EPA moves to repeal clean power plan(CPP) but decarbonization continues

EPA moves to repeal CPP but decarbonization continues

The US Environmental Protection Agency (EPA) recently moved to repeal the Clean Power Plan (CPP), the Obama administration’s signature climate policy that was designed to reduce CO2 emissions on existing power plants. The rule was still under a stay by the Supreme Court, and the DC Circuit Court of Appeals had yet to rule on its legal merits following oral arguments in September 2016. In March 2017, President Trump directed the EPA to review the rule, and a request to hold the rule in abeyance while the rule was under review was granted by the court and subsequently extended.

On October 10th, the EPA submitted a proposal to repeal the CPP because the rule exceeds EPA’s statutory authority under a proposed change in the Agency’s interpretation of section 111 of the Clean Air Act (CAA). In other words, the CPP, developed under the Obama administration, established power sector carbon emission reduction goals based on emission reduction measures that could be taken across the power sector, including adding renewable generation and coal-to-gas switching. The new EPA, under the Trump administration, has re-interpreted Section 111 of the CAA in that the best system of emission reduction can only look at emission reductions on the individual power plants themselves. Because of this re-interpretation, they are proposing to repeal the CPP and will, separately, solicit comments on how they might replace the rule. Although, I should note that they have not yet fully committed to replacing the rule.

While we don’t yet know how all of this will exactly play out, whether the EPA will ultimately replace the CPP with another rule, whether they will do it on their own or will be forced by the courts, what the substance of a possible replacement rule could look like, and even how the timing for all of this will play out, we do know that this will likely be challenged in the courts, further extending this lengthy process for regulating CO2 emissions on existing power plants. And given the posturing of the president and the current EPA, it is likely that a replacement rule would be narrower in scope and require less stringent emission reductions.

Although uncertainty surrounding the substance of federal power sector carbon policy will now continue, it is important to look at what is already happening in the US power sector. The baseline for the emission reductions in the CPP was 2012 and the emission reduction goals were based around three so-called building blocks:

  • Increasing the efficiency of coal plants
  • Switching from fossil steam (predominantly coal-fired) generation to natural gas-fired combined cycle generation
  • Increasing renewable generation

Coal-fired capacity and generation from plants that would have been covered under the CPP have both been falling:

Figure 1 Coal capacity and generation (CPP affected sources only)

Source: ABB Velocity Suite and EPA

Wind and solar generation in states that would have been covered under the CPP has been increasing:

Figure 2 Wind and solar generation (CPP affected states only) – TWh

Source: ABB Velocity Suite and EPA

Lastly, the CPP gave states the option of complying with rate-based or mass-based emission reduction targets. Just looking at plants covered under the CPP, CO2 emissions from affected sources are declining and are even below the mass-based targets in 2022, while approaching the 2030 targets, in aggregate.

Figure 3 Affected source emissions and combined mass-based goals – million tons CO2 emissions

Source: ABB Velocity Suite and EPA

So, although there is still uncertainty surrounding the direction of federal power sector carbon policy, the US power sector is already on the path towards a less carbon-intensive power sector. This is primarily due to market forces, state-level policy, consumer preferences, and technological advances.

The major difference is that without the CPP there is no over-arching backstop mechanism to ensure that the emission reductions occur throughout the country. Some states will act more aggressively than others through policy to reduce power sector CO2 emissions, while some states will be better equipped than others to take advantage of renewables or invest in energy efficiency. But there will be no mechanism to compel the other states to move forward that are generally more adverse from a policy standpoint, or ill-equipped, to efforts to decarbonize their power sectors.

At the time, when the final CPP was released, there was speculation that a national power sector carbon trading market could emerge given the flexibility provided in the CPP and the overall efficiency gains that can be achieved with a large tradable allowance market. However, without the CPP, there is no reason to compel reluctant states to join such a market. And overall, without the CPP, we are likely to continue to see a mix of efforts and progress across the country to decarbonize the power sector.

Written by Tristan Wallace, Advisory Consultant, ABB Enterprise Software