Does the Clean Power Plan create ‘winners’ and ‘losers’ among the states?

By Elizabeth Harball, Emily Holden | 09/21/2015 08:56 AM EDT

Political foes are hurling sound-bite criticisms at U.S. EPA’s Clean Power Plan that could resonate with voters. Now they’re honing a new argument — that the regulation’s disparate standards will serve as a “transfer of wealth” from the energy-producing heartland to left-leaning coastal states that have easier emission reduction targets.

Political foes are hurling sound-bite criticisms at U.S. EPA’s Clean Power Plan that could resonate with voters.

They’ve called it federal government overreach, charged it would unfairly burden the poor with higher electricity costs and said the quick changes required by the rule would overwhelm the grid and threaten reliability.

Now they’re honing a new argument — that the regulation’s disparate standards will serve as a "transfer of wealth" from the energy-producing heartland to left-leaning coastal states that have easier emission reduction targets (EnergyWire, Aug. 3).


In the final rule, EPA dealt much tougher carbon-reduction goals to coal-heavy states and eased targets for states that argued they have been working for years to curb emissions.

Jim Bridenstine
Rep. Jim Bridenstine (R-Okla.). | Photo courtesy of Rep. Jim Bridenstine.

As a result, nine states will be able to increase the total tons of carbon they emit, according to an analysis by the U.S. Chamber of Commerce’s Institute for 21st Century Energy that has been prominently cited during Capitol Hill’s bitter fight over the Clean Power Plan.

The chamber compared EPA projections of how much states would emit in 2020 (without the Clean Power Plan) with how much the rule will allow them to produce in 2030. In a blog post, the chamber designates California, Oregon and New York "winners" and conservative states like Texas and South Carolina "losers."

"The states that are assigned easier lifts in either circumstance may act as credit ‘banks’ while the more numerous ‘debtor’ states are saddled with challenging emissions reduction targets," the chamber’s blog argues. "Creditor states will face reduced pressure to shut down affordable gas and coal-powered electricity, thereby lessening the impact of the electricity price spikes expected from the rule. The ability to increase emissions rates will allow economic development to proceed with fewer restrictions, while states with strict targets are forced to curtail affordable energy."

House Science, Space and Technology Subcommittee on Environment Chairman Jim Bridenstine (R-Okla.) brandished the map during the first congressional hearing on the final rule, asking officials from Texas and Ohio if they "perceive this as a transfer of wealth" from states that may need to purchase emissions credits from states that may over-comply.

But regulatory experts and economists familiar with the rule’s structure caution the math is more complicated than it seems. While some states will fare better than others under the Clean Power Plan, the monetary impacts of the rule are incredibly difficult to predict and depend on far more than just the relative stringency of EPA’s state-by-state goals, they argue.

‘Complicated calculus’

Paul Bledsoe, who served as a climate adviser in the Clinton administration, noted that the unique cost of compliance for each state depends much more on the ability of states to reduce emissions going forward and "on the long-term market dynamics that evolve between a credit market and the marginal cost of mitigation."

"That’s a very complicated calculus, and we will not know yet how that plays out at an individual state level," Bledsoe said. "It’s not as simple as the states who have excess permits are winners. … It has to do with where different states’ major utilities are in their investment patterns, in their plant closures, the cost of natural gas in the region."

States that reduce carbon emissions more than is required will likely have to invest more in cleaner energy and will see higher electricity rates, explained Adele Morris, policy director for the Brookings Institution’s Climate and Energy Economics Project. States that choose to over-comply and sell credits would have to decide whether to use the money to lower electricity rates for customers or to fund policy initiatives, Morris said.

"This is classically how people attack a policy," Bledsoe said. "If there’s someone who seems to, on the surface, benefit inordinately, that entity gets attacked to undermine the fairness or validity of an approach — whether or not that’s the case."

In an interview, the chamber said the figures in its map tell "an interesting story."

Heath Knakmuhs, the blog author and a senior director of policy at the chamber’s energy institute, said, "People in Middle America can draw their own conclusions about how this map looks."

In writing compliance plans, states must decide whether it’s more cost-effective to reduce emissions directly, by shutting down coal units and relying more on in-state renewables and natural gas, or to purchase credits from states that exceed their own Clean Power Plan targets.

In either case, Texas Commission on Environmental Quality Chairman Bryan Shaw said at the House Science subcommittee hearing on Sept. 11 that reducing his state’s emissions rate 33 percent "is going to come at a cost" and would make economic growth among states an "uneven playing field."

"One of the major costs we’ve seen and part of the reason we’ve been able to have economic prosperity and growth in our state has been due to low cost of energy," Shaw said. "The likely, pretty extreme increase in [electricity] rates is going to make it much more difficult for our state to continue to provide those jobs and resources that are necessary for that growth."

Ohio Environmental Protection Agency director Craig Butler said his state would either "need to shut down additional coal assets and buy more expensive power or buy credits from somebody else."

"Both of those will have a significant cost for the state of Ohio," Butler said.

Oregon, the third state present at the hearing, got a much easier goal under the final Clean Power Plan. The state must cut its emission rate 20 percent, rather than an earlier proposed 48 percent.

Jason Eisdorfer, utility program director for Oregon’s Public Utility Commission, acknowledged the rule did "turn the tables a little bit," but noted customers in Oregon are tied to assets in Montana, Wyoming and Utah. Their bills depend on how those states respond to the rule.

"In that sense, Oregon is tied throughout the West, and while this map makes it look like Oregon is sitting pretty, we have a lot of work to do and a lot of cooperative discussions [to have]," Eisdorfer explained.

Crunching the numbers

The data behind EPA’s state goals can be crunched in a number of ways, leaving endless opportunities for interpretation.

E&E’s analysis, which was verified by EPA, found that nine states will be able to increase their mass emissions by 2030 when compared with 2012 levels. Those states are California, Oregon, Washington, Idaho, South Dakota, Virginia, New Jersey, Connecticut and Maine (ClimateWire, Aug. 12).

States will have to choose whether to pursue a rate-based approach, to reduce the rate at which their power fleets emit carbon, or a mass-based approach, to cap annual carbon emissions outright.

EPA acknowledged that some states that choose the mass-based approach could increase their emissions but offered a number of caveats.

"To be clear, EPA is not picking winners or losers," an EPA spokeswoman said in an email, noting that agency estimates show electricity bills will go down under the Clean Power Plan.

There are a number of reasons some states can technically increase the pounds of carbon they emit per year.

For one, the baseline year for calculating state emissions, 2012, was an above-average hydropower year. That made some states’ power fleets look cleaner than they usually are, so EPA made adjustments to reflect that, raising fossil-fuel generation levels for states like Washington, Maine, Oregon and Idaho.

"Looking at the raw 2012 emissions data, relative to the mass goals for these states, does not capture this adjustment," EPA said. The agency also noted mass goals are not exact conversions from rate goals. It took public comment into consideration when setting them.

Last, EPA pointed out, "some states are leaders in addressing emissions from power plants, and have measures in place that will likely exceed the CPP goals (whether they are rate or mass)."

"Actions that they have been undertaking, reflected in the 2012 data to a certain degree, might go well beyond the best system of emission reduction, so comparing their aggressive action already undertaken to the future requirement for all existing power plants under CPP is not appropriate," EPA said.

Reduction goals alone also might not be the best representation of how far a state has to come. Three states in the Southeast, for example — Georgia, South Carolina and Tennessee — will be able to count under-construction nuclear facilities toward compliance. If those facilities come online, the large amount of zero-carbon energy would move the states toward their 2030 goals and could potentially help them over-comply and earn credits to sell.

On the other hand, states like California might not be eager to sell credits to underperforming states.

"The politics of letting a state that doesn’t care as much about climate gain the benefit and do less under the Clean Power Plan is really unattractive at the state level," said Michael Wara, a law professor at Stanford University.

Wara calculated the carbon-reduction costs to each state based on EPA data and generally found West Coast states would have a lower "marginal abatement cost," the cost to reduce an additional ton of carbon emissions. But Wara said to take those estimates with a grain of salt for a host of reasons, including assumptions EPA made about renewable power availability and electricity demand. Overall, he said the costs are nearly impossible to predict.

"You shouldn’t try to design policies where you’re looking out that far and where the policy is sensitive to a model forecast," Wara concluded. "We’re in a period of really dynamic change, and it’s very hard to know what’s going to happen and how costs will shake out based on the structure of the rule and everything else."