Placing the Clean Power Plan in context

Yesterday, the Supreme Court issued a stay blocking the Environmental Protection Agency's Clean Power Plan, a set of regulations controlling greenhouse gas emissions from existing power plants under the Clean Air Act. Under the stay, the EPA cannot take actions to implement or enforce the CPP until pending legal challenges against the rule are resolved in the courts. These cases are currently before the U.S. Court of Appeals for the D.C. Circuit.

http://www.washingtonpost.com/video/national/health-science/how-greenhouse-gas-behaves-in-the-atmosphere/2015/12/02/5eb062b4-988c-11e5-aca6-1ae3be6f06d2_video.html

As a follow-up to last night's post about the stay, this post is intended to provide more background on the underlying legal issues. One thing this post should make clear is that while the Supreme Court's action is, in many respects, without precedent, so too is the CPP. It is not only the most ambitious climate-related initiative undertaken by the EPA, but it also relies upon unprecedented assertions of legal authority. And, to be clear, by "unprecedented" I mean just that—without precedent. This is not the same thing as saying that a specific argument or action is unlawful or wrong, only that it raises new legal questions that courts have not had cause to answer before.

Some background: The EPA's authority to regulate greenhouse gases stems from the Supreme Court's 2005 decision in Massachusetts v. EPA. In this case, the Court decided that, contrary to the opinion of the Bush EPA, carbon dioxide and other GHGs qualified as "pollutants" subject to regulation under the Clean Air Act. This gave the EPA the power—and, for all practical purposes, the obligation—to regulate GHGs under the CAA.

After some Bush administration dawdling, the Obama administration moved quickly to exercise the EPA's newfound authority over GHGs. The EPA first made an initial "endangerment" finding that GHGs required regulation, and then promulgated regulations controlling GHG emissions from motor vehicles and some stationary sources. The latter of these regulations were challenged, and considered by the Supreme Court in UARG v. EPA, where the Court trimmed, but largely upheld, the EPA's regulation of GHG from larger industrial facilities.

The EPA's regulation of GHGs under the CAA was extensive, but not so extensive as to make an appreciable dent in GHG emission projections. Enter the Clean Power Plan. The CPP was intended to make a giant leap forward in GHG control, and (as the EPA claimed) accelerate the move away from fossil fuel electricity generation.

The CPP is a set of regulations implemented under Section 111 of the CAA that authorizes the issuance of standards of performance for new and existing sources. The goal of the plan is to reduce power plant emissions by 32 percent (below 2005 levels) by 2030. This is significant because power plants are responsible for the lion's share of GHG emissions (approximately one-third). Still, the CPP represents only a small step toward the ultimate U.S. policy goal of reducing GHG emissions to 80 percent below 1990 levels by 2050.

The central piece of the CPP imposes emission reduction obligations on existing power plants—those that are in operation and spewing GHGs into the atmosphere. Under Section 111(d), the EPA identifies the "Best System of Emission Reduction" that has been "adequately demonstrated" for a given source category—this becomes the standard of performance that existing sources must meet. States are then expected to develop State Implementation Plans (SIPs) that will ensure sources within each state will meet the emission targets. Under the CPP, states are supposed to begin making reductions in 2022 with an ultimate compliance date of 2030. This may seem like a long ways off, but given the nature of utility investments, it's generally recognized that utilities would have to begin making investments in compliance within the next year or so in order to meet the targets (which is one argument that industry and the challenging states stressed in their stay applications with the Court).

The CPP gives states substantial flexibility in how they decide to meet the required emission reductions. Among other things, the EPA hopes that states will rely to some degree on energy efficiency and conservation investments and emission trading to reduce the costs of compliance. Despite EPA's promised flexibility, some states have indicated they do not plan to cooperate (much as many states refused to cooperate with the ACA and refused to create exchanges). Should states refuse to develop their own SIPs, however, the EPA has the authority to impose a Federal Implementation Plan (FIP) to achieve the same level of emission reductions. A FIP, however, is unlikely to be as flexible as a SIP could be.

The level of emission reductions targeted by the CPP are based upon a set of "building blocks" identified by the EPA. Specifically, the EPA assumes that the required emission reductions may be achieved by 1) heat rate improvements at individual plants; 2) increased use of natural gas instead of coal for electricity generation, and 3) increased use of renewable energy. The EPA also hopes that states will use their SIPs to encourage energy conservation and increased efficiency as well, although the EPA could not impose such measures directly under a FIP.

In developing the CPP, the EPA worked very hard to insulate the plan from legal attack, but serious legal challenges remain.

The biggest legal question about the CPP is whether the EPA has the legal authority to impose these regulatory requirements on existing power plants under Section 111(d) in the first place. The reason for this question is that Congress erred when enacting what is now Section 111(d) when revising the CAA in 1990. Specifically, Congress enacted two separate revisions to Section 111(d) in two separate parts of the 1990 CAA amendments. The language that is currently in the U.S. Code says that EPA cannot use 111(d) to regulate air pollutants that are "emitted from a source category" regulated under Section 112, and power plants are subject to regulation under 112. The EPA argues, however, that this is not the proper text of Section 111(d), as either a) the wrong language was put in the U.S. Code, b) the 1990 revisions, read properly, actually allow such regulation or c) the conflicting statutory language creates an ambiguity that the EPA has resolved by interpreting the language to allow for such regulation. This is an aggressive argument, and if the courts reject it, there is no CPP.

Assuming the EPA does have adequate legal authority to impose the CPP, there are legal questions about some of the CPP's specifics. For instance, there is a question about the extent to which the EPA can look at so-called "outside the fenceline" measures—such as the substitution of renewables for coal generation—to set a standard for emission reductions at coal-fired power plants. This is important because there is not much to be gained from increasing the efficiency of coal-fired plants, and the greatest potential for GHG emission reductions comes from the displacement of coal generation.

Another set of arguments focuses on the EPA's development of the rule in the regulatory process. As noted above, the EPA made extensive revisions to its initial CPP proposal so as to insulate it from legal challenge. The problem, however, could be that the EPA did too much. That is, the challengers argue, the EPA made so many changes between the original proposal and the final rule that the resulting CPP was not a "logical outgrowth" of the proposal. Should the challengers win on this argument, the EPA would be forced to reopen the rulemaking and consider new objections to the rule—a process that would be controlled by the next administration.

Another legal vulnerability for the CPP concerns the EPA's standards for new power plants under Section 111(b), which are also being challenged in court. This is an issue because the EPA is required to promulgate standards for new sources before it may impose standards on existing sources under 111(d). What this means is that if the new source standards under Section 111(b) don't survive, the EPA cannot proceed with the CPP. Could this happen? Yes. Among other things, there are questions about whether it is adequately demonstrated that the projected emission reductions can be met at reasonable cost, and whether the EPA impermissibly relied upon federally subsidized energy projects in making these determinations.

These various legal vulnerabilities are one consequence of trying to reduce GHG emissions through the regulatory process. Yet the alternative—a climate policy statute that directs the reduction of GHG emissions—is not viable in Congress, at least for the time being.

The CPP is by far the EPA's most ambitious GHG emission control initiative to date, but does it make a difference? Supporters note that the emission reductions promised by the CPP were key to encouraging other nations to commit to GHG emission reductions of their own at the Paris climate summit. This is a fair point, but it's also worth nothing that the CPP—for all its ambition— will not do much to reduce atmospheric concentrations of GHGs.

Cutting utility emissions by 32 percent over the next 15 years is but a small step toward the 80 percent reductions policymakers claim we need and is an even smaller step toward the stabilization of GHG levels in the atmosphere. It is also not clear the CPP will do much to spur the sort of innovation that is necessary for poorer countries to develop in a less carbon-intensive fashion. More than 1 billion people around the world lack access to reliable sources of electricity. If low-carbon power cannot be made less expensive than the available fossil alternatives (coal in particular), then atmospheric stabilization of GHGs will not happen.

Whatever ultimately happens with the CPP in court (or the next administration), greater attention needs to be paid to the real climate challenge: making a low-carbon future cheap and easy. Unless and until that occurs, GHGs will continue to accumulate in the atmosphere, spurring greater amounts of climate change. I am skeptical of the ability of centralized regulatory programs to add much to the climate effort, preferring innovation-spurring policies (such as technology inducement prizes) and placing a direct price on carbon. Whether or not this represents the right policy mix, climate change represents a monstrous policy challenge that will require more than the CPP has the potential to offer—and that's even assuming that the CPP survives its day in court.