Debating the EPA’s Clean Power Plan Proposal — A Strong Start with Room for Improvement

Editor’s Note: The post is part of a discussion on the EPA’s Clean Power Plan proposal between Philip Wallach, a fellow in Governance Studies at Brookings and the author of the upcoming book, Legality, Legitimacy, and the Responses to the Financial Crisis of 2008 (Brookings Press, 2015), and Bob Sussman, former senior policy counsel to the EPA administrator.

In their August 5 posting, Phillip Wallach and Alex Abdun-Nabi clarify the basis for their critique of the state-by-state goals in EPA’s Clean Power Plan.  EPA’s “highly disparate treatment of states”, they argue, does not reflect deviations from EPA’s goal-setting formula but flaws in that formula itself, which is based on “a number of assumptions that are difficult to justify as fair.”

While framed expansively, this line of attack is in reality quite narrow. Wallach and Abdun-Nabi don’t argue against the validity of three of the four EPA Building Blocks that underpin the state goals.  And while they don’t like the outputs of EPA’s goal-setting formula using these building blocks, they never explain why the formula is wrong. Their objection is mainly focused on Building Block 3 – increasing non-emitting sources of energy. They don’t dispute that this is a legitimate strategy to reduce greenhouse gas (GHG) emissions (it plainly is) but question only how EPA has translated it into state targets for renewables and nuclear power.

There may indeed be room for improvement in these two areas, as I discuss below. But it’s another matter entirely to present these narrow and fixable problems as fundamental flaws in EPA’s rulemaking that call into question its legitimacy. Wallach and Abdun-Nabi take this tack when they argue that “without any real guidance from the statute, [EPA] has cast its net so wide that it is essentially prescribing energy policy goals for each state” and that its renewable goals are an “affront to the states’ democratic sovereignty.”    

Making the Clean Air Act Work Effectively to Address Climate Change

These claims reflect a profound misreading of EPA’s role on climate change. In 2007, the Supreme Court affirmed the application of the Clean Air Act to GHGs and held that EPA had an obligation to use its authority to reduce GHG emissions if it found, based on the scientific evidence, that these emissions “endangered” the public health or welfare. In 2009, EPA made this “endangerment finding” in an exhaustive review of climate change science. Power plants are the nation’s largest source of GHG emissions and in 2011, the Supreme Court recognized the role of section 111(d) (the authority for EPA’s Clean Power Plan) in regulating these emissions.

Admittedly, Congress provided limited guidance on the scope of 111(d) but it is hardly unknown for agencies to use their judgment and expertise to give shape and meaning to statutory language where Congress has not explicitly prescribed how it should be interpreted. The Bush Administration did exactly that when it chose to regulate power plant mercury emissions under section 111(d) (a decision rejected by the courts for unrelated reasons).

As Wallach and Abdun-Nabi note, emission reductions under section 111(d) must be based on the “best system of emission reduction” that is “adequately demonstrated” after considering costs and energy and environmental impacts. EPA could have interpreted this concept narrowly, basing emission limits solely on the ability of existing power plants (fired by coal and natural gas) to upgrade their equipment to produce power more efficiently and thereby reduce GHG emissions. But this would have resulted in modest incremental reductions in emissions far too low to meaningfully affect the carbon footprint of the power sector.

Instead, EPA chose to define “system of emission reduction” in a manner that reflects the integrated nature of power production and distribution and the impact on emissions of multiple factors, most notably the level of demand for electricity and the choice of generation technologies to meet that demand.  

This “systems” approach carries legal risks (although it seems consistent with the plain language of the Act). But these risks seem worth taking in light of the payoff – the ability to achieve power sector GHG reductions at a scale (30 percent below 2005 levels by 2030 according to EPA) that will move the needle significantly in the U.S. and challenge other major economies to follow suit. Indeed, given the certainty of continued Congressional gridlock on climate, the Obama Administration – which has committed the U.S. to a 17 percent economy-wide GHG reduction from 2005 levels by 2020 – would have lost international credibility if it failed to take full advantage of its authorities under existing law.

EPA’s Building Blocks: Demonstrated and Effective Tools to Reduce Power Plant Emissions

The four Building Blocks in the Clean Power Plan are the logical consequence of the “systems” approach and closely track the forces that have been transforming the power supply sector even without EPA regulation.  According to EPA, GHG emissions from power plants declined in the U.S. by close to 15 percent between 2005 and 2012. This occurred because of the dramatic reduction in natural gas prices and shift from coal to gas as a generation fuel (Building Block 2); the increase in renewable energy supplies as the price of wind and solar power dropped and states ramped up renewable requirements (Building Block 3); and moderation in electricity demand because of greater investments in energy efficiency (Building Block 4). Legalities aside, any strategy to accelerate the reduction in U.S. GHG emissions would be misguided and ineffective if it did not rely on these Building Blocks.

The state goals in EPA’s Plan are an inevitable byproduct of the architecture of section 111(d), which holds each state responsible for developing standards of performance which meet national targets, a task that states cannot perform unless they know what level of reductions they must achieve.

As I noted in my initial posting, EPA could have assigned uniform goals to each state. Perhaps this would have defused the claim that EPA is setting “energy policy” for the states, but it would have invited even more passionate charges that EPA is putting all states in the same box despite variations in energy supply and costs, proximity to and mix of fuel sources, power consumption patterns and market structure.  Attempting to tailor the four Building Blocks to the circumstances of each state – admittedly a challenging analytical exercise – seems the only defensible way to accommodate these variations.

Wallach and EPA suggest that, by basing each state goal on its assessment of the state’s ability to reduce carbon intensity using the four Building Blocks, EPA is substituting a federal edict for state energy policies. But EPA has taken pains to avoid micromanaging state policy choices by making it clear that its goal calculations are not intended to dictate how states meet their goals; they can use any or all of the Building Blocks as well as additional measures as they see fit provided they achieve the prescribed level of emission reductions.

Are the States Bearing Unequal Costs?

That the goals diverge from state to state doesn’t necessarily mean that states will bear disparate burdens, as Wallach and Abdun-Nabi imply. The ultimate litmus test is whether some states will have higher electricity costs than others because EPA has allocated emission reduction responsibilities unequally. Wallach and Abdun-Nabi present no evidence that this is the case.

In fact, however, EPA has analyzed the impact of its proposal on electricity rates. Its analysis shows that rate increases will be extremely modest – on average between 5.9 and 6.5 percent by 2020 and between 2.7 and 3.1 percent by 2030. The Agency has broken out these increases for 20 different regions.  Although they vary somewhat, these variations are fairly small, generally within 2 percent below or above the national average in 2030. Moreover, because of projected increases in energy efficiency under Building Block 4, average electricity bills are actually anticipated to decline by 2030 between 8.4 and 8.7 percent. In short, EPA’s analysis does not show dramatic differences in economic impacts across the states (or even impacts that are significant).   

Improving Renewable Energy and Nuclear Targets

That said, improving the calculation of state goals is well worth EPA’s time and effort as it develops a final rule, and here Wallach and Abdun-Nabi are right to raise questions about EPA’s treatment of renewables and nuclear power.  

With regard to renewables, wind and solar are clearly more viable power sources in some regions than others and some geographical differentiation is therefore warranted. For example, states in the Great Plains “wind corridor” are better able to generate wind power at a competitive cost than Eastern coastal states; likewise, the Southwestern states are acknowledged to have an inherent advantage in utility-scale solar. EPA’s regional analysis is a step toward capturing these differences but it focuses disproportionately on how proactive the leading states in the region have been in setting aggressive renewable goals and not on the extent to which renewable power in the region can be scaled up cost-effectively. One result is that states that traditionally have been laggards on renewable power are assigned modest goals even though their renewable resources would justify more robust programs.  For example, the goals for Arizona (4%), Kentucky (2%), Missouri (3%), Rhode Island (6%) and Tennessee (6%) are clearly understated relative to other states with comparable renewable resources.  

It’s wrong to suggest that these distinctions are crassly driven by “politics”, as Wallach and Abdun-Nabi claim, but they do attach undue weight to the state’s historical level of effort and apparent motivation to expand existing programs.  To be sure, states with established programs and ambitious renewable goals will be able to progress more quickly than states with little or no track record.  But these differences should disappear over the 15-year time frame for implementing EPA’s rule and should play little or no role in differentiating among states.

Perhaps recognizing the weaknesses in its preferred approach, EPA has proposed an alternate methodology for calculating state renewable targets. This methodology looks at three factors: the state’s “technical” potential for renewables, based on its renewable resources base; a reasonable rate of growth in state programs from current levels; and economic and grid constraints that would limit the cost-effectiveness of renewables compared to other options (with $30 per ton as a threshold for cost-effectiveness.)  Although requiring more careful scrutiny, this approach seems to offer considerable promise.

Oddly, Wallach and Abdun-Nabi argue that where states have formally established aggressive renewable targets, it’s somehow overreaching for EPA to accept them at face value and incorporate them in state goal calculations.  These renewable targets represent legally binding state commitments, adopted by elected leaders after careful deliberation and consultation with stakeholders. Why should EPA discount them on the ground that states may have overstated their ability to increase renewable penetration? [1]

Obviously, if states want to back off from these commitments now that they are faced with EPA’s rule, they can do so before the rule becomes final. But it’s highly doubtful Massachusetts, New York, Oregon and California, who strongly support action on climate change and are Clean Power Plan advocates, will waver on their renewables goals.  

Overall, EPA’s state-by-state projections of increases in renewable power would result in a lower rate of growth than other knowledgeable observers believe is achievable based on rapid ongoing improvements in wind and solar technology and reductions in cost. For example, Energy Secretary Moniz has forecast that renewables will represent 30-40 percent of the national energy mix by 2030.  Changes in EPA’s  methodology more focused on technical achievability and cost-effectiveness would in all likelihood result in a greater role for renewables in setting state goals.      

When it comes to nuclear power, Wallach and Abdun-Nabi are right to question EPA’s approach of including under-construction nuclear capacity in setting state goals. As they say, this would draw an arbitrary distinction between states that have already invested in new reactors and states considering but not yet building new reactors.   EPA’s objective to create incentives for preserving the existing nuclear fleet in the face of economic pressures is a legitimate one; it would be counterproductive to downsize the nation’s largest source of non-emitting power.  But EPA needs to go back to the drawing board in determining how this policy is best achieved.   

Staying the Course on EPA’s Rulemaking

EPA’s state targets for renewables and nuclear are fair game for criticism,  but they reflect understandable shortcomings in constructing a complex methodology and not fundamental flaws in EPA’s approach to setting state goals. The rulemaking process affords an opportunity to offer constructive suggestions to strengthen EPA’s goal-setting formula. That should be our focus, not stopping in its tracks a well-conceived proposal to achieve essential cuts in GHG emissions that no other approach (legislative or regulatory) can deliver any time soon.   

[1] Unaccountably, for California, Iowa, Colorado, Minnesota and Maine, EPA projects increases in renewables that are smaller than state targets on the books and in some cases smaller than the share of total power production which renewables have already achieved. This is clearly an unjustified approach.

Bob Sussman is the principal in Sussman and Associates. He recently completed four and a half years of service in the Obama administration, first as co-chair of the Transition Team for the EPA and then as senior policy counsel to the EPA administrator. He was a senior fellow at the Center for American Progress in 2008, writing and speaking about climate change and energy. In 2007 he retired as a partner at Latham & Watkins. He previously served in the Clinton administration as the EPA deputy administrator, chief operating officer, and regulatory policy officer.