Insider Briefing on Controversial New EPA Rules

By Eric Viola, WCTA Public Policy Analyst

May 22, 2014 – Seattle, WA.  In anticipation of the EPA’s comprehensive and controversial proposal on carbon pricing across the nation, WCTA President Tom Ranken joined in a meeting on Thursday with more than two dozen members of the energy policy community. Among those present were Governor Inslee, EPA administrator Gina McCarthy, King County Executive Dow Constantine, Regional EPA Administrator Dennis McLerran, and former EPA Administrator Bill Ruckelshaus. At the heart of the conversation was the EPA’s highly anticipated proposal in pursuit of section of 111(d) of the Clean Air Act.

Geothermal energy, #10In June 2013, President Obama requested the EPA issue regulations on carbon emissions from existing power plants pursuant to the Clean Air Act. President Obama requested a proposal by June 2014 and final ruling by June 2015.

Section 111(d) sets the role of the EPA as a guide, fostering EPA collaboration with States to prepare “standards of performance” for existing power plants. States are charged to achieve emission limitation through the application of the “best system of emission reduction…taking into account the cost of achieving such reduction.” The weight of responsibility in this regard falls on the States, and Governor Inslee described the EPA guide as “a State-friendly effort.” The Governor went further, praising the EPA effort’s action. Congress, he went on, can’t be relied upon to take essential action.

Many saw the State-friendly nature of the anticipated proposal as a chance for Washington to take the lead. King County Executive Dow Constantine said, “Climate change is the challenge of this and coming generations. We want to be the source of the solutions.” The EPA is expected to focus on how States may develop standards of performance commensurate with the federal model plan. States will submit their proposed plans by June 2016. While the EPA is not expected to produce a model plan for States, it is expected to assemble a suite of implementation policies including market tools that States can consider. “We are strongly in favor of efforts that lead to market solutions to the problems that clean technologies address,” reported Tom Ranken, President and CEO of the Washington Clean Tech Alliance. “Great business applications—that save energy and drive down costs—are the most effective way to create a cleaner planet,” he concluded.

There are three main areas of interest in the EPA’s upcoming proposal, each area relying heavily on the EPA’s decision in the preceding area:

System vs. Source Regulation

In System Regulation, the State limits total carbon emissions in a specified system. In the case of EPA 111(d), that system is the network of existing power producers. In Source Regulation, the State limits carbon emissions from specific sources in the network. The EPA has not indicated whether source-by-source or system-wide regulation will be the basis for its approach, and this decision will have a large impact on State policy design.

Regulatory Model 

Once it has promoted system or source-based regulation, the EPA will direct States in the direction of one of three regulatory models: Command and Control, Averaging, and Cap-and-Trade. In the Command and Control model, specific sources or the system as a whole are required to limit emissions to a specific amount. This is widely viewed as the least economically efficient model. In the Averaging model, carbon emissions are limited in accordance with an average emission standard across sources. In the Cap-and-Trade model, emitters are issued allowances up to which they may emit. Allowances in excess of emissions may be sold or saved.

Regulatory Options

The third area of interest in the EPA’s proposal will be regulatory options. Nested under each regulatory model is a set of potential policies that States may adopt to improve State-specific efficiency. Banking and Borrowing, for example, are compliance measures that allow emitter-specific temporal trading. In this way, a company can borrow from its future self, effectively front-loading emissions. Averaging is another tool for this goal, whereby a company must not exceed an emission average over a set period of time. Another broad regulatory option is Crediting States for early emissions reductions programs. This would avoid placing a higher regulatory burden on States that have already taken the lead in this arena. There are many more regulatory options open to the EPA, and specific policy options will depend heavily on whether the EPA backs system or source regulation and which regulatory model it espouses.

The June 2014 proposal will indicate the EPA’s intended positions on these issues, giving States and companies time to develop positions on each issue before the proposal is finalized in June 2015.  Impressed by the importance of dealing with carbon, EPA Administrator McCarthy had this to say: “when you go after carbon pollution, lots of other pollution follows. This really is about public health.

“This is going to be fun,” she concluded.