A Modular Approach to Clean Power Plan Compliance Could Support Multi-State Cooperation Without Necessitating Congressional Approval

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.

The Proposed Ratepayer Protection Act Will Not Actually Protect Ratepayers

By Amelia Schlusser, Staff Attorney

On March 23, 2015, U.S. Representative Ed Whitfield (R-Ky.), Chairman of the House Energy and Power Subcommittee, introduced a discussion draft of a bill titled the “Ratepayer Protection Act of 2015,” which would allow states to “opt out” of complying with the Environmental Protection Agency’s final Clean Power Plan.

The draft bill aims to dramatically weaken state compliance obligations under the Clean Power Plan. First, the bill would extend the rule’s compliance deadlines until final judgments are issued in all legal challenges against EPA’s regulation, which could take years. Second, and more significantly, the bill would exempt a state from adopting a plan to implement the final rule if the governor determines that compliance would “have a significant adverse effect on the State’s residential, commercial, or industrial ratepayers” or “on the reliability of the State’s electricity system.” A state could also refuse to implement a federal plan if these same conditions are met. In determining whether compliance would adversely affect ratepayers, the state must take into account any potential rate increases associated with implementation of the Clean Power Plan or other federal or state environmental regulations. In determining whether compliance would adversely affect reliability, the state must consider the rule’s effects on the state’s electricity generating resources, transmission and distribution infrastructure, and projected electricity demands.

Rep. Whitfield argues that this legislation is necessary to protect coal-dependent states, like Kentucky, from rising electricity rates. According to the House Energy & Commerce Committee website, the bill “seeks to empower states to protect families and businesses from higher electricity rates and other harmful effects of EPA’s pending rule to regulate carbon dioxide emissions from existing power plants.” Whitfield described the Clean Power Plan as an “unprecedented power grab,” and stated that his “commonsense legislation” is necessary to protect states from “EPA’s damaging overreach.” House Energy and Power Committee Chairman Fred Upton (R-MI) also expressed his support for Whitfield’s legislation, stating, “[t]his bill is about protecting families and jobs.”

Supporting Alarmist Claims With Questionable Data

Rep. Whitfield rationalizes his opposition to EPA’s proposed rule by asserting that the Clean Power Plan will unreasonably burden ratepayers. EPA estimated that the rule’s annual compliance costs would range from $5.4 to $7.4 billion in 2020 and range from $7.3 to $8.8 billion in 2030. Proponents of the Ratepayer Protection Act, however, cautioned that the rule’s actual compliance costs may be much higher than EPA projected. An April 10 memo introducing the draft bill argued that according to “other estimates,” the rule’s compliance costs could potentially range from $366 to $479 billion between 2017 and 2031.

The “other estimates” cited by the memo were drawn from a NERA Economic Consulting report prepared for the American Coalition for Clean Coal Electricity, the American Fuel & Petrochemical Manufacturers, and the National Mining Association, among others. While the industry-funded assessment did estimate that compliance costs would be much higher than EPA’s projections, the report’s authors noted that the data they applied in their analysis was not independently verified and may not be accurate or complete. Moreover, the report projected that implementation costs would be highest (i.e. $479 billion) under a scenario in which states refused to use renewable energy, energy efficiency, and new nuclear power to achieve compliance. These high compliance costs would instead be directly attributed to rising natural gas prices.

Lamenting Costs While Ignoring Benefits

The cost projections favored by Rep. Whitfield fail to account for the economic and social benefits that the Clean Power Plan would provide. EPA estimated that the final rule would contribute $55 to $93 billion in climate and health benefits by 2030. The Agency projected that the rule would prevent 2,700 to 6,000 premature deaths resulting from air pollution, and would avoid 140,000 to 150,000 asthma attacks in children. By reducing power-sector CO₂ emissions by 30% below 2005 levels, the rule could help to mitigate the impacts from climate change, which cost the U.S. economy more than $100 billion in 2012 alone.

The Clean Power Plan will also contribute to economic growth and create significant new employment opportunities. A new report by Industrial Economics and the Interindustry Economic Research Fund estimated that the final rule would lead to 74,000 new jobs in 2020 and would contribute an additional 196,000 to 273,000 new jobs each year between 2025 and 2040.

In the aggregate, the climate, health, and employment benefits resulting from the final Clean Power Plan will more than offset state compliance costs. Moreover, the draft rule proposed to provide states with significant flexibility in deciding how to implement the rule, which should enable states to develop strategies to reduce power sector emissions at the lowest cost to ratepayers. For example, many states have substantial potential to reduce electricity consumption (and thus emissions) through increased energy efficiency, which is commonly the lowest-cost “source” of power available. In addition, states can also implement the rule through increased deployment of renewable energy resources, which can provide jobs and other economic benefits while offsetting emissions.

A Transparent Attempt to Protect Coal Industry Interests

On Wednesday, April 22, the Energy and Power Subcommittee conducted a markup of the Ratepayer Protection Act, in which the subcommittee approved the proposed bill by a vote of 17 to 12. The vote was entirely along party lines, with 17 Republicans voting in favor and 12 Democrats voting against the proposed legislation.

The subcommittee also voted against a series of proposed amendments to the draft bill. One of these amendments would have allowed states to opt out of compliance only if projected ratepayer cost increases were expected to exceed the costs of responding to climate change. Another amendment would require a state to certify that a decision to opt out would not have a significant adverse effect on public health. The subcommittee also voted against an amendment proposing to add a section declaring that “the Federal Government should promote national security, economic growth, and public health by addressing human-induced climate change through the increased use of clean energy, energy efficiency, and reductions in carbon pollution.”

The subcommittee members’ failure to approve these proposed amendments revealed the true objectives of the so-called “Ratepayer Protection Act,” which have little to nothing to do with protecting ratepayers. Instead, the proposed bill aims to protect the economic interests of the coal industry by enabling states to choose not to comply with federal air quality regulations. This transparent attempt at industry protectionism at the expense of public health and welfare exposes a growing disconnect between conservative lawmakers and the public they ostensibly represent.

If this proposed bill survives the legislative process and actually gets signed into law (which is highly unlikely, but not impossible), it will encourage coal-hungry states to opt out of complying with the Clean Power Plan to the detriment of the electricity system as a whole. The proposed regulation represents an opportunity for states to modernize their electricity sectors and build a more sustainable, resilient energy grid. States that refuse to implement the final rule will fail to invest in new resources and technologies that would provide lasting benefits for power consumers, and instead will continue to rely on outdated technologies and aging infrastructure. The electricity grid is a highly interconnected system, and one state’s refusal to modernize its power sector imposes additional risks on the system as whole. Moreover, a refusal to deploy non-emitting electricity resources will have long-term climate implications for current and future generations. The Clean Power Plan provides an opportunity for states to start transitioning to the electricity system of the future, and the Ratepayer Protection Act represents an attempt to remain stuck in the past.

It is in Every State’s Best Interest to “Just Say Yes” to EPA’s Clean Power Plan

By Amelia Schlusser, Staff Attorney

The past few weeks have seen a flurry of debate over whether states will actually have to comply with the Environmental Protection Agency’s (EPA) Clean Power Plan. Some state regulators are starting to rally behind Senator Mitch McConnell’s call to “just say no” to implementing the Clean Power Plan, and some legal scholars are supporting this challenge by arguing that EPA cannot force states to implement its final rule. Although EPA cannot directly compel states to implement the rule, the U.S. Constitution compels states to comply with federal law, and states that refuse to implement the Clean Power Plan will subject their citizens to potentially significant penalties.

A Call to Arms: Pro-Coal Conservatives Tell States to “Just Say No”

On March 3, Sen. Mitch McConnell (R– Ky.) wrote an op-ed in the Lexington Herald-Leader calling for states to fight back against the proposed federal regulations. Senator McConnell argues that “a respected group of economists” claim the rule will cost the U.S. “about a third of a trillion dollars.” These compliance costs and resulting electricity rate spikes, McConnell argues, will hurt lower-income families and seniors, in addition to putting thousands of Kentuckians out of work. Senator McConnell further asserts that EPA’s legal authority to issue the rule—which he refers to as “the administration’s attack on the middle class”—is questionable. The Senator’s proposed response to this so-called “political extremism”? “Just say No” and refuse to comply with the final rule. More specifically, McConnell calls for states to refuse to submit a state implementation plan as required by section 111(d) of the Clean Air Act. On March 19, Senator McConnell sent a letter to every state governor imploring him or her to adhere to his advice and forgo crafting a 111(d) implementation plan.

To support his argument against the legality of the Clean Power Plan, Senator McConnell’s op-ed quotes law professor Laurence Tribe’s assertion that EPA acted “far beyond its lawful authority.” Professor Tribe gained some notoriety in December when he submitted comments to EPA on behalf of the Peabody coal company. Professor Tribe recently spoke out against the proposed rule to a House Energy and Commerce subcommittee. According to Greenwire, Tribe argued that the proposed Clean Power Plan violates the Constitution and the federal Clean Air Act, stating, "[b]urning the Constitution should not become part of our national energy policy." According to Professor Tribe, EPA’s rule violates the separations of powers established by the U.S. Constitution, because it would “commandeer state governments” by directing states to issue state implementation plans.

Laurence Tribe isn’t the only law professor to speak out against the legality of the Clean Power Plan this week. On March 16, law professor Jonathan Adler wrote an op-ed in the Washington Post, asserting, “states may choose which federal laws to implement.” Professor Adler defended the legality of Senator McConnell’s recommendation that states refuse to implement EPA’s rule. He argued that the Clean Air Act gives EPA authority to adopt regulations, but doesn’t give the Agency authority to enforce these regulations against the states. Professor Adler accurately points out that Clean Air Act section 111(d) doesn’t require states to create implementation plans; if states choose not to adopt their own plans, the statute directs EPA to adopt a federal implementation plan in their stead. However, Adler argued, states still have no obligation to comply with this federal plan, because it is “well established that the federal government may not direct states to implement federal programs.”

Why States Should “Just Say Yes”

While the argument that the federal government cannot explicitly direct states to implement federal programs is accurate from a technical standpoint, it is in the states’ best interest to comply with EPA’s final Clean Power Plan and issue effective state implementation plans in a timely manner.

The Supremacy Clause in Article XI of the U.S. Constitution establishes federal law as "the supreme Law of the Land," and state courts are thus obligated to adhere to federal law. Article I, section 8 of the U.S. Constitution grants Congress authority to regulate interstate commerce. Congress exercises this authority by adopting legislation, such as the Clean Air Act. When Congress enacted the Clean Air Act, it delegated authority to EPA to adopt regulations implementing the statute’s provisions. Section 111(d) of the Clean Air Act specifically directs EPA to issue regulations establishing a procedure for states to submit plans for implementing standards of performance for air pollutant emissions from existing source categories. If a state fails to submit a satisfactory state implementation plan, section 111(d) gives EPA authority to issue a federal implementation plan for that state.

More significantly, the statute gives EPA authority to enforce the provisions of both federal and state implementation plans. Contrary to the implications raised by Laurence Tribe’s arguments, however, this enforcement authority doesn’t attempt to authorize EPA to direct states to implement section 111(d). The statute does not explicitly give the Agency authority to bring enforcement actions against states that fail to implement the statutory requirements (although the EPA Administrator can bring suits against state regulators under the citizen suit provision in section 304). Instead, Clean Air Act section 113 gives EPA authority to enforce implementation plan requirements against individuals. This means that if an individual source fails to comply with the requirements imposed by a state or federal plan, EPA can order the source to comply, impose a penalty, or bring a civil action against the owner or operator of that source. The Agency can choose to impose an administrative penalty of up to $25,000 per day against any individual that fails to comply with an implementation plan. If the Agency decides to bring a civil action, they can seek a temporary or permanent injunction in addition to assessing a civil penalty of up to $25,000 a day against the individual violator.  

So the “just say no” advocates are technically correct—states are not obligated to issue state implementation plans under 111(d), and EPA cannot directly force states to implement a federal plan. However, this does not mean that states do not have to comply with federal law—EPA still has authority to enforce an implementation plan's requirements. The EPA Administrator can bring a suit against state air quality regulators for failing to comply with a state or federal implementation plan. In addition, Sections 110(m) and 179(b) of the Act give EPA authority to sanction states that fail to implement an approved plan by withholding federal highway funding. While this option refuses to confer a federal benefit on noncompliant states, it doesn’t equate to a “commandeering of state governments.” The Clean Air Act solicits state assistance in implementing the statute’s objectives, but ultimately imposes compliance obligations on individual regulated facilities. Under the Supremacy Clause of the Constitution, state courts must uphold the Clean Air Act's requirements. States that refuse to implement the final Clean Power Plan will therefore subject their citizens to federal enforcement, judicial oversight, and the risk of potentially significant economic penalties. Refusal to implement federal law is a short-sighted and irresponsible policy direction for states to follow, and regulators should think twice before jumping onto Mitch McConnell’s “just say no” bandwagon. 

The Clean Power Plan and Grid Reliability: Fostering the Transition to a Modernized Transmission System

By Amelia Schlusser, Staff Attorney

The debate over the potential impacts of EPA’s proposed Clean Power Plan on grid reliability is gaining steam. Critics contend that the proposed rule calls for hasty and drastic changes to the nation’s electricity resource mix, which will result in widespread retirements of coal-fired power plants and increased deployment of renewable resources. The reliability debate centers around the fact that baseload resources, such as coal plants, provide stable and predictable electricity, while renewable resources, such as wind and solar power, provide variable and intermittent power. Therefore, the argument goes, replacing coal plants with variable renewable resources may jeopardize the reliability of the electrical grid.

The reliability debate first made headlines following the release of the National Energy Reliability Corporation’s (NERC) Initial Reliability Review of the Clean Power Plan, which voiced concerns that the rule could compromise the reliability of the power grid. NERC’s report recently made headlines for a different reason. According to Greenwire, the Energy and Policy Institute recently criticized NERC for failing to disclose that Energy Ventures Analysis, a contractor that worked on the NERC report, had ties to a coal technology company. However, there is little evidence that this potential conflict of interest actually influenced NERC’s findings regarding reliability impacts.

Meanwhile, politicians, regulators, and industry representatives are becoming increasingly vocal on the potential reliability impacts of the Clean Power Plan. On March 11, regulators from Wisconsin, Wyoming, and Indiana told the U.S. Senate Environment and Public Works Committee that the proposed rule would threaten grid reliability in their states. According to Greenwire’s coverage of the committee meeting, the commissioner of the Indiana Department of Environmental Management, Thomas Easterly, noted that he was very concerned “that we will see some catastrophic results somewhere in the implementation of this plan.” Senator Jim Inhofe (R-Okla.) also argued that the rule would threaten the reliability of the grid. Jeff Burleson, Vice President of System Planning at Southern Company, recently issued a statement asserting that the Clean Power Plan will jeopardize grid reliability.  Burleson claimed that the rule would “potentially put serious reliability and operational pressures on the grid,” and that “it does so under the guise of ‘environmental compliance’.”

NRDC’s John Moore argues that the reliability argument is a bluff intended to reduce utility compliance obligations under the Clean Power Plan. Moore’s blog specifically focuses on Southern Company’s claim that the rule will jeopardize grid reliability, which is not the first time the utility has made this argument in response to new environmental regulations. Moore points out that in 2011 Southern Company argued that EPA’s mercury and air toxics standards would cause “numerous rolling blackouts” starting in 2015. In 2014, however, the company stated that it was 98% in compliance with the standards, and as of 2015, the rolling blackouts have failed to materialize. 

It’s unclear whether the Clean Power Plan’s critics are intentionally crying wolf by asserting that the rule is incompatible with the reliable delivery of electricity. However, it is clear that these reliability challengers are failing to fully consider available technologies and strategies that utilities and grid operators have successfully implemented to maintain reliability under high penetrations of renewable generation.

The reliability challengers are also overlooking the energy sector’s ability to develop innovative solutions to respond to grid reliability constraints. Utilities are investing in smart grid improvements and other technologies to facilitate integrating renewable energy onto their systems. For example, one of my previous posts discussed how Idaho Power Company developed and implemented a new forecasting tool that has improved the utility’s ability to integrate wind energy onto the grid at a cost savings of approximately $100,000 a month.

Grid operators throughout the nation are also developing strategies to integrate increasing amounts of renewable energy onto the grid without impacting reliability. For example, Columbia Grid and Northern Tier Transmission Group initiated a Wind Integration Study Team, which in turn created a Dynamic Transfer Capability Task Force to assess the potential impacts of increasing dynamic transfers of electricity between balancing areas to integrate variable renewables and maintain grid reliability. And a recent report by Navigant Research estimated that utilities would spend $107 billion through 2023 on “synchophasors and wider-area situational awareness systems” which enable grid operators to collect and transmit data and rapidly identify grid disturbances before outages occur. These innovative grid improvements help maintain reliability and functionality, and according to the North American Synchophasor Initiative, these technologies provide significant benefits for integrating intermittent renewable resources.

These examples describe only a few of the countless efforts to improve and modernize our national grid systems to accommodate the evolving U.S. energy mix. These efforts help to demonstrate the electricity sector’s ability to proactively address emerging system constraints and develop innovative strategies to maintain grid reliability. Once finalized, the Clean Power Plan will shift the composition of the electricity generating mix in the country. However, this shift will be supported by the deployment of advanced grid technologies and innovative operational strategies that will ultimately improve the functionality of the grid and help facilitate the transition to a clean, sustainable energy system.