U.S. EPA's final Clean Power Plan will no longer base state targets, in part, on estimates about how much they could boost energy efficiency, an administration official said.
President Obama on Monday will release the final rule for existing-power-plant carbon emissions that does not include the draft version's "Building Block 4," the official said, reconfiguring the way states are assigned emissions reduction responsibilities.
The change will not limit states' ability to tap energy efficiency policies and programs in their state implementation plans for the rule.
"Because it is a highly cost-effective means of reducing emissions, we expect very significant investment in energy efficiency under the Clean Power Plan," the official said.
State targets will now be based on the rule's other three building blocks: heat-rate improvements at coal-fired power plants, increased use of combined-cycle natural gas generation to displace coal power and deployment of zero-carbon energy. These inputs set the targets but don't mandate how states comply with them.
Stakeholders took issue with all three of the other inputs in comments to EPA, but they are expected to figure in the final plan.
The June 2014 draft version of the plan, which included the efficiency building block, assumed that states across the country had the capacity to improve their demand-side efficiency by 1.5 percent per year after 2020. The draft assigned all states reduction responsibilities based on that assumption, though it gave some states more time than others to make the cuts.
But many stakeholders said there were legal as well as practical problems with basing requirements on utilities' assumed ability to dampen consumer demand for their product.
"Everybody loves efficiency, but figuring out how to do it in a regulatory context is tricky," said Jeff Holmstead, an industry attorney for Bracewell & Giuliani, who said the draft's efficiency input would have added to the rule's legal vulnerability. Assuming utilities can cut demand for power, he said, is like assuming oil refineries should support mass transit and bike lanes under a hypothetical future regulation for their sector -- a regulatory stretch that would have been unlikely to end well for EPA in court.
Energy efficiency advocates shrugged at news of the change.
"The important thing is that energy efficiency is allowed as a compliance option," said Steven Nadel, president of the American Council for an Energy-Efficient Economy. "We are fairly confident that most states will include some energy efficiency in their plans because efficiency will generally be the low-cost compliance option."
In fact, other reported changes to the final rule, including EPA's apparent choice to allow states to submit final plans as late as 2018 compared with the draft version's 2016 deadline, will boost efficiency as a compliance option by giving states more time to work demand-side reductions into their plans, he said.
Ken Colburn, principal for the Regulatory Assistance Project, which consults states on the rule, said eliminating the energy efficiency building block might cause some knee-jerk responses, but it won't be "terribly significant in reality."
"The four building blocks were never and should never have been considered as what states need to do," Colburn said. Energy efficiency will be a compliance option, even if it isn't a building block, he said.
Kateri Callahan, president of the Alliance to Save Energy, said jettisoning the demand-side building block potentially could improve the role efficiency plays in states' compliance strategies.
"Though we have to wait to evaluate the entire rule, it's difficult to believe that energy efficiency would not be an integral and explicit pathway to compliance," she said. "It's been proven as the easiest, fastest and cheapest way to reduce overall greenhouse gas emissions from power plants."
Efficiency advocates have long argued that EPA's 1.5-percent-per-year estimate was lower than the efficiency opportunities available to states.
"The building blocks were put in place to establish the baseline and to determine each state's individual contribution to meeting the overall 30 percent reduction. They were always being misinterpreted as either a floor or ceiling on how much energy efficiency could be used," Callahan said. "This potential change could have a silver lining in terms of making sure that states have the opportunity to use energy efficiency as much as they want, and hopefully to the greatest extent possible, as it's been proven to be the easiest, fastest and cheapest way to reduce overall greenhouse gas emissions from power plants."
But news that EPA will not base any part of its state targets on efficiency raises a host of other questions, especially as the agency has pledged that its final rule will deliver reductions at least on par with the draft rule's 30 percent below 2005 levels by 2030.
EPA may make up for the loss of building block 4's reductions by introducing changes to state targets that account for opportunities for co-firing of gas or biomass at coal-fired power plants, increased assumptions for how much new renewable energy can come online, or a new minimum target for natural gas plants -- even for states that currently have no gas plants.
EPA also has said the final rule will include a new incentive program for early action on efficiency and renewables, which it has said will deliver additional reductions.
Malcolm Woolf, senior vice president for policy and government affairs at Advanced Energy Economy, applauded the inclusion of that program.
"All along, we have urged EPA to provide a credit banking option in order to prevent disruption of the U.S. advanced energy market," he said. That would be particularly important, he said, given news that the agency has pushed back the beginning of its interim compliance period from 2020 to 2022 (EnergyWire, July 29).
"If states are able to receive credit for all emission reduction measures that take place between now and the start of the compliance period, without restriction or limitation, that will send a market signal that not only maintains but accelerates market growth for energy efficiency and renewables," he said.
The Clean Power Plan will be released together with rules for new and modified power plants. The draft New Source Performance Standard (NSPS) for power plants released in September 2013 included a 1,100-pound-per-megawatt-hour standard for new coal plants, a level that required the use of partial carbon capture and storage technology.
Industry advocates said over the weekend that they had heard the final NSPS would limit coal-fired power plant emissions to 1,500 or 1,600 pounds per MWh. The level might allow ultra-supercritical coal-fired power plants to be built without the use of CCS.
Reporters Rod Kuckro and Emily Holden contributed.