By Rich Heidorn Jr.

After sifting through 4.3 million comments and attending months of meetings with state regulators, utilities and RTO officials, the Environmental Protection Agency yesterday released a final Clean Power Plan that relaxes some controversial proposals while increasing its target for emission reductions.

As expected, EPA bowed to nearly universal opposition to a requirement that states meet interim goals as soon as 2020, replacing that with a 2022 target while leaving 2030 as the deadline for full compliance. As also expected, the rule incorporates a reliability “safety valve.”

At the same time, the Obama administration upped its ultimate target, saying it will require a 32% reduction in power plant CO₂ emissions from 2005 levels, up from 30% in the draft rule.

EPA said it will permit all low-carbon resources, including renewables, energy efficiency, natural gas, nuclear and carbon capture and storage to have roles in compliance.

But the final plan anticipates less switching from coal to natural gas and more reliance on — and incentives for — renewables. EPA projects renewables will account for 28% of generating capacity by 2030, up from 22% in the proposed rule, an increase of nearly one-third.

EPA said it increased renewables’ role in part because of the falling cost of solar and wind power and expectations of additional reductions in the future. The agency will seek to take advantage of those economics while offering pollution credits for states that add renewables before 2022, with similar incentives for those that make early energy efficiency investments in low-income communities.

Trading-Ready State Plans

In addition to delaying initial compliance by two years, EPA said the final rule also grants states more flexibility in meeting their targets, allowing them to develop trading-ready compliance plans for participating in emission credit markets with other states without the need for complicated interstate agreements.

State plans are due in September 2016, but states that need more time can make a preliminary filing and request extensions of up to two years for submitting a final plan.

Litigation Expected

EPA also released a federal implementation plan that it said can provide a model for states while also serving as a “backstop” for states that balk at compliance.

EPA will have to use that backstop if some states stand firm in their pledges to refuse to comply, as Senate Majority Leader Mitch McConnell, a Republican from coal-producing Kentucky, has urged. About two dozen states have indicated they may challenge the plan in court.

EPA, however, says that many states are already on the path to compliance, noting that all states have demand-side energy efficiency programs and all but 13 have renewable portfolio standards or goals. Half of the states have energy efficiency standards or goals.

“The idea of setting standards and cutting carbon pollution is not new. It’s not radical,” President Obama said at a White House ceremony announcing the plan. “What is new is that, starting today, Washington is starting to catch up with the vison of the rest of the country.”

Reliability ‘Safety Valve’

The rule seeks to ensure sufficient generation resources by requiring states to address grid reliability in their plans and includes a “safety valve” that could buy some retiring generators additional time to address any reliability concerns.

EPA noted that — unlike the Mercury and Air Toxics (MATS) rule — the Clean Power Plan does not impose plant-specific requirements, allowing states flexibility to “smooth out” their emission reductions over time and across sources.

International Audience

The Clean Power Plan is the latest of the Obama administration’s initiatives — which includes the controversial loan guarantees for clean energy technologies, a doubling of fuel economy standards for cars and light trucks, and a separate rule limiting emissions from new power plants — directed at climate change.

By now addressing power plant emissions — the largest source of greenhouse gases (32% of the U.S. total) — the Clean Power Plan will give the Obama administration a platform for urging other nations to cut their emissions at a United Nations climate change conference in Paris in December.

“I am convinced that no challenge poses a greater threat to our future and future generations than a changing climate,” Obama said in a 25-minute speech that was frequently interrupted by applause from supporters.

Obama also quoted the observation of Washington Gov. Jay Inslee: “We’re the first generation to feel the impact of climate change and the last generation that can do something about it.”

“We only get one planet,” Obama continued. “There’s no plan B.”

What Changed in the Final Rule?

The Environmental Protection Agency made a number of significant changes to the final Clean Power Plan based on feedback to the preliminary plan released last year. Here is a summary of the most important changes:

• Source‐specific CO₂ emission performance rates: The plan uses two different CO₂ emission rates to define the “best system of emission reduction” (BSER), one for coal-steam and oil-steam plants and a second for natural gas plants.
• Rate‐ and mass‐based state goals: The plan uses the CO₂ performance rates to set both rate‐based (CO₂ lbs/MWh) and mass‐based goals (total CO₂ metric tons) for states. The draft rule used only rate-based targets; the mass-based targets were added to accommodate states that want to take part in emissions trading.
• Energy efficiency building block eliminated: The final plan eliminates building block 4, relying on demand‐side energy efficiency, reportedly due to concerns it might be unenforceable: utilities can’t control their customers’ efficiency. “EPA nonetheless anticipates that, due to its low costs and potential in every state, demand‐side EE will be a significant component of state plans,” the agency said.
• Refinements to the three remaining building blocks:
  • Building block 1: Improved efficiency at power plants. EPA originally proposed heat rate improvements of 6% for coal and oil generators, which industry officials said was unachievable. The final rule anticipates improvements of 2.1 to 4.3%, depending upon the region.
  • Building block 2: Shifting generation from higher emitting coal to lower emitting natural gas power plants. The final rule assumes natural gas plants will run at 75% of net summer capacity. The draft expected natural gas units to run at 70% of their nameplate capacity, a metric that many commenters said was incorrect because it doesn’t reflect real operating conditions.
  • Building block 3: Shifting generation to zero‐emitting renewables. The final BSER analysis does not include existing or under‐construction nuclear power or existing utility‐scale renewable energy generation as part of building block 3. EPA expects a bigger role for renewables than originally proposed “based on up‐to-date information clearly demonstrating the lower cost and greater availability of clean generation than was evident at proposal. It takes into account recent reductions in the cost of clean energy technology, as well as projections of continuing cost reductions.” Generation from under‐construction nuclear facilities and nuclear plant uprates can still be incorporated into state plans and count towards compliance. “Nuclear power competes well under a mass‐based plan, as increased nuclear generation can mean that fossil fuel units are operating less and emitting fewer tons of CO₂,” EPA said.
• Grid reliability measures: States must show they have considered reliability in developing their compliance plans, “such as consultation with appropriate state reliability or planning agencies.” To address unexpected reliability concerns, states can amend their approved plans or seek temporary relief under a reliability safety valve.
• Trading‐ready mechanisms: In response to concerns that requiring formal, up‐front agreements between states would deter use of trading as a compliance mechanism, the final rule allows states to design rate‐based or mass‐based trading-ready plans permitting individual power plants to use out‐of‐state reductions to achieve required CO₂
• Clean Energy Incentive Program: EPA will reward states making investments in renewable energy and demand‐side energy efficiency projects implemented in low‐income communities during 2020 and 2021 by awarding them emission rate credits (ERCs) or allowances.
• Relaxed initial deadlines: The plan allows states a two‐year extension to submit compliance plans. By September 2016, states must submit either a final plan or an initial plan with a request for an extension to September 2018. Initial compliance goals will go into effect in 2022, not 2020.