Initial Analyis of EPA’s New Carbon Rule

By Professor Alan Ramo

I have been reviewing the June 2, 2014,  United States Environmental Protection Agency (U.S. E.P.A.) Clean Power Plan Proposed Rule for existing power plants and assessing some of the early commentary.  I wanted to blog particularly on one of the options for the states provided in the rule, and particularly one aspect of that option.  As was announced, the states are being given a choice of options to pursue in developing plans for carbon reduction.  One of those options is market trading programs.

Interestingly, the market trading programs are limited to trading in the electricity generating sector.  As stated on page 429 of the rule, “EPA is not proposing that out-of-sector GHG offsets could be applied to demonstrated CO2 emission performance by affected [Electrical Generating Units] in a state plan.”  To put it another way, we will not allow states to do what California does and pretend that there are emission reductions at fossil fuel power plants because they buy a forest in Michigan, Quebec or anywhere else.

Ironic that California, along with groups like NRDC and EDF,  is doing a blitzkrieg in the news that the proposal vindicates its approach to cap-and-trade.  California is right that a comprehensive program such as California’s global warming regulatory program is a model, but only because it includes the Renewable Energy Portfolio Standard, Low Carbon Fuel Standard, efficiency measures and a long list of programs addressing global warming pollutants in addition to cap-and-trade, which is actually a small part of the program.

As to cap-and-trade, U.S. EPA does not trust the approach, or at least recognizes that the federal Clean Air Act would not allow such an approach.  Instead, after reading the  U.S. EPA Technical Support Document, “Projecting EGU CO2 Emission Performance in State Plans”, particularly pages 36-42, I take it that EPA is quite concerned with making sure the States that have these multi-sector California style programs accurately tell the truth about what emission reductions are actually occurring at its fossil fuel generators, not the budgeted number that includes offsets.

The entire proposal is structured on the States submitting plans by 2016 (later if done with other states) that will demonstrate achievement of the emissions reductions assigned to each state.  Similar to the plan and review approach of smog plans under the federal Clean Air Act, U.S. EPA reviews the plans and if acceptable, states have more than a decade to achieve the reductions by 2030.  Thus the crucial step in this whole program is U.S. EPA making sure the plans are effective.  If the states miscalculate or underestimate future power plant emission reductions, the whole strategy fails, as has repeatedly happened for years with the smog program.

U.S. EPA is setting itself up for a massive program of plan reviews and oversight.  If states have complex trading programs involving multiple sectors such as California, (which includes trading between the electrical sector and industry, and between both of them and unregulated sectors like forests, mines, diary farms and ozone depleting chemical depletors as noted in prior blogs) U.S. EPA may not be able to bring proper accountability to these plans.

A California approach to cap-and-trade may not in the end be so beneficial for the states, or U.S. EPA, given its complexity.  But for the industries that can buy their way out of emission reductions by purchasing cheap offsets, it is still their favored choice.  It will be interesting to see if this prohibition on “out-of-sector” trading survives into the final Rule.

For an interesting analysis of whether the goals are sufficient, see the statement from the Institute of Policy Studies and Food and Water Watch:  \”EPA\’s Carbon Rule Falls Short of Real Emissions Reduction.\” Most commentators seem to agree the projected reductions will not alone achieve President Obama’s international promises for emission reductions and are not on the scale that the Intergovernmental Panel on Climate Change projects is needed to avoid the worst of climate change’s impacts.

P.S.  By the way my letter to the NY Times published on June 4, 2014, about their article promoting California’s livestock offset protocol allowing a Wisconsin dairy farm to offset pollution in California by reducing methane emissions at the dairy can be found here.

P.P.S.  6.9.14.  Five days after writing that it will be interesting to see if the “out-of-sector” prohibition on offsets survives, the forest offset industry has begun to call for such a change.  See this story.

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