The Clean Power Plan: What Does it Call For?

Transcription

1 The Clean Power Plan: What Does it Call For? Energy & Mineral Law Foundation Tauna Szymanski Winter Workshops 2016 February 29, 2016 Ft. Lauderdale, FL

2 Package of Clean Air Act Section 111 Rules Final section 111(b) rule establishing rate-based (CO 2 /MWh) performance standards for CO 2 emissions from new, modified, and reconstructed electric generating units (EGUs) Final section 111(d) rule (the Clean Power Plan) establishing rate-based CO 2 emission guidelines for existing EGUs Proposed federal plan and model rules for the section 111(d) program All were signed Aug. 3, 2015, and published in the Federal Register on Oct. 23,

3 Section 111 Section 111(b) covers new and modified sources EPA defines the source category, sets the standard, and each new and modified source in that category must meet the standard Issued and enforced largely by EPA, with limited state involvement Section 111(d) covers existing sources EPA sets emission guidelines but states set and enforce performance standards 3

4 Section 111 Standard of performance defined as: a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated. CAA 111(a)(1). Same definition applies to standards established under both section 111(b) and section 111(d) 4

5 Section 111(d) A section 111(b) rule addressing the same pollutant from new sources in the same source category must be in place before a section 111(d) rule can be promulgated If section 111(b) rule gets struck down, section 111(d) rule goes away Section 111(d) is used infrequently Only 5 times (6 including CAMR) Requires that pollutant not already be regulated for that category of sources under other provisions of the Act (e.g., NAAQS and HAPs) Source category also must not be regulated under section 112 (HAPs) 5

6 Section 111(d) EPA issues procedures and states issue the standards EPA s 1975 regulations established the generic procedures, calling the category-specific rules emission guidelines and guideline documents Emission guideline that reflects the application of the best system of emission reduction that has been adequately demonstrated SIP-like process 6

7 Section 111(d) State plans: States develop their own plans containing performance standards and have flexibility in doing so States have primary implementation and enforcement authority States have discretion to apply less stringent standards than the emission guidelines for certain facilities where warranted EPA retains oversight over the state plans (and can impose a federal plan if state fails to propose an approvable plan) 7

8 Final Section 111(b) Rule for New, Modified, and Reconstructed EGUs 8

9 New Coal EGUs Proposed Final Standard 1,100 lb/mwh 1,400 lb/mwh BSER Highly efficient generation technology implementing partial CCS Highly efficient SCPC boiler using postcombustion partial CCS so that CO2 is captured, compressed and safely stored over the long-term % Capture 35% 16% (bit); 23% (other) 9

10 Modified Coal EGUs Standard BSER Proposed Unit s best annual rate since 2002, plus 2% reduction, OR If modify after 111(d) plan, energy efficiency audit (Floor = reconst EGU std) Unit s best potential performance based on a combination of best operating practices and equipment upgrades Final Unit s best annual rate since 2002 (Floor = reconst EGU std) Unit s best potential performance as determined by that source s historical performance 10

11 Reconstructed Coal EGUs Standard BSER Proposed 1,900 lb/mwh-net (large) 2,100 lb/mwh-net (small) Use of the most efficient generating technology (i.e., higher steam conditions) Final 1,800 lb/mwh-gross (large) 2,000 lb/mwh-gross (small) Use of the most efficient generating technology (i.e., higher steam conditions) 11

12 New/Reconstructed CTs Standard BSER Proposed Large: 1,000 lb/mwh-g Small: 1,100 lb/mwh-g Modern, efficient NGCC technology Final Base Load NG: 1,000 lb/mwh-g (Alt.) 1,030 lb/mwh-n Non-Base Load NG: 120 lb/mmbtu Multi-Fuel: lb/mmbtu Base Load NG: Modern, efficient NGCC technology Non-Base Load NG and Multi-Fuel: Use of clean fuels 12

13 Final Section 111(d) Rule for Existing EGUs (Clean Power Plan) 13

14 Regulated Entity EPA creates new Subpart UUUU to house the emission guidelines under 40 C.F.R. part 60 The listed source category is a combination of the sources regulated under Subparts Da and KKKK Regulated entity = steam generating units, IGCC units, and stationary combustion turbines meeting certain applicability criteria Simple cycle turbines are excluded (though not from the 111(b) rule) Modified units excluded 14

15 Regulated Entity Alaska, Hawaii, Guam, Puerto Rico are not required to submit state plans for now Vermont and Washington, D.C. have no affected EGUs 15

16 Standards and Goals The final emission guidelines take the form of nationally uniform CO 2 emission performance rates for two subcategories of EGUs Steam generating units (coal) = 1305 lbs CO 2 / MWh Stationary combustion turbines/ngcc units (gas) = 771 lbs CO 2 /MWh EPA also finalized state goals between 771 and 1305 lbs CO 2 /MWh, based on the weighted average of existing fossil generation in the state Equivalent mass-based goals in short tons of CO 2 also finalized for states 16

17 Standards and Goals These are both substantial changes from the proposal, which: Did not establish rates specifically for EGUs Proposed only mandatory state goals 17

18 Changes in State Goals The range of state goals is much narrower and more uniform than the proposal Proposed goals ranged from 215 lbs/mwh (WA) to 1783 lbs/mwh (ND) Now between 771 and 1305 lbs/mwh Generally, coal-heavy states have more stringent goals than had been proposed, and gas and renewable energy-heavy states have more lenient goals than proposed ND went from 1783 to 1305 WA went from 215 to

19 Achievability of Performance Rates Performance rates for existing EGUs are more stringent than those for new EGUs 1400 lbs/mwh for new steam; 1305 lbs/mwh for existing 1000 lbs/mwh for new NGCC; 771 lbs/mwh for existing EPA s data suggest baseline rates are roughly 2160 lbs/ MWh for steam and 900 lbs/mwh for NGCC (2012) Coal rate is 40 percent below this Gas rate is 14 percent below this State imposition of the uniform rates on EGUs would require either shutdown or the adoption of other measures 19

20 Compliance Periods Targets geared to final compliance in 2030 Note that final reporting period is 1/1/2030 to 12/31/2031 Two-year compliance periods thereafter Interim compliance period runs from Three steps: ; ; Each step has interim goals, which states can adopt as-is, or adjust in their state plans Proposal was More of a glide path than cliff 20

21 BSER Determination Three building blocks, instead of four 1. Estimated heat rate improvements of 4.3% (Eastern); 2.1% (Western); 2.3% (Texas) are achievable by coal-fired EGUs Proposal estimated 6% was achievable 2. Estimated increasing utilization of NGCC to 75% capacity based on net summer capacity factor is achievable (shifting away from coal) Proposal called for 70% based on nameplate capacity 21

22 BSER Determination 3. Estimated increase in new renewable generation Proposal also assumed under-construction nuclear Under-construction nuclear and uprates now may be counted toward compliance but are not assumed in the BSER calculation Shifting away from coal and gas No more Building Block 4 (demand-side energy efficiency measures), though demand-reduction is assumed to occur Building blocks not mandatory; just the methodology used to determine the CO 2 emission guidelines 22

23 BSER Discussion Used regional analysis instead of state-by-state, but ends up with single, nationally uniform standard for each subcategory EPA chose the least stringent result from its regional analyses Emphasized goal of using BB2 and BB3 is shift in generation from higher-emitting to loweremitting generation, and reduction in generation from higher-emitting units 23

24 BSER Discussion Agreed with the legal argument that EPA can adopt measures only if the regulated entity can undertake them and drops BB4, but Justified retention of BB2 and BB3 by saying that owner or operator of affected EGU (rather than the affected EGU itself) is the one that can undertake these measures Continued to use source category as a whole rather than the source itself to measure what is achievable Acknowledged sources will have to go outside their facility to comply 24

25 State Plan Submission Requirements Initial state plans were due September 6, 2016 Must contain: (1) nonbinding indication of what type of plan and approaches the state is intending to adopt; (2) reason why extension is needed; (3) evidence of public engagement Extension deemed granted if EPA does not object within 90 days Progress report due September 6,

26 State Plan Submission Requirements Final plans due September 6, 2018 Final plans must contain: list of affected EGUs and their emission standards; trigger mechanism for corrective measures if interim goals not achieved; backstop if state establishes state measures plan instead of standards; monitoring, recordkeeping, and reporting measures Plus non-federally enforceable sections of plan (explanation of how EGUs will meet the standards) First progress report to EPA due 7/1/2021 EPA to approve/disapprove plans within 12 months Federal plan process 26

27 Emissions Trading Rule contains mass-based goals in short (not metric) tons to clear the path for interstate trading Establishes third set of state mass-based goals for states that wish to include new NGCC units in trading program Also envisions rate-based trading programs There could potentially be two or more different national CO 2 markets Proposes model rules for both forms EPA expects most if not all states will adopt emissions trading; emissions trading was integral to EPA s BSER determination Federal plan will adopt emissions trading 27

28 Clean Energy Incentive Program States can opt into the Clean Energy Incentive Program (CEIP), regardless of type of plan Not in the proposed rule Creates incentive for early action New wind or solar projects that commence construction after state submits final plan, and that generate electricity in 2020 and credit for each MWh generated (½ from state; ½ from EPA) Energy efficiency projects in low-income communities 2 credits for each avoided MWh (1 from state; 1 from EPA) Incentive is granted in the form of either allowances or Emission Rate Credits (ERCs) that can be used by affected EGUs for compliance EPA will create up to 300 million short ton CO 2 - equivalent credits nationally 28

29 Reliability State plans required to address reliability EPA: 2-3 year compliance periods account for short-term polar vortex issues Reliability Safety Valve EGUs may generate for up to 90 days in unforeseen emergency situations without counting emissions Must work with state and RTO/ISO to demonstrate emergency conditions, notify EPA within 48 hours State plan revisions are permitted if needed to address reliability Ongoing EPA-FERC-DOE coordination strategy to monitor and intervene on any reliability issues with rule 29

30 Costs and Benefits EPA estimates total CO 2 emission reductions in 2030 of 870 million tons (the widely touted 32% figure), but only million tons are actually attributable to the rule 200 million fewer tons than the proposed rule Quantified net benefits estimate = $26-$45 billion in 2030 (proposal estimated $48-$84 billion) Continues to use global social cost of carbon estimates Continues to list co-benefits from reduction of SO 2, NOx, and PM EPA estimates the building blocks cost on average $30/ ton Total rule estimated to cost $8.4 billion in 2030, a bit more than the proposal 30

31 Proposed Federal Plan and Model Trading Rules for the Clean Power Plan 31

32 Overview of Proposal Proposed rulemaking: 1) Two federal plan outlines Rate-based trading plan Mass-based trading plan 2) Two model rules Rate-based trading plan Mass-based trading plan 3) Amendments to section 111(d) implementation regulations 40 C.F.R. part 60, Subpart B Procedural changes 32

33 Proposed Federal Plans Federal Plans Generally: EPA intends to adopt only one type of federal plan Federal plan would be finalized for a state if it fails to submit a plan or if EPA disapproves submitted state plan Tribes may submit plans, not required to EPA proposes to find that a federal plan is necessary or appropriate for facilities on tribal lands EPA has not proposed specific federal plan language EPA s intended procedure for finalizing federal plans is vague EPA will promptly act to promulgate a final federal plan once it finds a state has not submitted an approvable plan Subjecting specific states to a federal plan is a ministerial task that involves adding a state to 40 C.F.R. part 62 with cross-references to the model rules 33

34 Proposed Model Trading Rules Model Trading Rules Generally: Three intended uses: Presumptively approvable model for states to use, if state adopts in entirety States can choose to modify the model rules States can adopt to satisfy backstop requirement of the section 111(d) rule for any State Measures plan EPA planned to finalize the model rules in Summer 2016 to be available to states developing state plans 34

35 Federal Plan Structure Federal plans can link to: Other federal plans of the same type, and State plans that meet EPA s linkage criteria The state plan must be approved The state plan must implement the same type of trading program as the federal plan The state plan must use the identical compliance instrument as the federal plan The state plan must be approved as a ready-forinterstate-trading plan The state plan must use an EPA-administered tracking system 35

36 Federal Plan Structure Remaining useful life/stranded assets EPA claims broad discretion in how it considers remaining useful life or any other factor under section 111(d) EPA believes the federal plans adequately address remaining useful life because the plans are flexible EPA s analysis also concluded that stranded assets are not likely to be a widespread issue 36

37 Rate-Based Federal Plan Under a rate-based plan, an EGU would be subject to the applicable CO 2 emission rate (SGU or NGCC) as its standard of performance Different rates apply during each compliance period Compliance options: Stack emission rate < emission rate standard Or use emission rate credits or ERCs 1 ERC = 1 MWh associated with zero emissions Additional generation from ERCs used to recalculate emission rate Add the ERCs to the denominator in the emission rate calculation 37

38 Rate-Based Federal Plan EPA will issue ERCs Issued only for specific categories of generation EGUs operating below applicable emissions rate NGCC gas-shift New nuclear/capacity uprates Qualified renewable energy (RE) providers Wind, solar, geothermal, hydropower Request comment on biomass, demand-side EE, others 38

39 Rate-Based Federal Plan EPA proposed unlimited banking of ERCs Facility must have sufficient ERCs by November 1 of following year after compliance period ends EPA proposed use of EPA s allowance tracking and compliance system States can replace federal plan only prior to the beginning of a compliance period 39

40 Mass-Based Federal Plan State emission budgets are the section 111(d) rule s mass goals EPA did not take comment on mass goals Compliance demonstrated by surrendering allowances equivalent to actual tons of emissions Evaluated on May 1 the year after the compliance period ends No intermediate compliance deadlines Allowances representing each state s budget are allocated to EGUs using historic generation calculation Average of EGU s generation from

41 Mass-Based Federal Plan States may replace federal allocation system Only if allowances have not yet been distributed EPA requested comment on alternative allocation methods Allowances can be bought, sold, or banked Cannot be borrowed from future compliance periods Can be traded with other states (federal plan or state with linkage criteria) 41

42 Federal Plan Rulemaking Schedule Comments on proposed Federal Plan and Model Trading Rules were due January 21, 2016 Final rule expected summer

43 Supreme Court Stay January 21, U.S. Court of Appeals for D.C. Circuit denied petitioners motion to stay the rule, but expedited briefing January 26, states and state agencies led by West Virginia filed an application with Chief Justice of the United States John Roberts to stay the rule pending judicial review January 27, Three additional applications filed by industry coalitions: (1) utilities and labor; (2) coal; (3) other business associations 43

44 Supreme Court Stay January 27, Chief Justice Roberts asked EPA to file a response to the applications January 29, North Dakota filed a fifth stay application February 4, EPA response filed to all five applications February 9, Supreme Court issues five almost identical orders granting the requested stay (4 Justices would not have granted the stay: Ginsburg, Breyer, Sotomayor, and Kagan) 44

45 Significance of Stay To grant the stay, five Justices must have found that all three of the following elements were satisfied: (1) a reasonable probability that four Justices will consider the issue sufficiently meritorious to grant certiorari; (2) a fair prospect that a majority of the Court w[ould] vote to reverse [a] judgment below [upholding the Clean Power Plan]; and (3) a likelihood that irreparable harm will result from the denial of a stay. Hollingsworth v. Perry, 558 U.S. 183, 190 (2010) 45

46 Significance of Stay February 13, Justice Scalia dies 46

47 Effects of the Stay What the Court stated in its orders - The application for a stay submitted to The Chief Justice and by him referred to the Court is granted. The rule is stayed pending disposition of the litigation in the D.C. Circuit and of the applicants petition for a writ of certiorari, if such writ is sought. 47

48 Effects of the Stay February 12, WV & TX letter to NACAA and NARUC: want to ensure that States understand that there is no legal obligation to continue to spend taxpayer funds on compliance efforts the Power Plan has no legal effect whatsoever during the entire judicial review process obligations in the Power Plan are effectively void we expect that the deadlines would be tolled by the amount of time the Supreme Court's stay remains in place Rule has no legal force EPA is not permitted to formally approve or disapprove any submissions by the States in relation to the Power Plan 48

49 Effects of the Stay February 15, Wisconsin Governor Executive Order Prohibit any state [entity], or any of their agents, from developing or promoting the development of a state plan Other state positions - States can continue to work on state plans if they wish EPA s statements - In its February 4 response, EPA acknowledged that the motions sought to toll all the rule s deadlines On February 9, White House press secretary said EPA will work with states that choose to continue plan development and will prepare the tools those states will need (federal plan; model trading plans?) 49

50 Tauna Szymanski Hunton & Williams LLP Tel: