REGULATION

New math of the Clean Power Plan ratchets up anger and burdens of coal states

When U.S. EPA released its long-awaited final Clean Power Plan last week, it was immediately clear that states would face vastly different obligations than they had been preparing for under the 2014 draft rule.

Many coal-heavy states originally faced relatively lax targets, based on a formula EPA had devised to account for current clean energy policies and infrastructure. But the draft rule's algorithm was left on the cutting room floor and replaced by uniform standards applied directly to fossil-fuel power plants, no matter where they're located -- 771 pounds of carbon per megawatt-hour of power for natural gas plants, and 1,305 pounds of CO2/MWh for coal or oil plants.

EPA Administrator Gina McCarthy told a Washington, D.C., audience yesterday that the uniform standards "guarantee equity and fairness across the board."

States with more coal power than natural gas disagreed, seeing themselves on the losing end of the new calculations.

"If the rule was a book, the draft would be a murder mystery and the final rule would be a comedy," said Kentucky Energy and Environment Secretary Leonard Peters.

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The result of the new math is stricter goals for the coal-reliant Midwest, Appalachian and Rust Belt regions -- areas that weren't fans of EPA's bid to curb emissions anyway. Meanwhile, states with cleaner power fleets got some relief. Many find themselves easily within reach of targets or with room to grow mass emissions of CO2 between 2012 and 2030. Those early movers have the happy choice of either selling credits back to the power market or setting them aside as further contributions to climate change mitigation.

The changes are likely to further entrench states supporting and opposing the rule, fueling political and legal pushback from some that had previously avoided taking sides. They also may affect which states work together to reach targets.

North Dakota saw its reduction responsibilities quadruple compared to the draft rule, and state officials say they will likely join other states challenging the regulation in court. The Republican-run state hadn't joined previous lawsuits. North Dakota had perhaps the least stringent goal under the draft rule -- an 11 percent reduction in the power-sector emissions rate between 2012 and 2030. Under the final rule, North Dakota has one of the toughest goals -- representing a 45 percent cut in the emissions rate.

By 2030, North Dakota must emit no more than 1,305 pounds of CO2/MWh of power produced -- which is a significant drop but is also the most lenient emissions rate EPA will allow any state.

"I do think we don't have much choice but to seek some legal recourse," said Dave Glatt of North Dakota's Department of Health, adding that the state will likely still develop its own implementation plan, rather than refuse to comply.

22 states headed for court

Bill Bumpers, a partner at law firm Baker Botts LLP, where he represents power companies, said at a Washington, D.C., event yesterday that few states will respond to tougher state goals by announcing new plans to sue over the rule. He estimated that 22 to 26 states are looking at suing, and he said the decision is "more political than practical." Soon after the final rule came out, 16 state attorneys general asked EPA to stall the rule, pending judicial review.

But some states run by Democratic governors were also thrown off-guard by higher goals.

"At first glance, it looks as though the Obama administration has moved the goal post on us. I am extremely disappointed by this," said Montana Gov. Steve Bullock (D). "I understand that we need to address climate change, but how we do so has to work for Montana."

Montana's 2030 goal is also 1,305 pounds of CO2/MWh -- a 47 percent reduction from the state's 2012 emissions rate. That is the steepest shift required of any state. By comparison, the draft rule would have required a 21 percent cut.

The drastic changes in percentage cuts required aren't good for political optics. But in some states, the percentages aren't necessarily the best indicator of goal stringency.

South Dakota's emissions rate change is 38 percent under the final rule, compared with 35 percent under the draft rule.

The percentages are similar, but South Dakota's goals are actually much easier under the final rule. The state must reach an emissions rate of 1,167 pounds of CO2/MWh of power, far less stringent than a proposed 741 pounds of CO2/MWh.

The percentages are nearly the same only because EPA revised South Dakota's 2012 emissions level up, compared with the draft rule. EPA set new "adjusted" baseline emissions rate levels for many states, to account for a bigger-than-usual year for hydropower and to include power plants that were under construction.

The difference for South Dakota is stark. With the regular "historic" baseline, South Dakota would need to cut its emissions rate 48 percent. With the adjusted baseline, which is depicted on E&E's Power Plan Hub, South Dakota faces a rate cut of 38 percent.

The numbers also don't always tell much about the ease with which a state may be able to comply. Minnesota, for example, must cut its emissions rate 42 percent, near the higher end of shifts required. But the state has an aggressive renewable energy standard and has great wind power potential, said David Thornton, assistant commissioner of the Minnesota Pollution Control Agency.

New focus on emissions trading

The final rule emphasizes opportunities for trading far more than the draft, and EPA chief McCarthy has encouraged states to consider the option (see related story). And states with tougher standards might be studying trading options with fresh eyes.

"States facing more stringent standards under the final rule will generally find it more attractive to trade with other states, as it will be more expensive to meet the standard alone," noted Brian Murray, director of the Environmental Economics Program at Duke University's Nicholas Institute for Environmental Policy Solutions. "Trading with other states will typically give the states with more stringent standards access to credits at a price that will be lower than the most expensive reductions in state."

Generators in states that do not write plans will likely end up with requirements resembling market-based carbon trading anyway (ClimateWire, Aug. 4).

Every state (except Alaska, Hawaii, Vermont and the District of Columbia) must reduce the rate at which power plants reduce emissions. But some states will be allowed to let overall emissions grow, according to mass-based goals.

Nine states' power sectors can contribute more tons of carbon per year by 2030 -- California, Connecticut, Idaho, Maine, New Jersey, Oregon, South Dakota, Virginia and Washington. Most of those nine states have among the lowest starting emissions rates in the country. South Dakota's starting rate is much higher, followed by Washington and then Virginia. States that can increase mass emissions may be in a position to sell credits to states that must cut emissions.

States that found themselves on the winning end of the final rule say it is fairer than the draft, because it takes into account work they have done for years to bring down emissions.

Angus Duncan, who chairs the Oregon Global Warming Commission, said coal-heavy states shouldn't be complaining about the final rule because it addresses an imbalance of goals.

"They're probably as upset now as we were when we saw the original draft targets," Duncan said. "We were being asked to do substantially more, and a lot of what we had already done and would continue to do wasn't going to get counted."

Fourteen early-mover states, coordinated by the Georgetown Climate Center, last December asked EPA to maintain the overall stringency of the Clean Power Plan but to ease the interim compliance period and give more credit for early action. The signatories included California, Connecticut, Delaware, Illinois, Massachusetts, Maryland, Maine, Minnesota, New York, New Hampshire, Oregon, Rhode Island, Vermont and Washington. And EPA appears to have heeded their request.

Winners and losers (as revised)

Perched in the hydropower-driven northwestern corner of the country, Washington and Oregon both saw their responsibilities significantly eased under the final rule and are now on track to overshoot their goals.

Washington had the highest proposed rate reduction in the nation -- 72 percent, based largely on plans to shutter its last remaining coal plant. Oregon would have been required to cut its emissions by 48 percent in the draft. But the final rule assigned them cuts of 37 percent and 20 percent, respectively.

Both states will be allowed higher total emissions in 2030, which raises questions about whether they will join an interstate trading scheme that would allow them to capitalize on their surplus or whether they will sit on those emissions allowances for the good of the planet. Both states have already adopted nonbinding greenhouse gas reduction targets.

"We know that there will be a lot of pressure from our utilities and some of the customers to in effect trade that away in return for easing pressure on some of our coal-by-wire supplier states," said Duncan, referring to states like Montana and Wyoming. But those excess credits could also leverage more renewable energy production in those supplier states, he said, shifting the West's portfolio further away from coal use.

Opportunities for trading in Appalachia, meanwhile, have reversed.

Virginia now has an easier goal, while neighboring Kentucky and West Virginia have tougher targets. Both states' goals are nearly twice as tough under the final rule (Greenwire, Aug. 4).

Kentucky's Energy and Environment Cabinet believed the state could have met the original requirement mainly with shifts to natural gas that were already planned.

But along came the final rule, which Secretary Peters said is a whole different genre from the draft his agency was preparing to accommodate during the last 14 months. His staff was preparing a blueprint it called an "80 percent plan" to hand off to the next administration; Gov. Steve Beshear (D) departs from office at the end of this year. And while Peters said he still thinks it will be better for Kentucky to formulate his own state plan, he said he was unsure whether the new, tougher standard will fuel calls by many in the state's power elite that it should "just say no" to implementation.

Peters noted that thriving manufacturing sectors in Kentucky, the Rust Belt and the South could suffer if higher electricity rates drive aluminum and auto companies overseas in search of cheaper operating costs.

West Virginia is in the same boat. Fred Durham, who heads the Division of Air Quality of West Virginia's Department of Environmental Protection, said the change in responsibility surprised him. "None of this was disclosed beforehand," Durham said.

Durham notes that one of the main pieces of feedback EPA received on the draft was that the interim compliance period would phase in too swiftly, creating a regulatory "cliff" that would force the premature shutdown of fossil fuels plants as states scrambled to comply.

EPA responded by pushing the start of the interim compliance period back two years to 2022, but Durham said West Virginia's "cliff" got steeper. The Mountain State must now drop its emissions to an average of 1,534 pounds of CO2/MWh between 2022 and 2030, while the draft rule would have allowed emissions to be averaged at 1,748 pounds of CO2/MWh from 2020 to 2030 -- a level that would have compelled far less drastic changes.

"That two years really doesn't seem to buy us much," Durham said. Other states, meanwhile, have said they're happier with their new interim goals.

Virginia is in a much stronger position under the final rule, not just because of its comparatively easier emissions rate goal, but because it will be allowed to emit more tons of carbon per year by 2030. Virginia can grow its mass CO2 emissions to almost 70,000 more short tons per year -- making it one of the region's potential sources of allowances.

Reporters Evan Lehmann, Mike Lee and Krysti Shallenberger contributed.

Twitter: @chemnipot Email: jchemnick@eenews.net

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