By Amelia
Schlusser, Staff Attorney
The
Environmental Protection Agency’s proposed Clean Power Plan gives states the option
to follow a multi-state approach, which would enable a group of states to
collaborate on their implementation and compliance activities. Such an approach
could allow participating states to cost-effectively reduce emissions from
existing power plants over a multi-state area. However, the Clean Air Act
requires congressional approval for binding or obligatory interstate
agreements. The Cadmus Group and the Western Interstate Energy Board (WIEB)
recently assessed potential multi-state compliance approaches for the western
grid, and found that an informal, “modular” approach would enable multiple
states to participate in collaborative compliance activities without requiring
states to sign onto a formal multi-state compliance plan.
A Modular Approach to
Multi-State Compliance
The Cadmus Group
recently completed a study
for the WIEB that assessed modular approaches
to multi-state compliance with EPA’s proposed Clean Power Plan. Under this modular
approach, states would develop their own implementation plans to comply with
their state-specific emission targets, but these plans would allow the states
to participate in a multi-state program that is developed in collaboration with
other states. WIEB referred to these collaborative components as “modules.”
According to WIEB, a modular approach could be structured in one of three ways.
First, states could independently develop and execute a compliance plan that
incorporates informal multi-state agreements to develop and implement
compliance modules. Second, states could follow a partial multi-state approach
in which participating states develop their own individual compliance plans,
but enter into formal agreements to cooperate on certain plan components. Third,
states could follow a full multi-state approach in which multiple states
develop a joint compliance plan that will meet the states’ aggregate emission
targets.
The Cadmus Group
study concluded that a partial multi-state modular compliance approach
presented a practical and mutually beneficial option for states in the Western
Interconnection (i.e. the western grid). This approach would enable western
states to develop their own individual implementation plans that incorporate a
multi-state trading program for quantifiable emission reductions. The report
focused on trading programs for renewable energy credits (RECs) and energy efficiency
credits (EECs) in particular, because the western United States already has an
established REC trading system. The existing Western Renewable Energy
Generation Information System (WREGIS), which is operated by the Western Electricity Coordinating
Council (WECC), already provides grid-wide REC tracking and verification.
Because WREGIS already operates a system to create, transfer, track, retire,
and verify RECs, it would be the optimal entity for overseeing a multi-state
REC and EEC trading program under the Clean Power Plan.
According
to the Cadmus Group, a modular compliance approach that incorporates a
regional trading program would offer “tangible and quantifiable benefits” for
participating states. First, such an approach would allow participating states
to pursue multi-state emission reduction opportunities without binding
individual states to a joint implementation plan. Second, this approach should
reduce compliance costs for all participating states by enabling states to
share the costs associated with developing and operating an interstate trading
program. Third, a modular trading approach would increase compliance
flexibility and reduce costs by allowing states with excess renewable energy or
energy efficiency to trade credits with other states that have lower
comparative advantages. For example, if state A can generate renewable energy
at a lower cost than state B, state B would have the option of purchasing RECs
from state A to meet state B’s compliance obligations.
Implementing a
modular trading approach, however, isn’t as simple as merely extending the existing
WREGIS REC market to all states within the western grid. The Cadmus Group
identified a series of policy considerations that states must agree on to adapt
the current market to facilitate Clean Power Plan compliance. First, states
must agree on uniform definitions for RECs and EECs to ensure that these
credits represent the same values across the region. Second, states must
clarify whether the consuming or producing state owns the RECs and EECs created
through Clean Power Plan compliance activities. Third, participating states
will significantly decrease trading complexities and challenges if they agree
to follow a uniform rate-based or mass-based approach to measure their
emissions reductions. If some states choose to follow a mass-based approach and
other states choose to follow a rate-based approach, it will be difficult to
determine how traded credits contribute to an individual state’s compliance
obligations, which increases the potential to double-count emissions
reductions.
The Cadmus
Group’s modular trading program approach presents a practical and mutually
beneficial option for incorporating multi-state cooperation into individual
state implementation plans under the Clean Power Plan. A grid-wide REC and EEC market
could support grid reliability in the west by encouraging cost-effective
renewable energy development in areas with optimal access to renewable
resources. A regional trading program could also minimize the need to invest in
additional transmission infrastructure, further reducing compliance costs for
participating states. And perhaps most significantly, a regional marketplace
could encourage states to coordinate their compliance activities without
requiring participants to enter into a binding interstate compliance plan.
A Bolstered Case for a
Voluntary “Partial Multi-State” Approach
The Cadmus
Group’s “partial multi-state” modular approach may also be more legally defensible
than a formal multi-state compliance plan. Senator Mitch McConnell (R-Ky.), the
Clean Power Plan’s most outspoken opponent, recently challenged the draft
rule’s proposal to allow cooperating states to submit multi-state compliance
plans. During a recent Senate appropriations hearing, McConnell threatened to
block any multi-state compliance plans under a provision of the Clean Air Act
that requires congressional approval for “binding or obligatory” multi-state
agreements. (ClimateWire, May 4).
McConnell’s
argument focused on section 102 of the Clean Air Act (42 U.S.C. § 7402),
which authorizes states to enter into interstate agreements or compacts to
prevent or control air pollution, but states that “[n]o such agreement or
compact shall be binding or obligatory upon any State a party thereto unless
and until it has been approved by Congress.” Because this provision applies to
any binding or obligatory agreement to prevent or control air pollution, it
means that any formal multi-state compliance plan would presumably require
approval from Congress before the plan’s mandatory and enforceable provisions
could go into effect. Since section 111(d) of
the Clean Air Act requires that each compliance plan “provides for the
implementation and enforcement” of mandatory emissions limitations, a formal multi-state
compliance plan must be “binding and obligatory” before EPA can approve it.
While section
102 of the Clean Air Act also directs EPA to “encourage the making
of agreements and compacts between States for the prevention and control of air
pollution,” Senator McConnell asserted that such agreements would
constitute “backdoor
energy taxes,” and vowed to block them in the Senate.
McConnell’s
challenge, however, does not present an insurmountable barrier to multi-state
cooperation under the Clean Power Plan. Under the Cadmus
Group’s modular approach, states can develop individual, enforceable
compliance plans that allow for participation in a multi-state trading program.
Participation in this type of marketplace would be entirely voluntary, and thus
would not impose any binding or obligatory requirements on participating
states. Instead, this voluntary trading program would allow states and
regulated facilities to secure emissions reductions at the lowest cost, and
offer added financial incentives for renewable energy and energy efficiency
investments. A voluntary, modular approach could thus facilitate Clean Power
Plan compliance on a multi-state or regional level, without triggering the need
for congressional approval.
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