CLIMATE

EPA budget proposal signals major changes ahead for state regulators

President Obama has packed cash for state air regulators in his U.S. EPA budget proposal, pointing to a leading role for states in shaping rules for curbing greenhouse gas emissions from existing power plants.

The fiscal 2015 proposal would provide $24.3 million to help states prepare for the climate rule -- offering $19.8 million in Clean Air Act grants for writing implementation plans and $4.5 million for greenhouse gas permitting, including the collection of emissions data.

The proposal is bittersweet for state air regulators who would get a significant down payment on the existing-power-plant rules -- a centerpiece of Obama's Climate Action Plan due for a June 1 release -- at the expense of funding for the regulation and enforcement of traditional air pollutants like ozone, particulate matter and carbon monoxide. Opposite the robust climate request is a proposed $9.3 million cut in grants for "core" air quality programs in fiscal 2015.

"What the administration is acknowledging in this budget -- and we give them significant credit for this -- is that this is a very important and challenging program for state and local governmental agencies," said Bill Becker, president of the National Association of Clean Air Agencies, or NACAA. "And it's going to require a lot of new and comprehensive responsibilities of state and local governmental agencies."

The Obama budget also seems to signal, he said, a renewed federal commitment to provide grant assistance to states under the Clean Air Act's Sections 103 and 105, which allow EPA to pick up as much as 60 percent of the tab for state monitoring, enforcement and permitting. That funding has lagged in recent years.

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"Our only chagrin," Becker said in an interview, "is that much of it is coming at the expense of other very important, health-based air quality programs."

The proposed weakening of the administration's support for state implementation and enforcement related to smog, fine particulate matter, carbon monoxide, lead and other criteria pollutants comes as the federal government is already picking up less than 25 percent of the tab for those programs, Becker said.

"In essence, they are funding much of the increase for the important state implementation efforts on climate with the core program elements -- which are the foundation of our implementation efforts -- on the non-greenhouse gas strategy," he said.

Bruce Andersen, director of the air quality department at the Unified Government of Kansas City, Kan., said state agencies can ill afford the $9.3 million cut as state support for air oversight is also on the decline.

"You have to tighten your belt and do things maybe not as well as you would like to do them," said Andersen. While this might mean laxer enforcement in some cases, it also means fewer staff processing permits for companies that want to build new facilities.

"If the money's not there -- the staff is not there -- perhaps you're not getting out construction permits as fast as you did in the past, which affects the industry in our areas and their ability to be flexible and respond to changing needs," Andersen said.

For its part, EPA has said little about the existing power plant rule it will send to the White House for vetting later this month, but observers say the Obama budget request may be seen as tipping the agency's hand.

Former EPA air chief Jeff Holmstead and others say EPA may be signaling it won't confine its rule to the minor efficiency upgrades that can be achieved on site at a power plant.

"If EPA were expecting the states simply to do what we call 'inside the fence line' things to reduce the emissions rate, then there would be no reason to have all those resources," Holmstead said. "It's actually fairly simple."

By confining the rule to the power plant, state air regulators would only have to go to plants and monitor emissions rates, Holmstead said.

But if EPA proposes an emissions target that cannot be achieved except through demand-side efficiency, a shift toward lower-carbon fuels, demand-response programs and other "outside the fence" mechanisms, he said, states will sorely need federal funds to help them write those more complex rules and monitor and verify the reductions achieved by them.

"I think it's a pretty good signal that they're planning a pretty aggressive rule," he said.

'Learning curve'

NACAA Director Becker sees the Obama budget showing the administration intends to fulfill its pledge to craft a flexible rule and to empower state agencies.

EPA Administrator Gina McCarthy "has said time and time again that we don't expect any two state plans to be alike," Becker said. "That maximum flexibility is going to require states to do some work that this budget intends to fund."

If EPA were prepping a "top-down" rule -- perhaps by offering a model implementation plan that states would be encouraged to adopt -- the agency wouldn't ask Congress for more money for states, especially in the context of an overall budget that was 3.7 percent lower than fiscal 2014 enacted levels, Becker said.

Andersen said his six-member air agency in Kansas City will be challenged by the two years allotted by Obama's memorandum last year for crafting an implementation plan.

"That will be a big new program for us, and a different way of doing things," he said.

Most of the rules Andersen and his team are charged with implementing address emissions at permitted facilities. But because there's no way to make significant reductions in carbon dioxide emissions at plants -- EPA has ruled out requiring today's coal-fired power plants to retrofit with carbon capture and storage technology -- air officials expect the agency to cast a broader net.

"We're going to be looking at a lot of things that your typical, classic air agency hasn't been involved with, with working with the energy companies and the utilities in particular to develop programs where you go out and do energy conservations and all types of things like that to get the emissions reduced," Andersen said.

"Any strategy you can get out there to make sure that less fuel is burned and still meet the energy demand is probably going to be on the table," he said. "It's going to be a different way of doing things for us, so it's going to be a learning curve for sure."

Holmstead sees new responsibilities for air regulators as a big problem. Air agencies have not been tasked with running energy efficiency or demand-response programs in the past -- that is the purview of public utility commissions or public service commissions, he said.

"All of a sudden, EPA is wanting state environmental agencies to get involved in things that they haven't usually been involved in," he said.

And while EPA staff have reached out to PUCs ahead of writing the rule, Holmstead noted the agency doesn't write rules that assign work to utility regulators as it does for air pollution regulators.

"If EPA is able to get a court to say that this is legal, it's a pretty messy program," he said. "It's going to take a lot of regulators a lot of time to implement it, and I think the president's budget request is just a reflection of that fact."

But time is limited.

Obama in his climate memorandum last year set a deadline of June 31, 2016, for states to submit their implementation plans. That's 13 months after EPA is due to finalize its guidance.

That is a difficult timeline -- especially for states with little experience with climate or renewable energy policies, said Dina Kruger, a former EPA official who now consults on regulations.

"Many if not most of the states are looking at their fleet and the policies and without knowing where EPA is going are trying to access the kinds of things that would work better for them and the kinds of things they don't want to see," Kruger said.

That's a tall order, she said, for states that are starting from scratch.

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