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EPA’s proposed power plant rules leave door open for California cap and trade

June 2, 2014 by CaliforniaCarbon.info

CaliforniaCarbon.info, June 2, 2014: Earlier today, the US Environmental Protection Agency (EPA), under the authority of Section 111(d) of the Clean Air Act, proposed a set of new regulations for emissions from power generation facilities across the country. It is a broadly-couched proposal that leaves room for several different regulatory solutions, and one which will designate authority to individual states to design systems which best suit their own circumstances.

States will now have 120 days to offer comments – the period was extended from 60 days upon the request in the Senate – while the EPA plans to hold several public consultations around the country in late July. The target date for the rulemaking is June 2015, after which states have one year to submit their implementation plans.

EPA has taken a slightly different approach to what was witnessed for the rulemaking on emissions from new power generation facilities, the final version of which is scheduled to go through this year. New power plants are given steep emissions intensity targets which will require the deployment of carbon capture (coal) or combined cycle (natural gas) technology, with little room for alternative regulatory solutions. On EPA’s nine-stop ‘listening tour’, many objections to the plan were voiced, and it remains to be seen what effect this may have on the final rulemaking.

For existing facilities, EPA broadly defines four categories that constitute the ‘best system of emission reduction’ (BSER) available – energy efficiency, fuel switching, renewable energy, and demand-side energy efficiency – in a comprehensive outline involving both ‘within the fenceline’ and ‘outside the fenceline’ solutions.

The overall objective is for emissions to be reduced by 30 percent by 2030 based on their 2005 levels as benchmarks, a nod to ‘early movers’ such as the Regional Greenhouse Gas Initiative (RGGI) and California cap-and-trade programs which have already begun achieving reductions. States are also set interim 2020 goals, giving them 4 years after they submit their implementation plans to achieve the first big target. Although these goals are expressed in terms of rate-based emission intensity (pounds of CO2-equivalent emission per unit output), individual state plans may offer conversions to a mass-based calculation (i.e. pounds of CO2-equivalent emission across the sector, state-wide).

This flexibility leaves the door open for California cap and trade (along with RGGI) to fulfil the new requirements, so long as it achieves a comparable or greater amount of emission reductions within the same timeframe. Even so, there will be several points to resolve as California works on its proposal, and there will be interest in any comments made by the state legislature or the Air Resources Board (ARB), regulators of the cap-and-trade program, in the coming weeks.

The chief concern will be how California demonstrates that an economy-wide cap-and-trade program fulfils emission reduction mandates specific to a particular sector. Federal regulatory experts have in the past speculated about whether California might be enticed to isolate its power sector for EPA compliance, but both environmental groups and the financial community in California are less convinced of the merits of fragmenting a cap-and-trade program which has done well to aggregate the various economic sectors (just see the reaction to the Steinberg proposal, for instance).

Furthermore, it will be interesting to see how ARB bases its calculations from a rate-based to a mass-based standard. EPA has prescribed an interim (2020) goal of 556 lbs/MWh, and a final (2030) goal of 537 lbs/MWh, a constant-rate 0.347% annual reduction. Although ARB won’t issue post-2020 targets for another three years, it is believed that these targets have to be much steeper than 0.347% if the state is to meet its ambitious goal of 80 percent reduction from 1990/2020 levels in 2050.

While California will remain hopeful that this ruling encourages more states to adopt cap and trade, the wide scope of the regulation means there are other alternatives. Even if states were to choose cap and trade, the point has been made on many occasions that in terms of directly joining established programs, the power-sector-only RGGI option might be less complicated for states.

EPA’s proposal has been met with positive support and/or public approval from organisations including RGGI, ARB, the Los Angeles Department of Water and Power (LADWP), and progressive politicians in other nations including Australia and Canada. There has also been the predictable backlash in coal-dependent regions such as the Midwest.

For further information regarding this article, please write to contact@californiacarbon.info.

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