The Clean Power Plan

Last week, the EPA released the final version of the Clean Power Plan, the regulation for carbon emissions from existing power plants. While the final version is more stringent nationally than the draft version, for the two states in which SPEER works, the final rule is less stringent, reducing the final emissions levels by 15% for Texas and by 10% for Oklahoma compared to the draft rule.

The EPA also changed the methodology for calculating emissions limits. One of the changes was to remove Building Block 4, the energy efficiency block, from the calculation. However, energy efficiency remains an available compliance strategy. A fact sheet from the White House on the final plan states: “Maintains energy efficiency as a key compliance tool.”  In fact, the proposed federal implementation plan which will apply to all states that do not write state plans, would include energy efficiency.

The final rule also delays implementation until 2022 (instead of 2020) and sets far less stringent interim emissions limits; the stringent interim goals applicable in 2020 were one of the primary objections of many states and much of the electric industry. All states must submit at least an initial plan along with a request for up to a 2 year extension by September 6, 2016. States that do not submit plans by that date would automatically be opted into the federal implementation plan.

Proposed Federal Implementation Plan

Along with the final rule, EPA released a proposed approach to federal implementation plans and asked for comment on the proposal. EPA quotes the Supreme Court in the proposal in asserting that if a state does not submit a plan by the due date, they can issue the federal implementation plan the same day (Sept. 6, 2016).  According to the Supreme Court last year: “EPA is not obliged to wait two years or postpone its action even a single day . . . .” (EME Homer City v. EPA, 134 S. Ct. 1584, 1601 (2014)).

The federal plan would impose limits on generating units. The most likely approach the EPA would take, according to the proposal, is a mass based system. In other words, a state would have a total emissions limit under which they must stay and those limits would be translated to individual electric generating units. Credits could then be sold by generators under their limit and purchased by those that are over. It is, for all intents and purposes, a cap-and-trade system. They also propose that all states that choose not to submit a state plan would be lumped together in a multi-state trading system. This could be very lucrative for Texas and Oklahoma, states with high renewable energy potential, abundant natural gas, and above average energy efficiency opportunities.

If generators prefer a different approach, they would need their states to submit an initial plan and request an extension by September 6, 2016 in order to submit a final plan on or before Sept. 6, 2018. If a state does not submit a plan and instead accepts the federal plan, it can later submit a state plan that, if approved, would replace the federal plan.

Energy Efficiency Would Keep Costs Down

Whether or not a state submits its own plan, energy efficiency can play a part to reduce compliance costs. In fact, most models show that with energy efficiency included, consumers’ bills will be lower under the Clean Power Plan than in the absence of the Plan. Note that rates would be higher but since overall consumption would be less, bills would be lower.

If states choose to submit a plan, they could include any number of different efficiency programs and initiatives including: building energy codes (Texas adopted a modified version f the 2015 code during the last legislative session), state building efficiency efforts (Oklahoma has a 20% reduction by 2020 goal in statute), CHP (Texas has the largest installed base in the country), financing programs (the Texas Legislature has passed PACE enabling legislation), and more. If a state submits a plan based on what EPA calls “state measures,” they can then use the mass based limits in the model federal implementation plan as a backstop. In other words, a state could submit a plan highlighting a mix of existing and new reneweable energy and energy efficiency programs and policies. If the state stayed under its emissions limit, the state would be deemed in compliance. If the state went over its emissions limit, then the federal plan would go into place. EPA made clear that under a state measures approach with a federal plan backstop, the state measures would be not federally enforceable. States would not be turning over regulation of their renewable energy and energy efficiency programs to EPA if they did not meet compliance. Instead, the federal plan with a mass based limit placed on electric generating units would go into effect.

Those in the efficiency industry should note that EPA issued guidance for Evaluation, Measurement, and Verification (EM&V) to ensure that efficiency used for compliance achieves verified results. They have also asked for comments on their EM&V approach.

What’s Next?

Oklahoma, Texas, and many other states have made it clear they will sue the EPA over the legality of the Clean Power Plan. The Courts will rule in time on the merits of these suits; no one knows how long that might take. The electric industry, however, is beginning to prepare for compliance. While the comment period for the final rule is over, the EPA is still seeking comments on EM&V and the federal plan (see previous links).

SPEER will provide information for policymakers and industry throughout the next year leading up to the deadline for submittal of initial plans. Whether states submit their own plans or instead opt for a federal implementation plan, we will work to ensure that energy efficiency is a key part of compliance strategies.

And you can find SPEER at these upcoming events:

Building PACE in the Valley, August 19-21, Isla Grand Hotel, South Padre Island

ACEEE Conference on Energy Efficiency as a Resource Conference, Little Rock, Arkansas, September 20-22

Clean Air Through Energy Efficiency (CATEE) Conference  in Galveston, December 1-3, 2015