Regulators implement climate policy based on the law Congress enacts, not the law they may wish Congress would enact. For the Obama administration, that law is the existing Clean Air Act.
Indirect climate policy through the Mercury Rule
The 2011 Utility Mercury and Air Toxics Standards (MATS) is perhaps the most significant regulatory action affecting near-term greenhouse gas emissions from the electric power sector. Section 112 of the Clean Air Act, aimed at hazardous air pollutants rather than climate change, specifies how the Environmental Protection Agency (EPA) must set the technology standard (average emissions performance of the sector’s top 12 percent of existing sources) and the timeline for meeting the standard (at most four years).
Although the rapid pace of coal-fired power plant retirements is primarily the result of sustained low natural gas prices, the MATS timeline forced plant operators and state utility commissioners to decide quickly whether to retrofit or retire facilities that did not meet the standard. The U.S. Energy Information Agency projects that at least 60 gigawatts of coal-fired generating capacity will retire by 2020. Uncertainty regarding future climate policy and the prospect of additional regulations were also important factors.
Because plant closure decisions are generally irreversible, the Supreme Court’s recent Michigan v. EPA decision, which held that EPA must reconsider the threshold determination that regulating mercury emissions from the power sector is “necessary and appropriate,” will have little impact.
The Clean Power Plan
In contrast to the inflexible MATS rule, the EPA’s Clean Power Plan (CPP) takes full advantage of the broad flexibility embedded in section 111 of the Clean Air Act. Section 111 directs EPA to create performance standards for new sources, modified sources, and, in limited circumstances, existing sources, but grants EPA broad discretion when setting the standards. The rule, which covers the nation’s existing fleet of natural gas- and coal-fired power plants, aims to influence the trajectory of the electricity sector. The CPP identifies the “best system of emission reduction” using three building blocks: (1) increasing efficiency (i.e., heat rate improvements) at coal-fired power plants, (2) shifting generation from coal-fired steam units to natural gas combined cycle units, and (3) shifting generation to clean energy renewables. EPA used these building blocks to calculate performance rates for coal and natural gas plants, then translated the rates into state goals measured by pounds per megawatt hour (i.e., a rate-based standard focusing on improved efficiency at power plants) and tons of carbon dioxide emitted (i.e., a mass-based standard focusing on reducing overall emission from the electric power sector).
Clean Power Plan implementation choices
States continue to have broad latitude when developing their state plans to meet the CPP standards. As a threshold matter, state officials may choose whether to pursue a mass-based or a rate-based standard. They may also choose whether to assign compliance responsibility solely to existing natural gas- and coal-fired plants, whether to incorporate additional state policies in the state plan, and whether to allow emissions trading.
EPA streamlined the CPP’s market-based options, identifying “trading ready” pathways. Under this approach, if multiple states incorporate similar provisions regarding tracking systems and tradable instruments—tons of carbon dioxide for a mass-based approach and “emission rate credits” for a rate-based approach—then power plant operators within those states could buy or sell emission credits across state borders. To help facilitate interstate emission trading, EPA proposed mass-based and rate-based trading-ready model rules and plans to finalize one or both options by summer 2016.
States face a wide range of additional considerations, including how to address the potential for emissions leakage—shifting generation from existing facilities covered by the rule to new sources that are not directly subject to the rule.
The CPP already faces numerous legal challenges, and it seems inevitable that the Supreme Court will likely deliver the final word on the status of the rule.
Performance standards for oil and gas wells
EPA is also on track to limit emissions of methane—a potent greenhouse gas—and volatile organic compounds from new and modified oil and gas wells. The proposed New Source Performance Standard would require owners and operators of hydraulically fractured wells to capture natural gas emitted while preparing a well for production, find and repair leaks, and limit emissions from pumps that use gas pressure. Additionally, the proposal would expand coverage to emissions from certain natural gas transmission equipment. EPA also plans to expand requirements for existing wells in certain areas and has issued draft guidelines for reducing emissions from existing equipment. The agency separately proposed to expand the Natural Gas STAR Program to create robust commitments for voluntary methane emission reductions.
More Clean Air Act-based climate policy is on its way. In October 2015, the White House announced forthcoming regulations limiting emissions of climate-forcing hydrofluorocarbons, and the CPP potentially sets the stage for carbon dioxide limits for existing facilities in other sectors. Step-by-step, EPA is developing a broad strategy to reduce the nation’s greenhouse gas emissions using its existing statutory authority.