Will ACE Prove More Resilient than the CPP?
By Terry M. Jarrett, Healy Law Offices, LLC
The controversy continues over the Environmental Protection Agency’s (EPA) years-long attempt to regulate carbon dioxide (CO2) emissions from coal-fired power plants. The question is, can the agency’s latest effort withstand legal scrutiny?
The EPA’s quest to regulate CO2 emissions from coal plants began with the Obama administration’s Climate Action Plan to address climate change. In 2015, the EPA rolled out the Clean Power Plan (CPP) with much fanfare. The CPP was an ambitious plan to reduce carbon emissions from power plants 32 percent by 2030.
Almost immediately, the CPP generated a host of legal concerns, including that it overturned decades of agency precedent and dramatically exceeded the EPA’s authority under the Clean Air Act. There are 150 entities – including 27 states – that have filed 15 lawsuits challenging the CPP. The CPP was of such dubious legality that the United States Supreme Court took the unprecedented step of staying implementation of the rule while the court cases were pending. As a result, the CPP never took effect.
Donald Trump became President in January 2017. During the campaign, he had promised to end the war on coal. One of his targets was repealing the CPP.
On Aug. 21, 2018, the EPA announced the replacement for the CPP. Called the Affordable Clean Energy (ACE) rule, its goal is to reduce power sector CO2 emissions similar to the CPP. Beyond that, the two plans are quite different.
The scope of the two proposals is one important difference. The CPP was an extremely expansive plan to regulate the entire energy sector, not just individual power plants. This novel approach would have required actions “outside the fence” of existing coal plants, such as building new renewable generation to replace coal, resulting in a fundamental restructuring of the power grid and energy markets. With the CPP, the EPA expanded beyond environmental policy and into energy policy.
By contrast, the ACE rule is a scaled-back proposal focusing on making coal-fired power plants more efficient. Because every 1-percent increase in heat rate efficiency reduces CO2 emissions by 2- to 3 percent, the EPA believes similar reductions as targeted under the CPP can be achieved. This “inside the fence” approach to regulate only individual coal plants is more consistent with the Clean Air Act. It keeps the EPA concentrating on its traditional role – environmental policy – and does not interfere with the power grid or energy markets.
The two proposals also differ on their impacts on coal. Coal has been a major source of power generation for over a century precisely because it has been an affordable and reliable source of energy. Under the CPP, the EPA made no secret it intended to shut down coal-fueled generation in the United States by requiring “fuel switching” – the disinvestment in coal in favor of other forms of energy, mainly renewables. By doing this, the EPA was picking winners (renewables) and losers (coal).
By contrast, the ACE rule doesn’t pick winners and losers. Rather, it recognizes the value of coal for generating electricity, and promotes investments in existing coal plants to make them more efficient. The ACE rule will allow more coal plants to remain open and available to provide power, especially in times when it is most needed, such as during the recent polar vortex in the Midwest. And, because of ACE, the remaining coal generating fleet will be more efficient and lower emitting. It puts coal on a more level playing field with other sources of energy.
The two proposals also have different regulatory approaches. The federal-heavy CPP set a single federal emissions standard and would have forced states to adopt it. By design, the CPP required a number of coal plants to be shut down and replaced by new renewable generation, which was the Obama-era EPA’s vision of how electricity should be produced. By contrast, the ACE rule recognizes and respects the important role of state and local governments under the Clean Air Act. Traditionally, states have determined the energy mix that most fits their unique needs and circumstances. Rather than imposing mandates, the ACE rule allows states flexibility to set their own standards that meet federal guidelines consistent with current law. States are truly in the driver’s seat to determine how best to reduce emissions from coal power plants. This is more in keeping with the EPA’s historical approach for crafting regulations in cooperation with the states.
Even with this improved flexibility and cooperation, states may struggle to comply with the ACE rule. There is some concern that states have become so accustomed to the EPA’s past heavy-handed practices that they may have difficulty taking back their traditional state regulatory authority.
The ACE rule also reforms the EPA’s “New Source Review” (NSR) permitting process. This process requires facilities like coal plants to undergo pre-construction permitting by the EPA for environmental controls if they propose either building new facilities or modifications to existing facilities that would create a “significant increase” of a regulated pollutant. Currently,
the NSR process is commenced when a project would increase annual emissions above a relevant threshold. Projects to improve the heat rate efficiency of a coal plant could actually increase annual emissions, initiating NSR, because the improved efficiency could cause increased operations. Under the ACE rule, the EPA addresses this problem by changing to an hourly emissions increase, instead of annual. This means heat rate improvements resulting in annual emissions increases will not trigger expensive NSR permitting requirements unless they also increase the hourly emissions rate.
Opponents of ACE have vowed to fight. So, can the ACE rule withstand legal scrutiny? Nothing is certain, but it has a better chance than the CPP.
When the EPA tackled the task of writing a replacement rule, it took great pains to produce a new proposal that would avoid the legal problems of the CPP by staying within the EPA’s statutory authority and remaining consistent with historical EPA precedent.
Congress also has the authority to provide more legal certainty to the ACE rule by passing legislation. At a minimum, Congress can clear up some of the perceived ambiguity in the Clean Air Act by enacting a statute that clearly limits the authority of EPA to regulate carbon dioxide emissions to individual sources, or “inside the fence,” negating a common criticism from opponents of the ACE rule. Congress could even pass a law making clear EPA has no authority to regulate carbon dioxide at all, making the ACE rule unnecessary, and instead leaving the issue to the individual states. Given the current divided Congress, any sort of legislation is remote at best.
As for next steps, the EPA is currently reviewing the huge number of comments it received on the ACE proposed rule. Once the review is finished, the EPA will issue its final rule, and interested parties will almost certainly begin their legal challenges. No matter the outcome, the ride promises to be a bumpy one.
Terry M. Jarrett is an energy attorney and prior member of the National Association of Regulatory Utility Commissioners and the Missouri Public Service Commission.