- Industry: Energy & Utilities
By: Paul AugustineThe U.S. Environmental Protection Agency (EPA) designed the Clean Power Plan (CPP) to allow states great flexibility to reduce compliance costs. One mechanism through which states are able to improve the cost-effectiveness of their reduction strategies in their efforts is by collaborating with other states. Under the CPP, “a multi-state approach incorporating either a rate- or mass-based goal would be acceptable based upon a demonstration that the state’s plan would achieve the equivalent in stringency, including compliance timing, to the state-specific rate-based goal set by the EPA” (CPP, 34837). EPA estimates that in 2030, multi-state compliance strategies could result in overall CPP compliance savings of $1.5 billion, reducing compliance costs from $8.8 billion to $7.3 billion (CPP, 34839).
In recognition of the complexity of linking state programs, EPA offers a two-year extension for final submission of compliance plans for states that are working toward a multi-state or regional program. But how practical is this approach within the allotted timeframe? Considered below are two possible mechanisms for multi-state CPP compliance: (1) developing a new multi-state program and (2) joining an existing program (specifically, the California cap-and-trade program or the Regional Greenhouse Gas Initiative - RGGI).
Developing a New Multi-State Program
If a state chooses to be a part of a new multi-state compliance program, it still must submit an initial plan to EPA by June 30, 2016. This plan must include “a description of the plan approach, an initial quantification of the level of emission performance that will be achieved in the plan, a commitment to maintain existing measures that limit CO2 emissions, an explanation of the path to completion, and a summary of the state’s response to any significant public comment on the approvability of the initial plan” (CPP, 34838). EPA would then have the discretion to approve the initial plan and grant a two-year extension for the state to submit its complete plan.
In addition to the required components of the initial plan, the state will have to address internal politics and cross-state differences with partnering states, have a robust stakeholder engagement process, develop a program framework including new mass or rate-based targets that will achieve the environmental performance requirements for the state, and create a design that allows program implementation to commence by 2020. How feasible is it for a state to meet EPA’s stipulated deadlines—submitting program details for the initial plan by June 30, 2016, final details for a complete plan by June 30, 2018, and ensuring program commencement by 2020? It is helpful to look back at the history of other domestic greenhouse gas compliance programs to estimate the amount of time that may be necessary to meet the CPP deadlines.
California began working on its cap-and-trade program in earnest in 2008, with the majority of regulatory action taking place between 2010 and 2012. California issued a comprehensive proposed rule by the end of 2010 and finalized the bulk of the final regulatory language by 2011. After a few delays, the program went live in 2012 with compliance beginning in 2013. So, for California, it took about 2 years to develop a comprehensive plan and an additional 2 years before compliance began.
The establishment of the Regional Greenhouse Gas Initiative (RGGI) began in 2005 when the governors of 7 states signed a Memorandum of Understanding, which paved the way to the regional program. A model rule was first finalized in mid-2006, and the compliance program began in 2009. So the amount of time it took from the initial plan to program go-live was, again, about 4 years.
While EPA’s schedule is aggressive, it is possible to develop a new multi-state CPP compliance program within the current timeframe. Additionally, under the proposed CPP rule, EPA has discretion in how much detail it will require from states in the initial and final compliance plans and the aggressiveness of early targets. This allows some additional wiggle room for states to solidify multi-state compliance programs.
States will have to look to the final regulation to determine whether there is enough time to develop an initial plan that will meet EPA’s requirements by June 30, 2016, accounting for legislative/regulatory schedules, political cycles, cross-state differences, and other issues.
Developing a new program from scratch could be challenging in the timeframe allotted, so what about simply joining an existing program? As states consider their CPP compliance options, linking to existing programs is an attractive option given the lower administrative costs and, possibly, lower compliance costs. The most successful and expansive such programs are the California’s greenhouse gas cap-and-trade program or the Regional Greenhouse Gas Initiative.
Joining an Existing Program
California’s cap-and-trade program is likely the most comprehensive and aggressive greenhouse gas reduction program in the United States, but is it a good model for Clean Power Plan compliance? While California’s program has now been effectively running for two-and-a-half years, with the cap expanding this year to include nearly 400 million tons of greenhouse gas emissions per year, there are a number of issues considerations when thinking about linking or emulating the California program for CPP compliance.
- California’s cap-and-trade program is economy-wide, including transportation fuels. So ensuring electric generation unit reductions as required by the CPP is more difficult.
- The program is linked with an international jurisdiction, Quebec, which introduces possible legal/regulatory risks.
- The program reduces compliance obligations based on out-of-state renewable energy purchases.
- The program allows for offset credits to reduce compliance obligations.
Perhaps the easiest program to join would be RGGI. RGGI is the only regional greenhouse gas emission trading program in the U.S., including nine Northeastern and Mid-Atlantic states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont). The structure of the program is already in place, it very clearly meets the objectives of the Clean Power Plan as it is a power sector only program. RGGI also has a model rule that, compared to the California cap-and-trade regulations, is relatively simple. And, the program has now been running effectively for six years.
While creating or joining a multi-state program to meet Clean Power Plan compliance requirements introduces some compliance and administrative cost savings, the EPA timeframe is aggressive and may not be achievable for some states given legislative, regulatory, and political cycles. With the CPP final regulation expected to be released this summer, states that are considering developing their own multi-state compliance program or joining an existing program should carefully consider EPA’s timeframe to ensure that they can realistically meet the deadlines. Efforts should start now.