California, Kentucky Outline Proposals for EPA’s GHG Program for Existing Power Plants

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As discussed in our previous post, EPA is in the process of drafting its greenhouse gas (“GHG”) standards for existing electric-generating plants under section 111(d) of the Clean Air Act (“CAA”). Multiple states are currently submitting suggested proposals to EPA. This post outlines the California and Kentucky proposals, which represent two different approaches to existing source regulation.

Some states that have already implemented regulations to cut GHG emissions, including California, are concerned that the federal program may result in the double regulation of industrial sources already subject to state rules. For example, California’s Air Resources Board (“CARB”) is crafting white papers to demonstrate that the state’s ongoing efforts to reduce GHG emissions, through its cap-and-trade program and recent regional action plan  with other western states, should be considered “equivalent” compliance options for the federal GHG rule. However, if EPA sets performance-based limits for individual sources, as it has generally done in the past under section 111(d), it will be difficult for the state to demonstrate equivalency. California air regulators pointed out that a more flexible policy design could allow market-based state or region-wide programs, the integration of the region’s electric systems, increased renewable power, and zero-emission vehicles, all to qualify under the guidelines. Although CARB’s white papers are still being developed, CARB has stated that its proposal will aim to establish state and regional equivalency under California’s current regulations and to have flexibility in meeting the program targets.

Kentucky's recently submitted proposal outlines a different approach to implementation under section 111(d). Kentucky's white paper proposal, submitted to EPA in October, outlines a “mass-based” approach to regulating existing sources, expressed as an overall mandate to reduce total emitted tons of carbon dioxide (“CO2”) by 17 to 20 percent below 2005 levels by 2020. This is different than the output or rate-based performance standards EPA traditionally applies under the CAA. Kentucky argues that such a rate-based approach unfairly establishes a preference for a single fuel (natural gas) economy and against coal, which provides over 90 percent of that state’s electricity. The proposal also pointed out that this approach incorrectly assumes coal facilities will be in a position to cost-effectively install control technology to adequately reduce the lb/KWh of CO2 emitted in order to meet the standard or have other means to sequester those emissions. As a result, Kentucky (and other coal-heavy states) would carry a disproportionate economic burden relative to other states since its electricity-intensive manufacturing economy has historically relied on low-priced coal power.

Kentucky argues that adopting a mass-based framework will provide flexibility and a cost-effective approach to achieving emission reductions. This plan would consider the differences among states in their current generation portfolio and include alternative compliance options that take into account demand and supply-side efficiency, carbon offset credits, renewable energy, fuel switching, and other low-carbon generation sources. Based on their analysis, Kentucky regulators believe the mass-emissions reduction strategy will achieve a greater level of emissions reductions while preventing the negative economic impact of a rate-based standard. Kentucky also proposed that this mass-based standard could lay the foundation for its own proposed regional mass-emission market-based CO2 trading program.

Posted by Michael Malfettone and Margaret E. Peloso at 11/26/2013 11:20 AM