EPA s Clean Power Plan: How Should the States Respond?

Transcription

1 EPA s Clean Power Plan: How Should the States Respond? Follow Steptoe & Johnson on Twitter: ALSO FIND US ON Steptoe & Johnson PLLC. All Rights Reserved. 1

2 Today s Presenter Stephen L. Miller Louisville, KY 2

3 EPA s Clean Power Plan: How Should the States Respond? 3

4 4

5 Clean Power Plan Three Components New fossil-fueled power plants Clean Air Act 111(b) (final rule) Existing fossil-fueled power plants 111(d) (final rule) Federal plan and model trading rules (proposed rule) 5

6 Topics Covered Today CO2 limits new, modified, and reconstructed fossil-fueled power plants CO2 limits existing fossil-fueled power plants CO2 reductions for each state s existing fleet 6

7 Topics Covered Today Federal plan and model trading rules (proposed) Important choices states must make Impact on various fuels and technologies and 7

8 Topics Covered Today Where the lawyers come in. 8

9 Emission Limits CO2 New, Modified, and Reconstructed Fossil-Fueled Power Plants 111(b) Final Rule 9

10 The Timeline 10

11 EPA releases pre-published CPP final rule for new, modified, and reconstructed fossilfueled power plants TBD TBD The final rule becomes federally enforceable upon publication in Federal Register 60 days after publication in Federal Register, challenges must be filed in U.S. Court of Appeals 11

12 CO2 Emission Performance Standards 12

13 Standards for Plants Commencing Construction On or After January 8, 2014 & Reconstructed Plants Stationary combustion turbines (mostly natural gas) 1,000 pounds of CO2 per MWh-gross for base load plants Non-base load will meet clean fuels input-based standard 13

14 Standards for Plants Commencing Construction On or After January 8, 2014 New electric utility steam generating units (mostly coal) 1,400 pounds of CO2 per MWh-gross Highly efficient supercritical pulverized coal unit will need to capture and store about 20% of its CO2 emissions 14

15 Standards for Modified Plants Electric utility steam generating units (mostly coal) Units implementing large modifications have standards similar to those for new units EPA withdrew proposed standards for units making smaller modifications Stationary combustion turbines (mostly natural gas) EPA withdrew its proposal for these modified units 15

16 Standards for Reconstructed Plants It s complicated call us. 16

17 Question to Ponder Q. Because of the Clean Power Plan s CO2 emissions limitation, will anyone consider building new, base-load, coal-fueled power plants in the coming years? 17

18 Question to Ponder Q. Because of the Clean Power Plan s CO2 emissions limitation, will anyone consider building new, base-load, coal-fueled power plants in the coming years? A. Maybe so, if a state allows cost recovery for investments in carbon capture and storage, passes legislation to clarify the rules for CO2 storage, and/or provides other incentives to use coal as the fuel. 18

19 CO2 Emission Limits Existing Fossil-Fueled Power Plants 111(d) Final Rule 19

20 The Timeline 20

21 EPA releases pre-published CPP final rule for existing fossil-fueled power plants TBD TBD Publication of final rule in Federal Register 60 days after publication in Federal Register challenges must be filed in U.S. Court of Appeals 21

22 States must submit a final plan to EPA, or file an initial submittal with an extension request States with extensions must submit a final state plan to EPA 22

23 Compliance period begins with Interim Step Interim Step 2 in glide path begins (optional) Interim Step 3 in glide path begins (optional) States must meet CO2 emission goals established under Clean Power Plan 23

24 The CO2 Emission Limits 24

25 CO2 Category-Specific Performance Rates The formula: Emission performance rates (application of BSER) Unique state generation mix Unique state goal rates Mass equivalents 25

26 State CO2 Emission Goals rate-based mass-based* (lb/mwh of CO2) (millions short tons of CO2) baseline final reduction baseline final reduction CO 1,904 1,174 38% % IN 2,025 1,242 39% % KY 2,122 1,286 39% % OH 1,855 1,190 36% % PA 1,642 1,095 33% % TX 1,553 1,042 33% % WV 2,064 1,305 37% % (*additional tons for new source complement are available) 26

27 Clean Power Plan Rate-Based CO2 Reductions by 2030 from 2012 Baseline 38% % 20-29% less than 20% 27

28 Clean Power Plan Mass-Based CO2 Reductions by 2030 from 2012 Baseline 30% % 1-14% increased CO2 28

29 What are the Practical Implications? "For a state like West Virginia, the 111(d) rule means that, in the future, the state will only be able to generate 2/3 of the electricity it has historically produced by coal. The rule then gives the state the choice of finding a way to live with 1/3 less electricity, or to replace the lost coal generated electricity with electricity produced by zeroemitting sources, or some combination of these choices." David Flannery Attorney Steptoe & Johnson PLLC 29

30 Two Types of State Plans 30

31 Two Types of State Plans Emission standards plan placed solely on all affected EGUs designed to meet CO2 emission performance rates, or state goal (rate-based or mass-based goal) 31

32 Two Types of State Plans State measures plan includes measures that are not federally-enforceable emission standards must achieve state s mass-based goal must include federally-enforceable backstop 32

33 Single State Plan or Multi-State Plan 33

34 Regional Greenhouse Gas Initiative (RGGI) 34

35 Other Key Parts of 111(d) Rule 35

36 Other Key Components Reliability safety valve Trading & trading ready mechanisms Banking of allowances/credits, but no borrowing Early action (Clean Energy Incentive Program) Renewable technologies Nuclear plants Demand-side energy efficiency 36

37 However EPA specifically states that statutory provisions of 111(d) regarding consideration of the useful life of a facility can be disregarded in the Clean Power Plan. 37

38 Filing a State Plan 38

39 Two Options No Later than September 6, 2016 File a final state plan with EPA Submit initial filing to EPA and ask for two-year extension 39

40 Components of a Final State Plan description of the plan approach and geographic scope (emission standards or state measures; individual or multi-state plan), applicability to affected EGUs (list EGUs individually and provide inventory of CO2 emissions for most recent calendar year), demonstration that a state plan will achieve the CO2 emission performance rates or state CO2 emission goal (for interim and final periods), 40

41 Components of a Final State Plan monitoring, reporting, and recordkeeping for affected EGUs (specifying quantification and verification), state reporting and recordkeeping (including timeline with all programmatic milestone steps the state will take from time of plan submittal and 2022 to ensure the plan is effective as of 2022), public participation and certification of hearing on state plan ( robust and meaningful interaction with the public, including vulnerable communities), and supporting documentation. (pages ) 41

42 Filing an Initial Submittal and Seeking a Two-Year Extension 42

43 Initial Submittal Seeking a Two-Year Extension An identification of final plan approach or approaches under consideration, including a description of progress made to date, An appropriate description for why the state requires additional time to submit a final plan by September 6, 2018, Demonstration or description of opportunity for public comment on the initial submittal and a meaningful engagement with stakeholders, including vulnerable communities, during the time in preparation of the initial submittal and plans for engagement during development of the final plan. (page 1009) 43

44 Initial Submittal Seeking a Two-Year Extension Appropriate description for why the state requires additional time to submit a final plan a state s required schedule for legislative approval and administrative rulemaking, the need for multi-state coordination in the development of an individual state plant, or the process and coordination necessary to develop a multi-state plan. (page 1011) 44

45 What happens if a state doesn t file a final plan or submit an initial filing with a request for a two-year extension, or if the EPA disapproves the filing? 45

46 Failure to File or Filing a Disapproved Plan We note that under CAA section 111(d)(2) and CAA section 110(c), the EPA may promulgate a final federal plan for a state immediately upon making a finding of failure to submit a plan or initial submittal, or upon making a finding of final disapproval of a state plan. (page 50 of proposed rule) It is the agency s intention to promulgate federal plans promptly for states who do not submit plans or initial submittals by September 6, (page 51 of proposed rule) 46

47 Federal Plan & Model Trading Rules 47

48 EPA releases pre-published proposed federal plan with model trading rules TBD TBD Publication of proposed federal plan and trading rules in Federal Register 90-day comment period on federal plan and model rules after publication in Federal Register 48

49 2016 and beyond Summer EPA finalizes federal plan & model trading rules TBD TBD 60 days after publication in Federal Register challenges to federal plan and model trading rules must be filed in U.S. Court of Appeals States failing to file a final plan or states that file a plan disapproved by the EPA will be subject to the federal plan 49

50 Federal Plan Components Ensure same CO2 reductions as CPP requires. Many of same components as state plans: Performance standards Monitoring and reporting requirements Compliance schedules with milestones New fossil-fueled plants are not covered. 50

51 However Federal plan will apply directly to the EGUs Owners and operators of affected EGUs have the compliance obligation 111(d) s statutory provisions about the useful life of a facility provision are disregarded There is no reliability safety valve 51

52 EPA Will Choose One or the Other mass-based trading plan rate-based trading plan 52

53 Does the EPA have a Preferred Method? Yes, even if the agency doesn t say so expressly. The EPA recognizes that the mass-based trading approach would be more straightforward to implement compared to the rate-based trading approach, both for industry and for the implementing agency. The EPA, industry, and many state agencies have extensive knowledge of and experience with mass-based trading programs. The EPA has more than two decades of experience implementing federally-administered mass-based emissions budget trading programs including the Acid Rain Program, sulfur dioxide trading program, the Nitrogen Oxides Budget Trading Program, CAIR, and CSAPR. The tracking system infrastructure exists and is proven effective for implementing such programs. (pages of proposed rule) 53

54 Does the EPA have a Preferred Method? Yes, even if the agency doesn t say so expressly. A mass-based trading program can provide environmental certainty at lower cost than other policy mechanisms, because it assures the specified emissions outcome while maximizing compliance flexibility available to individual affected EGUs. Further, allowance banking in such a program creates an incentive to make reductions earlier than required. Mass-based trading programs are relatively simple to operate, which reduces administrative time and cost. (pages of proposed rule) 54

55 Impact on Various Fuels & Technologies 55

56 sou Source: US EPA 56

57 Important Choices States Must Make 57

58 Yes 58

59 California Governor Jerry Brown "I welcome this bold and absolutely necessary carbon reduction plan. California is fully engaged in tackling climate change, and we look forward to working with other states and the White House as we implement these new mandates. (August 3, 2015) New York Governor Andrew Cuomo Today, President Obama put forward a strong plan to address climate change, which is one of the defining challenges of our time. The Clean Power Plan is a visionary step forward for our nation, and it provides a robust and equitable approach to reducing America s carbon pollution. (August 3, 2015) Virginia Governor Terry McAuliffe I applaud the Obama Administration and the Environmental Protection Agency (EPA) for focusing on the important issue of curtailing carbon emissions. Based on an initial review, it appears that EPA made positive changes to address concerns my administration and I expressed repeatedly about ensuring equity and flexibility for Virginia in developing this final rule. (August 3, 2015) 59

60 Just Say No 60

61 EPA s Section 111(d) Carbon Rule: What if States Just said No? By Peter Glaser, Carroll W. McGuffey, Hannah Williams Gaines November 6,

62 By Senator Mitch McConnell March 3, 2015 Lexington Herald (excerpt) So what are governors and state officials who value the well-being of the middle class to do? Here's my advice: Don't be complicit in the administration's attack on the middle class. Think twice before submitting a state plan which could lock you in to federal enforcement and expose you to lawsuits when the administration is standing on shaky legal ground and when, without your support, it won't be able to demonstrate the capacity to carry out such political extremism. Refusing to go along at this time with such an extreme proposed regulation would give the courts time to figure out if it is even legal, and it would give Congress more time to fight back. We're devising strategies now to do just that. So for now, hold back on the costly process of complying. A better outcome may yet be possible. 62

63 The Two-Year Extension 63

64 Two-Year Extension File initial submittal while evaluating Clean Power Plan options and other alternatives Consult with in-state groups: utilities, workers, businesses, environmental advocates, consumers with focus on vulnerable communities Consult with other states on possible multistate plan 64

65 Two-Year Extension Avoid the federal plan during this evaluation and preserve some state control over vital energy policies Evaluate any policy changes from new federal administration Assess federal court decisions about the CPP before making binding commitments 65

66 Legal Challenges to Clean Power Plan 66

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68 Grounds for Legal Challenge Which version of the law? Interplay between MATS rule and CPP [ 112 v. 111(d)] Regulating beyond the fenceline Interplay between 111(b) and 111(d) 68

69 Grounds for Legal Challenge EPA taking off the table the states right to show that a less stringent standard is appropriate UARG v. EPA, 134 S. Ct (2014) Appeals of EPA s decisions to disapprove state submittals 69

70 Points to Take Away While the Clean Power Plan s ostensible purpose is only to set CO2 performance standards for fossil-fueled power plants, the rule will affect all of the economy, including the overall cost and availability of electric power particularly in about 30 heartland states. Much uncertainty exists about the Clean Power Plan, and that uncertainty will continue for several years as state and federal plans are developed and the legal merit of the Plan is tested in the courts. 70

71 Points to Take Away Beyond the Clean Power Plan's emphasis on renewable energy and demand-side energy efficiency, the Plan will also cause states to focus new attention on developing carbon capture and storage technologies that will be a key component in coal s (and, ultimately, natural gas s) future as a fuel for power generation. It is undeniable that the Clean Power Plan will have significant, adverse economic effects on communities whose economies are dependent on coal, and those impacts will need to be fully assessed by policymakers and stakeholders across the nation. 71

72 Questions? Stephen L. Miller

73 MATERIAL DISCLAIMER These materials are public information and have been prepared solely for educational purposes to contribute to the understanding of energy and oil and gas law. These materials reflect only the personal views of the authors and are not individualized legal advice. It is understood that each case is factspecific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the authors and Steptoe & Johnson PLLC cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney-client relationship with the authors or Steptoe & Johnson PLLC. While every attempt was made to insure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed. 73