ORIGINAL REPORTING: MOST STATES ON TRACK TO GET EPA CLEAN POWER PLAN EMISSIONS CUTS

Most states on track to meet EPA Clean Power Plan, but political & legal contention remains; Scheduled plant retirements mean states are on their way to compliance, but many aren't happy about it

Herman K. Trabish, June 16, 2015 (Utility Dive)

The battle lines are already drawn even though the final version of the Obama administration’s Clean Power Plan is still likely a month and a half away at least.

Two new studies show that some of the states objecting strongest to the federal carbon regulations are already well on the way to meeting them. But at the same time, almost all have concerns about the reguations as they are proposed.

“Our analysis demonstrates that decisions made before the Clean Power Plan ever existed, on retirements of uneconomic coal plants and on renewables and energy efficiency standards, put 31 states at least halfway there and 14 fully on track for 2020,” said Union of Concerned Scientists (UCS) Senior Energy Analyst Jeremy Richardson. “That demonstrates better than anything these targets are achievable.”

By “on track for 2020,” Richardson meant that 45 of the 50 states are at, or at least halfway to, the 2020 benchmark emissions reduction rate starting points set by the EPA in the CPP draft version released last year for public comment.

“The mandates create a pre-determined trajectory,” acknowledged Brookings Institution Governance Studies Fellow Philip Wallach, “but some states are already backing away from them.”

Wallach found strong indications of increased controversy over the regulations at the state level in his detailed analysis for Brookings of comments submitted to the EPA by state environmental agencies that are in charge of implementing the regulations on the state level.

When the final version is announced later this summer, the Clean Power Plan(CPP) will be a national program administered by the Environmental Protection Agency (EPA) to reduce overall U.S. greenhouse gas emissions 30% below 2005 levels by 2030.

Most states are ready, or are gettting close

“In their comments, a lot of the states say they can’t meet their 2020 target, but they don’t really have a 2020 target,” Richardson, a lead researcher in the UCS analysis, explained. “In the period between 2020 and 2029, each state has to meet an average emissions rate target. That is the interim target. The beginning of that glide path from 2020 to 2029 is a benchmark. It is a way of assessing how far along a state is as it begins the averaging process.”

The UCS analysis shows that for at least 90% of states, ramping up cost-effective renewables and efficiency measures will get them all the way to compliance “at modest costs or net savings to consumers,” he added, “and that includes three of the states suing the EPA to stop the CPP.”

The top 14 states, which represent 34% of the U.S. population and 38% of U.S. GDP, are on track to better their 2020 benchmarks.

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Predictably, ten – California and New England’s nine Regional Greenhouse Gas Initiative (RGGI) members – are states with their own emissions reductions programs. Hawaii, because of its push for renewables and efficiency to escape high electricity prices resulting from oil dependence, is the eleventh.

Surprisingly, two of the most coal-dependent states in the U.S. are also among the top 14 and “disproving their own case,” Richardson noted.

Due to existing air regulations like the EPA's MATS rule and the low price of natural gas, Kentucky is on track to meet its 2020 benchmark just from closures and planned closures of uneconomic coal plants announced since the start of 2013, Richardson said. Ohio gets 60% of the way from coal plant closures and the rest of the way from renewables and efficiency.

“But Ohio froze its renewables mandate and repealed its efficiency standard,” Richardson said. “That is shortsighted. It is on track for the 2020 benchmark but it still has to meet the 2030 target.”

At 55%, Indiana is one of 31 states at least halfway to its benchmark, thanks to coal plant retirements and its energy efficiency program.

“They would have been the fifteenth state on the first list if they hadn’t cancelled the Energy Efficiency Resource Standard,” Richardson said. “That, again, is very shortsighted policy. We know where the laws are going. The transition is underway.”

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Most states have concerns

Despite the bright prospects suggested by the UCS analysis, political and legal opposition to the CPP is clearly on the horizon, and has already materialized in many states.

At the highest level, the overt tone the comments filed during the EPA’s comment period is partisan, Brookings' Wallach explained. State environmental agencies under Republican governors made nearly every possible objection to it while environmental agencies under Democratic governors defended the EPA and the plan's legality.

But at the same time, he noted, environmental agencies working for governors of both parties share concerns about whether the plan is fair to their state, whether power delivery reliability might be compromised, and whether the proposed timeline is reasonable.

Concerns about fairness suggested the CPP effectively penalizes states for cutting emissions before 2012, the baseline year from which carbon reductions are measured under the plan, because further cuts may be more costly.

Half of Republican states’ environmental agencies filed comments withfairness concerns but almost half of Democratic states agencies did, too, the Brookings analysis reports. Democrats tended to argue their states should be credited for early voluntary actions. Republicans argued their states should not be punished for prompt compliance with other EPA regulations already forcing coal plants offline.

Concerns about grid reliability centered on the unproven reliability of renewables and efficiency measures, Brookings finds. Several states predicted small disruptions that could lead to catastrophic rolling blackouts. Buoyed bystudies of the regulations with divergent conclusions, that debate is highly partisan, with environmental agencies from eighteen states with GOP governers and six with Democratic ones raising the reliability concern.

The biggest point of agreement for state environmental agencies, Brookings reports, was on the 2020 starting point. Much of the controversy could be eased if EPA offers a “safety valve” provision that allows temporarily higher emissions rates to states that encounter credible initial compliance obstacles. Three-fourths of state agency comments called for a timeline adjustment.

The most partisan argument, filed by three-fourths of states with Republican governors and two coal-dependent states with Democratic governors (Kentucky and West Virginia), was that the CPP is completely unworkable and should be thrown out either because of its:

Emission rate calculation methodology,

Costs of compliance, including costs for new infrastructure and for stranded assets,

Social impacts of rising electricity prices on low- and fixed-income individuals, or

Impacts on competitiveness from rising electricity prices

Most often, Wallach said, comments expressed mixed sentiments. Some state agencies with Republican governors had strong objections to the CPP but did not call for throwing it out. Most state agencies under Democratic governorssupported it but expressed reservations.

Observers should expect no political changes, even after the 2016 election, that eliminate the most deidicated opposition to the CPP, Brookings concludes, but concerns about the plan, though they may differ by political orientation, "transcend party lines."

“Fairness concerns will persist no matter what kinds of changes EPA makes to its final rule,” the report concludes.

The 4.3 million comments filed about the CPP offer “a sense of the diversity of concerns that EPA must reckon with,” it adds. “There is every reason to expect that serious difficulties await the final rule.”

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The legal battles

The CPP could very well become a major source of federal-state conflict and even a new partisan conflict, though probably not soon, Wallach said. The most potent and aggressively pursued lawsuits are still to be filed and likely will come within 60 days of the August finalization, he explained.

West Virginia vs EPA, the lawsuit referenced in the UCS study, probably won’t “amount to much,” he said. “Two of the three judges stressed how uncomfortable they were in considering any kind of challenge to a rule that has merely been proposed rather than finalized.” But that case, he added, is “a sign.”

The CPP’s legal authority comes from the Clean Air Act (CAA), which was crafted during the Nixon administration on “a structure of cooperative federalism” in which EPA sets the emissions standard and each state then writes and enforces its regulations. If the EPA concludes the state’s efforts are inadequate, it could attempt to impose its own plan. But the CPP's “federal legal authority may prove to be rather limited compared to states’ possible responses,” according to Wallach.

Still, many expect the EPA will try to impose and administer a Federal Implementation Plan (FIP) in states that don’t implement their own. If it is shown to be legal, that could represent leverage since an FIP is likely to be even worse for a state’s economy and its conventional generation, Wallach believes.

“It is EPA’s strong preference that states submit their own plans so they can take full advantage of the choices the rule provides,” EPA spokesperson Liz Purchia told Utility Dive.

Many state energy stakeholders, even those who want to see the Clean Power Plan fully implemented, warn that a federal plan could make the regulations more difficult for their state's utilities.

An FIP is not likely to account for a state’s specific needs and opportunities the way a state-created plan would, Kate Zerrenner, Texas Clean Energy Program Manager at the Environmental Defense Fund, said in discussing recent Texas legislation threatening to block the state’s preparations.

“Texas agencies have staff dedicated to Texas. EPA has a few people dedicated to the region. If they have to come up with a plan, they will probably do what is easiest," she explained. “We can comply with more of our own wind and our almost untapped solar and energy efficiency resources. But EPA would most likely just replace coal with natural gas.”

But an FIP may not be within the EPA’s legal reach, some say.

“It is not clear there is anything in the CAA that allows EPA to do an FIP that controls pollution and if they try to do so they could meet legal challenges that would succeed,” Wallach said. "That could escalate both the political and the legal conflicts to new heights.”

But on that point, many stakeholders and energy scholars disagree. At a recent panel discussion on the implementation of the Clean Power Plan at the Edison Electric Institute's annual convention, Alexandra Dunn, executive director of the Environmental Council of the States, noted that the EPA has designed federal implementation plans before for regulations under the Clean Air Act, and those actions were upheld as legal.

"This is going to move forward," Dunn, who is also ECOS's general counsel, said. By the time the challenges to the Clean Power Plan reach the Supreme Court, as many expect, states will already have to be well on their way to meeting the 2020 interim goals under the plan, she said.

That means that even in the resistant states, air regulators are likely to devise compliance plans to make sure they're prepared if the court challenges fail. "It's not a pretty picture" to not submit a compliance plan, Dunn said, and its likely the plan will be largely upheld through all the court challenges.

"Here's what someone at EPA told me: 'This is one where every legal argument against this rule has been laid out from day one. There are no hidden, gotcha arguments,'" Dunn said. The agency, she added, has 49 lawyers working full time on the finalized version of the regulations leading up to their expected August release date.

Her opinion on the rule's legal chances was echoed by the heads of five major utilities at the conference. Speaking at a later panel discussion, the CEOs of Edison International, American Electric Power, Southern Co., Exelon, and Dominion all agreed that while the Clean Power Plan likely constitutes an overreach of the EPA's authority, it will be largely upheld by the courts.

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The political battles

If legal battles don’t disrupt Obama administration plans, political turmoil could, Wallach said.

Most stakeholders assumed the Supreme Court’s 2007 decision in Massachusetts v. EPA, which gave the EPA the right to regulate greenhouse gas emissions under the CAA, would push Congress to act on climate change, Wallach explained.

But Congress has shown it can’t get anything done and the CPP appears to bethe best alternative, he went on. The question is whether it can be made to work and stand up to legal and political challenges.

There will be a variety of state political strategies, Wallach believes. One will be the “just say no” response that Senate Majority Leader Mitch McConnell (R-KY) has been calling for “to see what happens if nobody complies.”

An alternative to an FIP is EPA’s CAA-authorized option to sanction a state’s highway funding if it is not complying, Wallach said. But that would escalate the conflict and potentially involve voters, making it "a big political risk for EPA.”

If there is a series of legal battles, and especially if the EPA loses some, the legal and political could become interactive.

As court challenges continue, he explained, the utility industry and sympathetic regulators and politicians would begin asserting that the legal and political uncertainty are impairing long term planning. Calls could start for Congress to take action. A dramatic spike in energy prices attributed to the CPP or evidence that compliance created a power supply disruption could turn into a grassroots protest.

“Then a Republican Congress could act to undo the whole thing,” Wallach said.

The legal and political battles will take up "enormous amounts of manpower in the coming years,” Wallach believes. But it is “delusional” to think conflict can be avoided because there are real legal questions, because coal interests their allies won’t roll over, and because the partisan divide on climate change will persist.

“That is unfortunate because, by any objective reckoning, the CPP is a poor fit for this problem and a carbon tax makes more sense,” Wallach said, though “digging deeper trenches remains the far more popular course for now.”

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