State Implementation of the Clean Power Plan: Why It Matters to Industries Outside the Power Sector

• Date: 01 November 2015
• Author: Robert B. McKinstry Jr. and Ronald M. Varnum

45 ELR 11008 ENVIRONMENTAL LAW REPORTER 11-2015

I. Introduction

On August 3, 2015, President Barack Obama announced

the U.S. Environmental Protection Agency’s (EPA’s) Clean

Power Plan (CPP),1 which establishes gu idelines that

states must apply to achieve reductions in c arbon dioxide

(CO2) emissions from the existing eet of fos sil fuel-red

electric generating units. Under §111(d) of the Clean A ir

Act (CAA),2 states will promulgate their own laws and

regulations achieving the emissions reductions from exist-

ing fossil fuel-red power plants required by these guide-

lines and will submit pla ns incorporating those progra ms

to EPA for review and approval or disapproval. If a state

does not submit a plan, or if EPA disapproves a state plan,

EPA is required to promulgate a federal plan that wi ll be

enforceable in that state.

Organizations and companies outside of the utility sec-

tor have expressed concerns rega rding t he impacts of the

CPP on electricity prices and reliability. However, the

mechanism that states employ to achieve the reductions

required under the CPP is likely to have a more profound

impact on industry sectors outside of the utility sector in

the long term than the relatively modest impacts of the

CPP itself. e power industry is just the rst of many

industries that likely will become subject to greenhouse gas

(GHG) emissions standards for existing facilities under the

CAA . A state’s choices for how to implement the CPP for

the power industry could constrain its ability to use other

mechanisms for other industry sectors.

One of the fundamental choices that states wi ll need to

make in determining how to implement the CPP will be

whether to regulate existing facilities by creating a stan-

dard in t he form of an emissions rate expressed as emis-

sions per megawatt hour (MWh) of electricity produced

(rate-based approach) or by establishing a standard in the

1. For more information on the CPP, including a link to the nal rule, visit

EPA,       , http://www2.epa.gov/

cleanpowerplan/clean-power-plan-existing-power-plants#CPP-nal.

2. 42 U.S.C. §§7401-7671q, ELR S. CAA §§101-618.

C O M M E N T

State Implementation of the Clean

Power Plan: Why It Matters to

Industries Outside the Power Sector

by Robert B. McKinstry Jr. and Ronald M. Varnum

Robert B. McKinstry Jr. is a partner and Ronald M. Varnum is of counsel at Ballard Spahr LLP. Both practice in the rm’s

Environment and Natural Resources Group. Mr. McKinstry also leads the rm’s Climate Change and Sustainability Initiative.

form of total tons of CO2 emissions permissible and rely-

ing on trading to enable sources to achieve compliance

with the emissions cap in a cost-eective manner (mass-

based approach).3 Mass-based trading programs have been

employed by California and the nine states in the Regional

Greenhouse Gas Initiative (RGGI).4 If, as is the case with

most industries, companies prefer t he exibility that will

be provided by emissions trading over a more traditional

command-and-control program, it will be critically impor-

tant to companies outside of the utility sector that their

states implement a mass-based system for the utility sector

rather than develop a rate-based program.

It will also be important that the state mass-ba sed pro-

gram distributes a substantia l number of allowances by auc-

tion rather than potentially concentrating all allowances in

the ha nds of a limited number of companies. e utility

industry is responsible for the majority of CO2 emissions

from stationary sources in the United States, and there

are signicant opportunities for cost-eective emissions

reductions from the industry. If a state does not adopt a

mass-based system for the utility sector, then the state may

signicantly limit or entirely foreclose opportunities to

develop eective mass-based programs for other industr y

sectors. Any mass-based program that excludes the utility

sector will result in a signicantly smaller pool of emis-

sions a llowances and a less vibrant market for emissions

allowance trading for sources in the program.  is could

deprive other non-utility industry sources of the benets of

mass-based programs, which include exibility to reduce

emissions in the most cost-eective manner. Selection of

3. e issues discussed here will also be applicable to EPA’s decision as to

whether to impose a rate-based or mass-based federal plan in states that

refuse to submit a plan or whose plan is disapproved. Under the proposed

federal plan rule, EPA has presented both a rate-based and mass-based fed -

eral plan, indicated that it will adopt one version, and requested comment

on which version to adopt.

4. e RGGI is a cooperative eort among nine member states to cap and

reduce CO2 emissions from the power sector. e participating states are:

Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire,

New York, Rhode Island, and Vermont. For more, visit the RGGI website at

http://www.rggi.org/.

Copyright © 2015 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.