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US' Clean Power Plan: Supreme Court stays the proposal for now [free access]

March 10, 2016

The much hyped and ambitious Clean Power Plan (CPP) announced by United States (US) President Barack Obama and the Environmental Protection Agency (EPA) in August 2015 has been put on hold by a Supreme Court ruling in February 2016. The CPP is officially known as ‘Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units’. In effect, the Supreme Court has also stayed EPA’s ‘Standards of Performance for Greenhouse Gas Emissions From New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units’ final rule (the companion rulemaking to CPP) recorded in the Federal Register on October 23, 2015.

 

The CPP is being touted as a historic and significant step for combating the effects of climate change through reduction of carbon emissions from power plants, which form the country’s largest source of carbon emissions. The overarching objective of EPA’s CPP rules is to reduce the electricity sector’s carbon dioxide (CO2) emissions to 32 per cent below 2005 levels by 2030. This is expected to be achieved through standards for power plants, specific state-level targets to cut carbon emissions as well as federal-state partnerships. These are the first-ever national standards that address carbon pollution from power plants. The final rule is the result of extensive consultation with states, utilities, stakeholders and the public, including more than 4.3 million comments EPA received on the proposed rule.

 

However, several states, corporations and industry groups raised their concerns in the United States Courts of Appeals for the District of Columbia to block the EPA’s rules. This includes 15 South and Midwest states that come under the service area of Southwest Power Pool (SPP) and Midcontinent Independent System Operator (MISO). The opposing parties contend that the CPP forces them to restructure their power generation, transmission and distribution network in a short span of time. The actual implementation of the plan now depends on the proceedings of the legal battle initiated by these states. It may be noted that the US Supreme Court ruling does not address the merits of the CPP; rather it simply indicates concern regarding the immediate impact as well as legal issues.

 

Global Transmission Research presents a brief description of the key aspects of the CPP, its impact on electricity transmission and its development as well as the concerns of the states opposing it.

 

What is CPP?

 

The CPP standards have been developed under the Clean Air Act, which requires the EPA to take measures to reduce air pollution that harms public health. The CPP sets CO2 emissions performance rates for affected power plants that reflect the best system of emission reduction (BSER), and leaves it up to the states to develop plans that will achieve those rates, with guidelines for the development, submittal and implementation of those plans. In effect, the CPP offers a flexible framework under which the states may meet the set targets by optimising carbon pollution reductions, ratepayer affordability, electricity system reliability and investment in clean, innovative technologies.

 

In determining the BSER, EPA considered the activities, technologies and strategies already in widespread use by states and utilities that result in reductions of carbon pollution. The CPP expresses the BSER in the form of two source-specific CO2 emission rates for coal steam and oil steam plants as well as for natural gas plants, irrespective of the location.  

 

The available options for reducing emissions include improved efficiency at power plants, shifting generation from coal to natural gas as well as investing in renewable energy sources. Certain conditions have been specified to ensure that there is no excessive rush to natural gas. This is essential as states must be careful while making decisions to make a significant shift towards natural gas as against ramping up renewable energy capacity as well as taking energy efficiency measures.

 

States also have the option to join together to find the lowest cost alternative for cutting their emissions including through emissions trading programmes. Emission trading could be a cost-effective way for states to meet their goals. It offers several benefits, including lower cost of compliance, creative incentives for early reduction or reductions beyond those required, promoting innovation, increasing flexibility and ensuring reliability.

 

According to the final rule, states are required to submit a final plan or an initial plan with a request for an extension by September 6, 2016. The EPA could grant an extension of up to two years in the case of the latter option. While the compliance period begins from January 1, 2022, the final rule provides 15 years for full implementation of all emission reduction measures, with incremental steps for planning and demonstration that will ensure progress is being made in achieving CO2 emission reductions. Further, the rule offers three multi-year step down goals within the interim period whereby states can show their progress towards meeting interim CO2 emission performance rates or state CO2 emission interim step goals. During the interim period, states have to periodically report the results of emission levels achieved by their affected power plants to the EPA.

 

The annual cost for complying with the CPP is estimated at USD1.4-2.5 billion in 2020 and USD5.1-8.4 billion in 2030. The costs include both investments in transitioning to low-carbon power and savings from investments in energy efficiency. The corresponding benefits and savings that are expected by that time are estimated by EPA at USD20 billion in 2030, besides the millions of tonnes of reduction in carbon emissions annually. The estimates by Union of Concerned Scientists (UCS) are more optimistic at USD26-45 billion by 2030. In addition to this, the EPA expects the standards to help gain health benefits worth USD12-34 billion in 2030. This would be achieved by reducing exposure to particulate matter and ozone pollution.

 

Supporters of the plan opine that several existing measures are helping states make significant progress in cutting their power sector carbon emissions. This includes renewable energy and energy efficiency standards as well as regional collaboration and carbon trading programmes. For instance, 29 states have renewable energy standards in place setting a target for a particular share of electricity generation from such sources. Further, two dozen states have set energy efficiency resource standards (EERS) establishing specific goals for energy savings. Nine states are taking part in the Regional Greenhouse Gas Initiative (RGGI), which is a multi-state initiative to cut emissions. Similar to this, California has put in place a carbon trading programme.

 

How will it impact electricity transmission?

 

It has been established that a sophisticated grid that connects the low carbon/zero carbon emitting power sources together to deliver power across the country, along with diversity of generation could not only offer cost-effective advantages but also provide the required power while emitting less CO2.

 

Transmission infrastructure is a vital aspect for the successful implementation of the CPP. It requires special attention in terms of early analysis and planning. In the final rule, provisions have been included to help maintain system stability, which may be hampered due to swift changes in the generation mix. This includes sufficient time and flexibility to allow for planning, implementation and the integration of actions needed to address reliability while achieving the required emission reductions. States need to show they have considered reliability in developing their individual plans while they can amend their approved plans in case of any reliability challenges. The rule also includes a reliability safety valve to address unforeseen emergencies.

 

While the final rule addresses some of the issues related to maintaining system reliability, the implementation of the CPP still has the potential to pose system security challenges for system operators and utilities. For instance, MISO, in its preliminary November 2015 study of the impact of CPP, argues that compliance has the potential to change the economics of the MISO system. It is currently conducting a study to evaluate the impact of the MISO states’ decisions to choose rate- or mass-based compliance strategies on the generation mix within MISO's footprint. The results of the study will be published in March 2016, which will be used to evaluate the need for additional transmission. PJM and SPP are conducting similar detailed analyses. 

 

In particular, fuel switching could impact transmission flow patterns, substation voltage, capacity, operation and reliability. Further, the cost of transmission investments required by the changes in the generation mix will also be substantial, estimated at USD1.5-2.5 billion by a study by ICF International. Most of these investments will have to be made by 2020. Another issue relates to the allocation of costs for transmission projects. While regional transmission project costs are shared by the entities in the region that will benefit from the project, the CPP could require projects to be built in regions that will see no benefits from it.

 

Even if the required investments are arranged, a major concern relates to the proposed timeline, which may be inadequate for transmission planning and implementation. Most of the new capacities that will come under the CPP have lower gestation periods than the associated transmission capacity. The average time taken to implement a transmission project ranges from 7 to15 years (in view of the time-consuming permitting and state siting processes).

 

Legal battle and opposition stance

 

Within a month of its announcement, several states initiated the legal proceedings opposing the scheme. These include seven states that come under the service area of SPP (Arkansas, Kansas, Louisiana, Nebraska, Oklahoma, South Dakota and Wyoming) and six others under MISO (Wisconsin, Ohio, Indiana, Kentucky, Alabama and Florida).

 

As mentioned earlier, these states argue that it is unfair to impose such tight targets on them to be achieved in a short period of time as they involve huge investments, particularly in transmission, as well as infrastructural challenges. MISO’s study estimates the projected costs for transmission expansion to comply at around USD10.8 billion over 20 years. Similar studies carried out by PJM and SPP also suggest that regional compliance with the EPA’s carbon emission rule is more economical than assigning individual targets to states.

 

In response, on February 9, 2016, the Supreme Court put the implementation of the CPP on hold. In its ruling, the court has stated that while the CPP regulated carbon emissions, it also integrated resource planning, transmission and power generation, areas typically outside EPA's jurisdiction. The rule was challenged as being outside the scope of EPA's authority under the Clean Air Act.

 

The hold is expected to last for around 18 months, depending on how quickly the appellate process progresses. The stay will remain until a lower court rules on the merits and the Supreme Court either declines to hear the case or rules on the merits.

 

Way forward

 

While supporters of the CPP are disappointed with the recent development, they remain optimistic as the courts are yet to rule on the merits of the case. Further, they argue that other states are not prevented from moving ahead with clean energy plans. For instance, a study by UCS indicates that the existing clean energy commitments already place over 30 states on track to achieve over half of their short-term CPP emission reduction requirements while 21 states are set to surpass them. Further, reducing the carbon footprint in the sector has numerous benefits including cleaner air, improved public health, as well as a more economical and diversified fuel supply.

 

Although the Obama government has been keen on taking forward the CPP swiftly and establishing its commitment to take the lead in global efforts to address climate change, the recent Supreme Court ruling (although not conclusive) has certainly (at best) delayed its implementation. The future of the plan—the extent of its dilution, if any, or its abandonment in the worst-case scenario—depends on the outcome of the legal proceedings over the next few months. In any case, most of the electric utilities in the country are already planning to close down their old coal-based plants over the next decade or so and move to cleaner sources of power. Therefore, the stay may not be of much consequence to them except for buying more time to finalise their plans.