What strategy will U.S. EPA need to employ to meet President Obama's aggressive timeline for existing power plant emissions regulations? During today's OnPoint, Roger Martella, a partner at Sidley Austin and the former general counsel at U.S. EPA, discusses the specifics of this week's climate announcement and details the steps EPA will need to take to meet the key deadlines set by the president. Martella also weighs in on whether the rule may be broadened to include other industries beyond the utility sector.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Roger Martella, a partner at Sidley Austin and he former general counsel at U.S. EPA. Roger, thank you for coming on the show again.
Roger Martella: Thanks, Monica. Great to be back.
Monica Trauzzi: Roger, let's jump right into the details of the president's announcement this week on power-plant emissions regulations. It's a big, bold, first-of-its-kind effort. The biggest part of the announcement really seems to be the schedule that the president laid out for NSPS. Just how aggressive is the timeline that he laid out, and how likely is it that EPA can actually meet all these markers before the president leaves office in 2017?
Roger Martella: I think you're absolutely right. Truly, the most important thing about the announcement yesterday was not his speech but an executive memo he signed when he got back to the White House, which laid out a schedule that has now revealed the timing for when EPA's going to be taking steps to regulate greenhouse gases from existing utilities. The most important date in there is June 30 of 2016. That is the date by which states have to submit their plans to EPA on how they're going to control greenhouse gases from existing utilities, and all the other dates work backwards from those. We can talk about them if you want, but the key of that June 30, '16, date, it's important for two reasons. One is it demonstrates the commitment they're not stepping back. This is the final thing you have to do to control greenhouse gases from existing utilities. The states have to submit these plans, but the second is there's virtually no margin of error. Truly that date was chosen because the president wants to have this done before he leaves office, but if these dates start to slip more than just a couple weeks or a couple months, you're going to run outta time, and so they're going to have to really stick to this aggressive schedule and not lose their footing along the way.
Monica Trauzzi: We don't know a whole lot about the substance of the proposal. That's going to be left up to EPA as time goes on, but what are EPA's options in terms of how they realize the reductions in emissions, and what route do you think they're going to take?
Roger Martella: Well, we're really in uncharted territory here when it comes to existing sources. They've never done this before. They've never tried this, and I think that was probably one of the disappointments from yesterday. We're still in a black box. There was no discussion regarding substance. The president only dropped one hint. He dropped a hint on the memo, and I'm going to just pull it out if I can, for he said, "EPA should develop approaches that allow the use of market-based instruments, performance standards and other regulatory flexibilities." That is basically the universe of all the options, and the first one there is kind of a code word for cap-and-trade. So, what he's basically saying is some states may want to propose a cap-and-trade. Some states may want to perform proposed technology standards. Some states may want to go after numeric standards. At this point, he's leaving all the options open, and what we're going to see, I think, during the summer, I think now's a critical time, various groups going to EPA and saying, "Here's what we want you to consider," and then EPA next June coming out with this menu of options for people to consider.
Monica Trauzzi: Let's talk about what he said on the new power plants, NSPS for new power plants. He's directed EPA to re-propose the standards by September of 2013, of this year. That's an aggressive timeline, is it not, and why is he asking for them to re-propose?
Roger Martella: You and I talked about this, and we predicted that the legal vulnerability for the proposal that came out, it looked like it was very rushed and one of the most legally vulnerable rules we've seen come from the agency, so it's not a surprise that they need to re-propose it to kind of shore up the legal deficiencies. I also predict they're going to make a substantive change. Where they treated coal and natural gas as the same before, my prediction is they're going to split them apart this time, and that may help them shore up the legal defensibility. So, it's an interesting nugget to know that the president is now acknowledging what we kind of thought was going to happen, that they're going to re-propose it, but he never gives them a time for the final rule, which was an interesting omission. My prediction there is that they will have to finalize it no later than June 1 of 2014, because that's the date by which they have to propose the standards for existing utilities and they have to finalize the new utility, NSPS, before they can propose a standard for existing utilities. So that seems to be the drop-dead date.
Monica Trauzzi: In the background of all this, Gina McCarthy is still awaiting confirmation to head up EPA. How could that holdup in her confirmation factor into this really aggressive timeline and how things play out?
Roger Martella: Well, my prediction to you last time she was going to have smooth sailing hasn't quite come true, so I might want to stick to the legal analysis, but I think the reality is that this does give her something of a window. I think she has the summer to go through the confirmation process, but when this proposal comes out in September, almost undoubtedly it's going to be very unpopular. It's going to kind of rankle some feathers again and I think it's goign to draw attention more to the regulation of greenhouse gases from utilities, so I think her job gets a lot harder after September if she's not confirmed by then.
Monica Trauzzi: Electric power generation accounts for about a third of the U.S.'s greenhouse-gas emissions. What the president has proposed is really sector-specific. Do you see any scenarios where they might try to broaden it beyond just the electric utilities, and what kind of legal challenges may result?
Roger Martella: I think one of the most important omissions yesterday was the president talked only about utilities. He didn't mention any of the other sectors, and we know both environmental groups and the courts are putting pressure on EPA to start addressing other sectors. I don't think that those sectors who weren't mentioned yesterday should feel necessarily they're not going to be addressed. The president may have just chosen to focus on utilities. I think what this tells us is it's not the priority. I wouldn't be surprised if the administration tries to get these rules final before it takes on other sectors, but I do think those other sectors are going to be addressed sometime after 2015, 2016.
Monica Trauzzi: How should industry be preparing for these regulations?
Roger Martella: I think this is a critical opportunity right now. They have an opportunity to both talk to EPA about the new proposal coming out for utilities, but, more importantly, because we are in uncharted territory on the existing source rule, every stakeholder, whether utility or another sector, should take this opportunity that the president has told EPA it has to do to kind of share the universe of options, almost treat this as an advanced notice of proposed rulemaking, the president's announcement, and make sure that they're not limiting the communication of options to EPA as it formulates what I think will end up being a menu of a proposal next June.
Monica Trauzzi: How crucial is inexpensive natural gas to the success of these regulations?
Roger Martella: I think EPA is not taking the markets into consideration. I think it's strictly looking at kind of the overall picture not tied to given market conditions. I think EPA's traditions take the long view. While the natural-gas markets look affordable now, they know that might not always be true in the future, so I doubt that their analysis is going to rely on what the conditions look like today but more make the case against coal for why they think longer term coal poses environmental risk, a climate-change risk, regardless of the situation for natural gas.
Monica Trauzzi: Was this a legacy move for the president, or do you think he believes that he can hit all these markers in the timeline and that this can actually happen?
Roger Martella: I think he was trying to tell us what he wants his legacy to be. This is his goal. We now know what he's going to be doing for the next three and a half years, and this is kind of the universe of options, although there were some omissions like NEPA and the Endangered Species Act, so this is his plan. As I said, there's no margin for error here. They cannot afford to miss these deadlines and still get this done, even a little bit, before the end of the administration.
Monica Trauzzi: All right, Roger. We'll end it right there. Thank you for coming on the show again.
Roger Martella: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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