On June 2nd, 2014, the Environmental Protection Agency (EPA) announced perhaps the most significant environmental reform in its history.  Entitled the Clean Power Plan (CPP), the proposed regulations are designed to reduce greenhouse gas (GHG) emissions nation-wide by 30 % below their 2005 levels by the year 2030.

Overview of the Proposed Rule

Under the CPP, states are given individual pollution goals relating to their “carbon intensity,” defined as tons of carbon per megawatt-hour of electricity, as opposed to its overall tons of carbon produced.  Specifically, for Kansas and Missouri, the CO2/MWh reduction goals set forth in the proposed rule are as follows:

To reach these goals, states will have until June of 2016 to design either individual or multi-state implementation plans.  States submitting individual state implementation plans (SIPs) may apply for a one-year extension, with a final plan due on June 30, 2017, while states that submit multistate plans are eligible for a two-year extension, with final plan due dates of June 30, 2018.

The methods utilized to reach the goal thresholds are left largely to the discretion of the individual states, with the EPA designating four broad “building block” categories that states may choose from.  These include:

• improvements to carbon intensity at individual plants (increase plant efficiency)
• shifting baseload generation to lower emitting plants (switching coal for natural gas)
• new investment in low- and no-carbon generation (renewables and nuclear)
• demand-side efficiency (energy efficiency programs and demand response)

Because of this flexibility, it is likely that individual compliance plans will vary from state-to-state, depending upon the specific characteristics of the local energy markets and any emission reduction actions that are currently underway.

Aside from setting forth the individual components utilized to achieve the emission reduction goals, each plan must satisfy the following criteria:

• The plan must be enforceable (quantifiable, verifiable, straightforward, and calculated over as short a term as reasonable ) and in conformance with the Clean Air Act;
• The projected CO2 emission performance by affected EGUs must be equivalent to, or better than, the required CO2 emission performance level in the state plan;
• The plan must specify how the effects of the plan will be quantified and verified, including CO2 emission monitoring, reporting, and recordkeeping requirements for affected EGUs; and
• The plan must specify a process for annual reporting to the EPA of overall performance and implementation and include a process and schedule for implementing corrective measures if reporting shows the plan is not achieving the projected level of performance.

Potential Impacts

It is likely that this proposed rule will have significant impacts on energy generation and consumption in the Midwest.  Utilities that rely upon coal-fired generation plants may be required to install expensive pollution control retrofits or technology to allow the facilities to reach higher operating efficiencies, or they may have to heavily curtail or retire the facilities altogether to be replaced with less carbon intensive generation sources.  However, it should be noted that even under the CPP, coal will still be used to generate approximately 30% of the electricity in the United States in the year 2030, down from 39% in 2013.  Additionally, the first threshold must be satisfied by 2020, providing utilities several years to make the necessary plans and implement any required changes.  Nonetheless, energy intensive industries may face higher costs as the price of power rises to reflect the fleet modifications utilities will be required to undertake.

Conversely, the wind, solar and energy efficiency industries in Kansas and Missouri stand to benefit from this regulation, as it gives utilities greater incentives to invest in carbon-free generation resources and demand-response initiatives to off-set existing carbon-emitting sources. The CPP also includes proposals to increase inter-state carbon credit trading, which produces an additional opportunity for states that develop robust renewable generation.

What’s Next?

It’s important to remember that this proposed rule is currently still in draft form and won’t expected to be finalized until June of 2015 at the earliest, and potentially even later.  On the immediate horizon, the EPA will initiate a 120 day public comment period beginning on the date the regulation appears in the Federal Register.   Interested parties are invited to submit comments electronically via EPA’s electronic portal (www.regulations.gov) , by email to A-and-R-Docket@epa.gov, or by mail to EPA Docket Center, Room 3334, EPA WJC West Building, 1301 Constitution Ave., NW, Washington, DC, 20004.

There will also be a series of four public hearings scheduled between July 28 and 31, 2014, in Atlanta, Denver, Pittsburg, and Washington D.C. EPA committing to make every effort to accommodate all speakers who arrive and register.

In the meantime, the proposed rule is very likely to come under legislative and judicial attack over the coming weeks and months.  The Congressional Energy and Commerce Subcommittee on Energy and Power will hold a hearing to review EPA’s proposal the week of June 16.  Lawmakers have already promised to introduce legislation blocking the rule, although this will be extraordinarily difficult as long as Democrats control the Senate and President Obama sits in the White House.

Assuming the rules proceed as proposed, the most significant decisions will be made on a state-by-state basis under the supervision of the state governments.  It is likely that the individual state environmental agencies will be responsible for the ultimate preparation of the SIPs with input from the governor’s office and the state legislature, the state public utility commission, the local utilities, renewable energy developers, and large industrial users.  Thus, it is likely that the most significant opportunity to impact the changes that will be required will come from state-level lobbying and participation in the state planning process.

For additional information about these regulations or their potential impact, please contact a member of the Polsinelli Energy, Environmental or Public Policy Groups.