The Obama Administration and EPA Issue Aggressive Clean Power Plan to Reduce Carbon Dioxide Emissions from Existing Power Plants

On August 3, 2015, President Barack Obama and the United States Environmental Protection Agency (EPA) issued their final Clean Power Plan rule, which imposes requirements on states and tribes to reduce carbon dioxide emissions from existing power plants.

EPA issued the new rulemaking pursuant to Section 111(d) of the Clean Air Act, which authorizes EPA to set emissions standards for existing sources of pollution and, further, require states and tribes to submit plans to achieve such standards.

The final Clean Power Plan rule requires states to incrementally reduce power plant carbon dioxide emissions between 2022 and 2030. EPA calculated these emission reductions based on three “building blocks:” (1) increased coal power plant efficiency; (2) substitution of natural gas-derived electrical generation for coal-derived electrical generation; and (3) increased use of renewable energy. Unlike the proposed rule—which we first reported on here—the final Clean Power Plan rule omitted a fourth building block: increased demand-side energy efficiency.

Similar to the previously proposed Clean Power Plan rule, the final rule establishes aggressive carbon dioxide emission reduction requirements tailored to each individual state. However, the final rule permits states to develop regional or joint plans that incorporate emissions trading mechanisms (i.e., emission rate credits or allowances). The issued Clean Power Plan also includes proposed model emissions trading rules to assist states and power plants in developing EPA-approved emissions trading plans.

Pursuant to the final Clean Power Plan rule, a state must submit a plan for achieving one of the following three outcomes:

• All fossil fuel-fired power plants (i.e., coal power plants) and natural gas power plants within the state achieve emissions rates of 1,305 lbs/MWh and 771 lbs/MWh, respectively;
• The state, as a whole, meets a specific statewide carbon dioxide emission rate; or
• The state, as a whole, reduces its total carbon dioxide emissions below a state-specific emissions threshold.

As enacted, the final rule purports to provide flexibility to the states in determining how to achieve one of the above standards. Specifically, a state can elect either to impose these requirements on its power plants only or, in the alternative, elect to enact broader initiatives impacting other carbon sources. If a state chooses the broader option, its plan also must include backup contingencies that, if triggered, would impose more stringent requirements on existing power plants. Each state must submit its plan to EPA, or otherwise request a two-year extension, by September 6, 2016.

The White House and EPA claim the Clean Power Plan will cut annual carbon pollution by 870 million tons by 2030, which is a 32 percent reduction from 2005 emission levels. However, others allege that the Clean Power Plan will adversely impact the economy by raising the costs of electricity. Senator John McCain issued a press release stating the Clean Power Plan “will have a harmful economic effect on Arizonans” and that its issuance exceeds President Obama’s constitutional authority. In fact, as reported in the Phoenix Business Journal, at least 20 states, industry groups and utilities are preparing for litigation regarding this Clean Power Plan.

We will continue to monitor the implementation and impact of this Clean Power Plan, including any related litigation and legislation.