REGULATION

Timing is the element most likely to change in EPA's final Clean Power Plan

In countless meetings on the Clean Power Plan with states and energy companies, the most common plea to U.S. EPA has been for more time. More time to work on plans, more time to allow coal plants to retire and more time to move toward final goals.

It's an easy concession for EPA -- one that could go a long way toward ensuring flexibility under the rule without undercutting climate goals, knowledgeable observers say.

In particular, EPA has heard it should relax the rule's interim goals, which require states to reach an average emissions rate between 2020 and 2029.

It's a "big problem, and an unnecessary problem, with respect to the real goals of this regulation," said Ken Colburn, a principal at the Regulatory Assistance Project, which advises state regulators tasked with writing carbon-cutting plans to meet state-specific targets.

Just weeks before the release of the final rule to cut carbon emissions from the power sector, E&E reporters surveyed dozens of stakeholders on their expectations about what EPA and the White House could change. They predicted a number of revisions, many aimed at giving state more options.

Also on the shortlist are:

  • Tweaks to the "building blocks," or carbon-cutting measures that determined the stringency of state goals.

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  • Changes to the baseline year -- 2012 -- used to calculate state starting points.
  • Credit for work done between the starting year and 2020.
  • Guidance on how states could work together or trade compliance credits.
  • A clearer explanation of which states get credit for interstate carbon-reducing efforts.
  • A new methodology for incentivizing nuclear power.
  • Tools to ensure grid reliability.

Watchers are also eagerly awaiting EPA's federal implementation plan, which would be imposed on states that refuse to write their own compliance plans. That proposal could ask for comment on a number of concepts and could be released with the final rule but will likely come later.

EPA also could simultaneously release its rule for new power plants, and many are waiting to see whether it will still suggest they should include carbon capture and storage technologies.

The final rules will answer numerous other questions that could determine how states react and whether entire industries struggle or thrive.

The right changes could 'seal the deal'

"EPA has a wonderful opportunity to get this right" and could achieve significant support from skeptical stakeholders with the right changes to the rule, said Bill Becker, executive director of the National Association of Clean Air Agencies.

"They can seal the deal by showing that they have listened and there are some actions that they could take that cry out for change," he said.

Foremost would be a "change to the interim compliance period, as almost every stakeholder has recommended, so that most of the initial reductions don't have to be achieved as early as 2020," Becker said.

That would "take a tremendous amount of pressure off states and utilities to develop a compliance strategy," he said.

A second move that would lower the political temperature around the rule would be to give states two years, rather than one, to develop an initial compliance plan, Becker said.

He also expects EPA will fix "some of the technical problems that were included in initial proposal, especially with respect to state targets," as well as give greater credit to actions taken in earlier years to reduce greenhouse gas emissions, such as investments in nuclear, hydro and renewables. "States should not be penalized for taking actions prior to the proposal," he said.

Jeff Holmstead, a utility industry attorney with Bracewell & Giuliani, said "even states and companies who were supportive of EPA overall had real concerns about the interim targets and said it's just too much too soon."

"I think all of us are expecting that the way the interim targets work will be more reasonable," Holmstead said.

Dallas Burtraw, a senior fellow at Resources for the Future, said it would be fairly easy for EPA to alleviate the near-term stress of the interim goals, both technically and politically, especially now that U.N. climate negotiations are less focused on national emissions commitments that countries made for 2020 and are more concentrated on the pledges for 2025 and beyond.

"Without suggesting a sleight of hand, I think the EPA really will want to focus on preserving the rigor -- and possibly increasing the rigor of the 2025 outcome," he said. "And if there are situations where some states need a couple of extra years to get infrastructure in place for the energy transition, it's a relatively easy give for the EPA."

Bill Bumpers, an environmental partner in the Washington office of Baker Botts, said some states would need relief from the interim compliance period. It won't be possible for them to shift from coal to gas-fired generation as quickly as the rule envisions, he said.

Bumpers is counsel to a utility-sector group called the Coalition for Innovative Climate Solutions that had proposed that EPA let states set their own glide paths for the rule's interim period, which stretches from 2020 to 2029. EPA Administrator Gina McCarthy and others have all but ruled out that option.

"I think what they might do is phase it in under a three- or five-year period," Bumpers said. Some states face very steep goals after 2020 that amount to upward of 80 percent of their final target. The agency might allow them a few extra years to ramp down to their interim target without facing the obligation of making up those reductions later in the compliance period -- as the proposed rule requires.

Another fix is to phase in building block two -- which assesses a state's ability to shift from coal to natural gas use -- more slowly.

"The interim cliff, the emissions cliff, is all driven by building block two," Bumpers said.

If reductions assumed from ramping up existing gas plants to 70 percent generation capacity are phased in year after year throughout the interim period, that would allow states more time to make the transition.

Some states are counting on changes

States like Florida and Arizona have said they would be forced to push all or most of their coal plants offline by 2020 to meet that interim goal. Hard-line critics of the rule have likened the timeline to a regulatory "cliff," saying it would pull baseload power off the grid before adequate substitutes are available, raising electricity prices and risking blackouts.

In a notice of data availability in October 2014, EPA asked for suggestions on easing the interim goals into a "glide path" by allowing credit for early reductions, since 2012.

"Credit for action between finalization of the rule and 2020 effectively would allow for states to ease into compliance because they could start work earlier and spread it over a longer period of time," explained Matt Stanberry, vice president of market development at Advanced Energy Economy.

States could get credit for bringing new zero-carbon power online before 2020 -- including nuclear and renewable energy -- and cutting electricity use through demand-side energy efficiency efforts.

In that same notice, EPA asked for comment on phasing in expectations for states to generate more power from existing natural gas plants. EPA could also just ramp up to the goals more slowly.

Holmstead noted that states have also asked for more time to submit their plans. Under EPA's draft rule, states working alone would need to submit proposals or outlines of proposals and requests for yearlong extensions by the summer of 2016.

States working together would have until 2018 to submit plans. But many state officials have said even this extended timeline is not long enough to develop proposals, put them out for comment and, if necessary, get state legislature approval.

Holmstead also said he doubts EPA could review and approve all the plans by the starting date of 2020, "even if everything goes swimmingly, and the courts uphold it and there are no stays and no delays."

But the Obama administration could publish the rule now, use it for international negotiations and worry about that timeline later, Holmstead said.

What will the safety valve look like?

EPA's proposed rule issued in June 2014 did not contain a reliability "safety valve" to ensure that power plants needed to keep the lights on are protected for a limited period of time.

Since then, a broad consensus has developed that there needs to be such a mechanism and that the Federal Energy Regulatory Commission, among others, should be involved.

Blair Beasley, a senior analyst at the Bipartisan Policy Center, said EPA might not specify how the safety valve would be structured. It could instead require or strongly encourage states to consider reliability when putting their state plans together, she said.

"I think that's one of the things people are waiting to see: how specifically EPA addresses this issue of reliability," she said.

EPA could also make revisions to its building blocks, which would change individual state goals.

Jonas Monast, Climate and Energy Program director at Duke University's Nicholas Institute for Environmental Policy Solutions, expects that the states with the least stringent targets will get tougher goals. The Natural Resources Defense Council has predicted all state requirements will get harder and some of the inequity of state goals could even out. The reduction in emissions rate mandated in each state ranges from 11 percent in North Dakota to 72 percent in Washington.

"If the state emission targets changed, that means that's going to affect how the states react, what they consider to be viable compliance options," said Monast, who co-authored a policy brief about changes to look for in the rule. "It'll also mean that the formula for coming up with the targets has also changed, and that's going to be important because that's going to be what the litigation's focused on."

For example, Holmstead said, EPA could lower the 6 percent heat rate reduction that its first building block assumes plants could achieve to run more efficiently. Environmental advocacy groups have said EPA could expand that building block by looking at other improvements plants could make.

EPA calculated renewable energy expectations for states by looking at the average renewable portfolio standards of other states in the region. Some have said EPA could instead look at what zero-carbon power is actually feasible.

The agency could expand its natural gas expectations to look at what new plants could be built. Monast said he thinks those changes may be optional for states. He doesn't expect EPA would recalculate state goals based on how many natural gas plants they could construct.

States have been divided over whether they think EPA's energy efficiency expectations -- a 1.5 percent energy use reduction per year -- are achievable. EPA could address that block differently, too.

EPA was criticized for how it tried to incentivize nuclear power in the rule. Assuming that 6 percent of the nation's units were at risk of shutting down, the rule put 6 percent of a state's nuclear capacity into its baseline and final goal, hoping to encourage states to keep that amount online.

The agency also assumed plants planned or under construction were definitely going to work out, yielding complaints from Georgia, South Carolina and Tennessee, each of which awaits completion of new units. They say if the plants don't come online, they won't be able to achieve their goals.

"The treatment of nuclear units was pretty much incomprehensible," Colburn said.

Colburn agreed that EPA could look at the specific nuclear plants at risk. "There are few enough of them, and they could be worked readily into state baselines," he said.

Accounting for renewables needs to be clearer

States will be wondering how EPA will handle renewable power that flows across state borders and energy efficiency programs in one state that offset power use in another state, Colburn said.

EPA compared "apples to oranges" when determining who gets credit for renewable power, Colburn said. States generating renewable power had those megawatts included in their baseline, making their goals look easier to achieve. But states purchasing the renewable energy credits associated with that power will likely be able to take credit for it in 2030, he said.

Air regulators in many states have been discussing "trade ready" programs for states that are short of their goals to purchase compliance credits for renewable energy or energy efficiency from other states.

Whether EPA offers guidance on how states can trade in a market-based system depends on "how determinative EPA is willing to be in a situation where it can't really tell states what to do," Colburn said.

But he said any information on multi-state coordination and trading could come after the final rule, as supplemental information.

"We can't expect that EPA will answers all the questions for all time in this final rule," he said. "This is the first waffle."

Environmental advocacy groups and conservative utilities alike have praised EPA for its outreach effort.

But Conrad Schneider, advocacy director at the Clean Air Task Force, cautioned that active listening isn't always a sure sign that EPA will make requested changes.

EPA has heard from "diametrically different" positions, and "they can't accommodate everybody," he said.

Twitter: @chemnipot Email: jchemnick@eenews.net

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