, 2013, climate policy speech, President Obama announced that the U.S. Environmental Protection Agency (EPA) would begin developing regulations to reduce the emission of greenhouse gases from existing power plants. These regulations, known as New Source Performance Standards (NSPS), are required by Section 111(d) of the Clean Air Act (CAA). (Somewhat confusingly, EPA is required to develop New Source Performance Standards for both new (under Section 111(b)) and existing (under Section 111(d)) power plants. EPA has proposed, but not finalized, regulations for new power plants).

Why is regulation of greenhouse gas emissions from existing power plants important?

Electric power generation is responsible for about forty percent of U.S. carbon dioxide emissions.

Figure 1: 2012 U.S. CO2 Emissions

Source: Energy Information Administration

Since the federal government adopted new vehicle efficiency standards last summer to address transportation emissions, the power sector represents the greatest opportunity for greenhouse gas reductions.

Figure 2: Electric Power Sector Carbon Dioxide Emissions

Source: Energy Information Administration

Power sector emissions have declined over the past five years in part due to the economic downturn, increased energy efficiency, greater use of renewable energy and a switch from coal, the most carbon-intensive fossil fuel, to natural gas, the least carbon-intensive. In the absence of any policy changes, the U.S. Energy Information Administration projects that as natural gas prices rise slowly over the next five years, coal use will again begin to increase, leading to higher emissions.

Figure 3: Distribution of Power Plants Across the Contiguous United States

Source: Energy Information Administration

How would this regulation work?

Typically, EPA regulations are set at the federal level and then administered by states. For example, EPA sets a limit on the level of smog in the atmosphere, and states then submit plans for how they will meet that standard. Once approved by EPA, states then administer these plans, known as State Implementation Plans.

As EPA has only adopted regulations using Section 111(d) of the Clean Air Act a handful of times, there are not many examples to help predict how EPA is likely to apply it to existing power plants. One thing we do know is that states will play a major role. EPA will set guidelines for states to follow, likely including a "performance standard" in the form of an emissions rate: pounds of greenhouse gas emitted per unit of electricity produced. From here, states will develop the specific regulations that power plants must follow, and will have some degree of flexibility in crafting these regulations based on EPA's guidelines. States may even be able to translate EPA's performance standard into an absolute amount of emissions, and would then be able to meet the required absolute level of emissions as the state sees fit. That is, by multiplying the emissions rate by the amount of electricity produced by power plants in a state, the state will calculate an absolute emissions target in the form of tons of greenhouse gas emitted per year. The state would then have flexibility as to how to achieve this target, without necessarily requiring reductions at every power plant.

How much flexibility will states have to minimize costs?

EPA will likely adopt a "model rule"' that states may choose to follow. But states will likely have considerable flexibility to adopt alternative approaches, if they can demonstrate that they will produce equivalent results.

Among the possibilities:

  • States could allow emission credit trading among power plants owned by the same operator. This means that if one power plant reduced its emission rate below the state target, it could trade credits to a power plant that could not meet the target so that the company overall would be in compliance.
  • States might also be authorized to allow emissions trading between power companies and even across state lines (such a program would be similar to the Regional Greenhouse Gas Initiative). Averaging or trading across power plants, companies, and states cuts overall compliance costs by taking advantage of the lowest-cost opportunity for emission reductions.
  • States might also be able to use energy efficiency or renewable energy for compliance, provided that the total emissions met an EPA-approved target.
  • States might be authorized to allow power companies to use alternative compliance payments (ACP) to comply. This would mean that a power company could pay the state a fee, which would then be directed to projects that cut greenhouse gas emissions elsewhere in the power sector, or in another sector entirely, rather than reduce its own emissions to meet the target.
  • States could also set a standard that is more stringent than what would be required by EPA's guidelines.

More information on state flexibility can be found in the C2ES brief GHG New Source Performance Standards for the Power Sector: Options for EPA and the States.

What can power plants do to reduce emissions?

An individual power plant can reduce its greenhouse gas emission rate by using fuel more efficiently or by switching to a lower carbon fuel, such as natural gas or biomass instead of coal. However, depending on how the rule is designed, power companies may be able to comply on a company-wide level and/or states may be able to comply on a statewide level. In that case, as long as power companies, or entire states, meet greenhouse gas emission targets broadly, action will not necessarily be required at particular power plants. States could potentially meet their emission targets by increasing their consumption of renewable electricity relative to fossil-generated electricity or improving energy efficiency.

How would existing state policies, such as the Regional Greenhouse Gas Initiative, be affected?

States will likely have significant flexibility in setting regulations for existing power plants within their borders, provided they follow guidelines set by EPA. If states are given the authority to use market-based mechanisms, the nine Northeastern states participating in the Regional Greenhouse Gas Initiative (RGGI)may be able to demonstrate that their cap-and-trade program for power plants satisfies the required emission reductions, and that further regulation is therefore unnecessary. The situation would be more complicated in the case of California's cap-and-trade program, which regulates emissions from many sources, not just power plants.

How long will it take for EPA to develop the new rules?

EPA has very little experience using this particular subsection of the Clean Air Act, and therefore does not have much in the way of its own precedent to follow. Additionally, EPA has been directed by President Obama to work closely with states, power plant operators, and other stakeholders as it develops its guidelines due to their novelty and far-reaching implications. Administration officials have said they aim to issue a proposed rule by June 2014 and a final rule by June 2015. Based on past practice, states will then have nine months to develop their own plans, and another year to begin enforcing them.

It is important to note that this action is not voluntary on the part of EPA. According to the Supreme Court in Massachusetts v. EPA (a decision that was recently reaffirmed), EPA is legally required to regulate greenhouse gases under the Clean Air Act just as it has addressed more traditional pollutants for the past 43 years. In 2010, EPA settled a suit with several states and environmental groups by agreeing to finalize greenhouse gas standards for existing power plants by May 26, 2012. The plaintiffs in this case had signaled that they would seek to enforce this court order, but have backed off due to the president's announcement.

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