On August 3, the United States crossed a major threshold in the effort to mitigate climate change. With the release of the final Clean Power Plan, the nation’s fleet of existing power plants now face mandatory limits on how much CO2 they can emit – a key contributor to global climate change.
With congressional action to address climate change unlikely in the foreseeable future, the Obama administration is implementing the new emissions limits pursuant to existing authority under the Clean Air Act (CAA).
The rule is complicated and controversial, and it can be difficult to wade through the talking points to evaluate the merits of the Environmental Protection Agency’s (EPA) actions. Here are three factors for assessing the long-term success of the Clean Power Plan: the likelihood it will result in cost-effective CO2 emissions reductions, survive legal scrutiny and lay the groundwork for future steps to address global climate change.
Now with the final rule finally available, we can assess these questions in detail.
Achieving cost-effective emissions reductions
At the rollout of the rule, the president, the EPA administrator and the US surgeon general highlighted many reasons to address global climate change, citing impacts on health, economics and quality of life. The rule is projected to reduce power sector emissions 32% below 2005 levels by 2030. Equally important, requiring emissions reductions creates demand for new, affordable options for generating electricity without emitting CO2, which could result in even lower emissions by 2030 than required under the Clean Power Plan.
The EPA projects that the total cost of the rule will reach US$8.4 billion. Projected benefits fall in the range of $34-$54 billion after accounting for the benefits derived from reducing CO2 emissions as well as the public health benefits of reducing other pollutants emitted from fossil fuel-fired power plants.
Perhaps more importantly for electricity consumers, the EPA also projects that the Clean Power Plan will reduce bills by about $7 per month. The actual costs will vary across the country, and any attempt to predict electricity prices 15 years into the future should be taken with a grain of salt. But, by providing states with the flexibility to tailor their compliance plans to specific circumstances, states and power plant operators can pursue cost-effective implementation strategies.
In addition to putting the nation’s electric power sector on a trajectory toward lower CO2 emissions and lower costs, the Clean Power Plan also sends an important signal to the rest of the world. As the largest historical emitter of greenhouse gases, the US must demonstrate that it takes the problem seriously, and that we are willing to do something about it if we expect other countries to make similar commitments.
The next step in international negotiations happens in Paris this November. Releasing this rule before the negotiations should help build momentum toward further action at the international level.
Preparing for legal challenges
Although the CAA has been in place since 1970, the section at issue here – 111(d) – has been triggered so rarely that there is no direct judicial precedent interpreting the specific legal provisions. That means the EPA must balance the desire for aggressive emissions reductions with a strategy that is likely to survive court challenges, and it must do so without specific guidance from the courts.
Nonetheless, the CAA provides some important instructions to the EPA. The emissions standards must reflect the “best system of emissions reductions.” In other words, the EPA must identify a system, that system must reduce emissions, and it must be the best system. Furthermore, the EPA must consider costs and other environmental and energy system impacts, and the system must be “adequately demonstrated.” This broad language defines the scope of regulatory options available to the EPA.
It is no secret that legal challenges lie ahead for the EPA, and the rule will likely end up before the US Supreme Court. A strategy to undermine the Clean Power Plan has been in the works as long as the EPA has been crafting the rule.
To address some of the potential vulnerabilities, the EPA retooled the formula it used to create state targets. The rule now follows a similar approach used in past EPA actions, creating separate standards for natural gas and coal. Energy efficiency is no longer used to calculate the targets, avoiding the legal argument that the EPA is forcing power plants to reduce demand for their product. Despite the changes to the emissions target formula, states still have broad discretion for developing compliance strategies.
The EPA also extended the timelines for states to submit plans and for utilities to begin complying with the rule, providing credit if investments in renewables and energy efficiency occur before the rule goes into effect in 2022. By delaying its start two years, power plant operators are allowed more time to prepare.
The delay also mitigates a potent legal argument that opponents will likely advance at the beginning of the litigation process – that courts need to delay the rule until the conclusion of the litigation process because otherwise states and power plant operators must make immediate investments.
Laying the groundwork for future climate policy
The Clean Power Plan is a critical first step in limiting the nation’s greenhouse gas emissions, but much more is necessary to effectively mitigate climate change.
The EPA makes it relatively easy for states to allow power plant operators to opt in to emissions trading markets if doing so is financially advantageous – either because they have emissions credits to sell or because buying emissions credits is less expensive than taking other actions.
If power plant operators take advantage of this option, regional or national emissions markets could emerge. Future steps to reduce CO2 emissions could build upon the trading infrastructure later to incorporate new sectors of the economy, to tighten the cap after 2030 or to import the system into a broader federal legislative framework.
There is much more to come as lawsuits commence and states evaluate potential compliance options. For now, the Clean Power Plan has shifted the debate from whether to address power sector CO2 emissions to how best to do so. That, by itself, is a success.