Saturday, April 19, 2014
Climate Policy Watch - Analysis

EPA Said To Float Broad Range Of Options In Draft Power Plant GHG Rule

EPA's proposal to limit greenhouse gas (GHG) emissions from the existing power fleet, currently undergoing White House review, is said to seek comment on an extremely wide range of options including many "beyond-the-fence" measures, such as energy efficiency, that many critics oppose, multiple sources familiar with the draft say.

The sources say the framework of the current draft reads more like an "advance notice of proposed rulemaking" (ANPR) that seeks comment on a menu of options rather than a proposed rule that clearly details agency preferences, but they differ on why the language is so broad.

One source with knowledge of the draft proposal says "it sounds in structure more like an ANPR . . . but it's not." The source says the agency has preferred options, but it is unclear how emphatically those preferences will be articulated in the proposal.

Some sources familiar with the draft says that the breadth of the options being proposed suggests officials have not yet agreed on how aggressive they believe they can be and are far behind schedule on the landmark regulatory effort. They say that the sheer range of options in the draft suggests it is "undeveloped," a "struggle," and "a cry for help."

Another source says EPA is "all over the map" in the proposal with "many requests for comment" on categories of approaches, including whether one is better or more legally defensible.

This source calls the draft "a free for all" that suggests "the officials "don't know what they want to do, that they're throwing it all against the wall to see what sticks" and that they are "not as far along as they wish they were in choosing a route but still want to meet, as closely as possible, the president's timeline" in the Climate Action Plan.

But others say the call for comment on many options is designed to protect the agency in future litigation because it can say it considered and rejected varying approaches. Most sources expect EPA to ultimately adopt an aggressive rule that would reduce the sector's emissions consistent with the administration's commitment to cut domestic GHGs 17 percent from 2005 levels by 2020.

One issue on which EPA is expected to state a strong preference is in adopting a broad definition for the "best system of emissions reductions" (BSER) -- a key term in section 111(d) of the Clean Air Act under which EPA is developing a new source performance standard (NSPS). The source with knowledge of the draft says the agency is expected to define the term "expansively to include significant outside-the-fence" emissions reduction measures, such as clean dispatch, energy efficiency, demand-side reductions and renewables.

The first source says aside from beyond-the fence issues, other options on which EPA will solicit comment in the proposal include whether the NSPS should be a 10-year program, and whether that should be conducted in one phase, or in two, five-year phases where states would have requirements to meet in the first five years and then further reductions in the second five years.

A two-phase approach could allow for inside-the-fence compliance the first five years, and broader more aggressive compliance in the final five years, that may require new gas and renewables and effectively put coal in "a death spiral," another source says.

OMB Review

EPA sent the draft NSPS to the White House Office of Management and Budget (OMB) for interagency review March 31, putting the measure on track to be released for public comment by June 1, as ordered by President Obama.

OMB's website at press time did not list any meetings with outside groups, though many are expected to request time with White House reviewers to try to influence the final proposal.

Lisa Heinzerling, who clashed with OMB when she led EPA's policy office early in the Obama administration, warned at a Georgetown Law Center event April 7 that she is worried any agency proposal could be significantly weakened during White House review. "No matter how high-profile the rules are, if the a rule can be changed, and changed in secret, it would be foolish not to worry about that while it's over there," she said.

An EPA spokeswoman declined to comment on the draft NSPS, but provided a statement that the proposal "will be different and less-stringent" than the approach EPA has taken in the proposed NSPS for new power plants and emphasized that it "will be firmly rooted in the collaborative, federal-state partnership process" under 111(d). "EPA establishes guidelines; the states then design programs to fit their particular mix of sources and policies to achieve emission reductions," she said.

The proposed NSPS will outline requirements that states must implement to limit GHGs from the existing fleet of electric generating units. Under a June 2013 memo from Obama, EPA must propose the rule by June 1, finalize it by June 2015 and states must submit their compliance plans by June 2016.

One issue that has already drawn considerable debate is the extent to which EPA can allow beyond-the-fence reductions. The uncertainty stems from EPA rules that currently require the agency to set a guideline that "reflects the application of the [BSER] (considering the cost of such reduction) that has been adequately demonstrated" for sources within the regulated category.

Since President Obama ordered the agency to craft the rules, agency officials have reiterated that they believe only programs that result in GHG reductions that can be "traced back" to covered facilities are lawful.

A state source says it is "no surprise" that EPA will seek a broad definition of BSER, given public comments by EPA Administrator Gina McCarthy and other top agency officials promising a flexible collaborative approach and a willingness to recognize existing state GHG reduction programs. They also promise the rule will not impair electric reliability or unduly drive up energy costs.

Still, many have argued that EPA is legally constrained to cutting emissions within the fenceline of a power plant -- considered the most costly and least ambitious approach -- though others have said that even though the agency is limited, states have authority to go far beyond what EPA can do under the law.

But Environmental Defense Fund's (EDF) Megan Ceronsky took issue with claims about state's power. At a May 9 Energy Bar Association meeting in Washington, D.C., she said she "can't find statutory language that gives states more powers on this than EPA."

The drawback of a limited EPA approach is that some states, especially coal-reliant ones, may not choose to be more aggressive than the agency, EDF has said, while other states are barred by law from adopting stricter requirements than EPA.

Legal Uncertainty

Another industry source says reliance on demand-side reductions outside facility fencelines "cover items not within EPA's regulatory authority, and are usually regulated by state energy commissions. A 111(d) rule which sets standards in this way would be unprecedented and probably illegal."

The source also says EPA's track record of coordinating with energy regulators is "quite poor," and warns that recent statements by McCarthy noting that the final rule will differ markedly from the proposal is poor planning.

"Given the truncated timeline" in the president's climate plan, "we have heard from state air directors that they will essentially consider the proposed rules as final for planning purposes. That means the agency will realize very little if any real benefit from engaging stakeholders or interagency review."

However, another source who believes EPA lacks air act power to allow beyond-the-fence approaches says despite the legal concerns, the agency has little choice if it is to achieve the reductions the administration is seeking. "EPA almost has to go beyond what the statute allows, because if they only do what is clearly allowed, they just don't get very much in terms of emission reductions and I don't think that's politically feasible at this point."

The source says because Obama has made EPA's rules the centerpiece of his climate action plan, he is bound to seek aggressive cuts to avoid political problems with his base. "Just as they did with the new source standard, they are likely to be very aggressive here, and then if the courts say they can't do it, they say, 'We did our best.' And an answer won't come from the courts until Obama leaves office."

Another major aspect of the rule is, of course, the ambition of the GHG emission cuts EPA sets. The source familiar with the draft says EPA is floating "really broad kinds of ranges" for individual state GHG reduction goals, that could be as high as 15 to 20 percent for primarily coal-reliant states and far less than that for states that have already taken significant steps to cut emissions, such as those that participate in the Regional Greenhouse Gas Initiative (RGGI).

EPA is also expected to seek comment on regional approaches, including a plan being floated by Minnesota-based Great River Energy to establish regions based on existing electricity markets and allow grid operators to impose a carbon fee. Top EPA officials have already expressed support for regional compliance, including those designated by electricity transmission market.

Further, the agency is also likely to seek comment on whether existing state collaboratives like RGGI, along with California's GHG cap-and-trade program, can demonstrate compliance with the NSPS, and whether such programs can be expanded to other states as a compliance mechanism. It also must to decide whether to regulate coal plants and gas plants under the same NSPS or establish separate cateogires.

And EPA is expected to take comment on a two-step option for states to submit their compliance plans, to address state concerns that one year is not enough, especially in states where legislation may be needed. -- Dawn Reeves (This e-mail address is being protected from spambots. You need JavaScript enabled to view it ) and Lee Logan (This e-mail address is being protected from spambots. You need JavaScript enabled to view it )


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