The governors of two coal-dependent Western states, Wyoming and North Dakota, believe they have a strong case to make to the Obama administration about the extra time they need to comply with U.S. EPA's new rule to slash CO2 emissions from power plants.
Despite EPA officials' frequent claims of "unprecedented outreach" to states while crafting the final Clean Power Plan, last week the two Western governors told E&E Publishing they felt blindsided when the federal agency announced in August that both states will have to meet much steeper greenhouse gas reduction targets than initially proposed.
"I think I read it in the newspaper," said North Dakota Gov. Jack Dalrymple (R).
North Dakota's emissions rate reduction jumped from 11 percent to 45 percent under the final rule. Wyoming's leapt from 19 percent to 44 percent.
"To me, to come to be that far off would suggest shoddy work," Wyoming Gov. Matt Mead (R) said in a separate interview.
Both states plan to challenge the rule in court. But although both governors say EPA's new rule sets impossible carbon reduction targets that will harm their states' economies, the two also expressed willingness to explore what their states could do to reduce carbon emissions. Both Wyoming and North Dakota are drafting compliance plans for what they think they can achieve.
"Eventually we have to be able to put forward what we think is possible for the state of North Dakota, and we're committed to carbon reduction as much as any other state," Dalrymple said. "This is something we want to do, but we have to determine what is possible, what is even reasonably feasible."
Last week, Dalrymple and chief executives from eight power and coal companies that operate in and around his state came to Washington, D.C., to ask acting EPA air chief Janet McCabe how North Dakota's goals got so much tougher and to seek a path forward.
"We know already, no matter how hard we try, there is no way that we can achieve the 45 percent reduction in the time frame that they're talking about," Dalrymple said.
Talk with McCabe was 'productive,' executives say
Executives who met with McCabe on Sept. 30 were uniform in their agreement that the meeting was "productive."
One attendee, Mac McLennan, CEO of Minnkota Power Cooperative Inc., said McCabe and her staff were "very open and very willing to listen and work on seeing if there some places of mutual agreement and flexibility."
Producing a state implementation plan is going to be a "monumental" endeavor, McLennan said.
EPA "gave us some assurances that they would work very hard to ensure that we have time necessary to put together a SIP appropriately," including sending technical staff to assist state regulators and the utilities.
"It was productive in that you had all of the utilities, the [congressional] delegation, the governor, the coal companies all represented in a room together trying to push the spaghetti up the hill in the same direction. Because that doesn't always work," McLennan said.
Otter Tail Power Co. President Tim Rogelstad expressed to EPA his concern about compliance efforts and their possible effect on grid reliability because of North Dakota's position as a net exporter of electricity.
"The key is we've got to work together to try and find a path forward. Anything is possible," Rogelstad said. "The question becomes is it economic, what is it going to do to rates?"
Mike Eggl, senior vice president of Basin Electric Power Cooperative, said EPA made clear that if a state could "demonstrate it was making progress" on developing an implantation plan "that if the states were still working through a public process, they would be allowed that additional two years" until 2018.
"Previously, we'd heard that unless the SIP was substantially complete" by September of 2016, "it was likely that we would see" a federal implementation plan imposed, he said.
Eggl said EPA's commitment to send technical staff to North Dakota might help resolve "confusion over what flexibilities have been provided in the rule for things related to load growth."
Nicole Kivisto, president and CEO of MDU Resources Group Inc., also was in the meeting with McCabe.
Her spokesman, Mark Hanson, said she reported that the hourlong session was "productive in terms of getting our concerns and recommendations on the table, but there were no commitments from EPA other than to have additional meetings with our experts and their experts to further discuss timeline and flexibility with the state implementation plan."
Wyoming Gov. Mead plans to meet with EPA leadership, as well, to hash out how a state so heavily reliant on coal power can make its power fleet almost twice as clean.
"The problem I think myself and other Western governors are faced with is that it's a tough task to sit down and develop a state plan for something that you so much disagree with, but it's also tough to tell utilities who do not have the luxury of saying, 'Yeah, go ahead, governor, and let us know how it comes out in eight years,'" Mead said. "They have to make multimillion-dollar decisions now. They need certainty. Their customers need certainty."
Trading carbon credits may be only solution
Coal states saw their goals get much tougher under the final rule. EPA reworked its algorithm for determining state standards, requiring more of states that produce more electricity from coal than lower-carbon natural gas.
Mead said the goals put Wyoming in a lose-lose situation. The state is responsible for coal-plant emissions, but it won't receive credit for the zero-carbon renewable energy it sells to consumers outside its borders.
"The way that it's set up now, it looks to us that there's no scenario by which Wyoming would get credit," said Mead. "We could supply huge amounts of electricity via wind to another state, and we don't get credit for that. So in terms of regionalization and trading, if we don't have something that we can provide in terms of credits from our side, which state is going to want to deal with us?"
Said Dalrymple, "if we're making investments in renewable energy, those are investments being made in our state and being made by our companies. Why would they not get credit for those investments?"
Both governors say carbon trading might be the only way for their states to achieve EPA's goals.
Working alone, Wyoming would have to increase renewables more than 1,400 percent, Mead said, "effectively giving us a [renewable portfolio standard] of 55 percent."
"For a state that gets 90 percent of its electricity from coal, that's a big shift," he said.
Dalrymple and Mead both worry about the costs of purchasing credits or allowances from other states that have reductions to spare after meeting their own goals.
Utilities "have no idea of what carbon credits might cost, and in any case, that has to be factored into the price of electricity to the consumer," Dalrymple said. "Now, is that going to make you noncompetitive with a neighboring state that doesn't need any credits, that doesn't have to charge the cost of the credits?"
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