Trump's EPA - GHG Regulatory Reform and the Power Sector



Coal-fired power plants are continuing to face retirements due to the combination of low natural gas prices and flat electricity sales. The retirements come in spite of the Trump Administration's efforts to ease the regulatory burden on the coal industry. Specifically, the US EPA has proposed to repeal the Clean Power Plan, which sought to limit power plants' greenhouse gas (GHG) emissions, as well as suspend, revise, or rescind a series of other environmental regulations that were seen as negatively impacting coal. The problem is that these actions make marginal improvements in coal's position without changing the fundamental economic challenges facing the industry. Natural gas prices have remained low and a rising supply of wind and solar power has depressed prices further. Additionally, no new coal-fired power plants are anticipated due to long term concerns about CO2 in concert with other factors.

President Trump's March 28, 2017 Presidential Executive Order on Promoting Energy Independence and Economic Growth (Order) directed US EPA to suspend, revise, or rescind various Obama-era regulations intended to regulate GHG emissions from power plants, including, but not limited to, the Clean Power Plan (CPP). The March 28, 2017 Order also revoked and rescinded numerous Obama-era energy and climate-related Presidential and Regulatory Actions. Subsequently, on October 16, 2017, US EPA proposed repeal of the CPP, more formally entitled "Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Generating Units." The CPP proposed to enact state-specific carbon dioxide (CO2) reduction goals for existing electric generating units (EGUs), so that by 2030 a nationwide 30 percent reduction in CO2 emissions would be achieved from the power sector over 2005 baseline levels.

Proposed Repeal Effort

When US EPA proposed repeal of the CPP, they also indicated that they would accept public comment on the legal interpretation for repeal addressed within the proposal until December 15, 2017. The US EPA's action on the CPP fulfills a requirement of the March 28, 2017 Executive Order to review, and if appropriate, initiate proceedings to suspend, revise, or rescind the CPP. The preamble to the proposal clarifies that the change in legal interpretation that US EPA is proposing and seeking comment on is that the CPP exceeds US EPA's statutory authority.

The proposal preamble states that Section 111(d) of the CAA requires US EPA to promulgate emission guidelines for existing sources that reflect the "best system of emission reduction (BSER)," but that all other CAA Section 111 regulations promulgated to date are based on a BSER that can be applied to, or at, a single source. The US EPA argues that the CPP departed from this practice by instead setting CO2 emission guidelines for existing power plants that can only realistically be effected by measures that would be applied "beyond the fenceline" of the affected source. Specifically, rather than comply with the rule through facility-specific efficiency improvements, power generators would need to fully alter their system-wide energy portfolios to comply with the CPP. The scope of any potential future rule to be considered under CAA Section 111(d) has not been determined.

It's interesting to note that the EPA also argued the Obama administration overestimated the rule's health benefits by taking credit for reducing emissions of particulate matter, which the carbon dioxide standards did not directly regulate, and also included pollution reductions from regions currently meeting federal air quality requirements for particulate matter. Specifically, the EPA estimated that overall benefits of the CPP totaled $54 billion, with as much as $34 billion coming from ancillary pollution-reduction co-benefits, especially from reducing particulate matter emissions. This argument may indicate that US EPA will consider fewer health co-benefits to air pollution rules, making it more difficult to justify the cost of regulations.

Role of Court of Appeals and the Supreme Court Stay

What would it mean if the Court of Appeals rules on West Virginia v. EPA before US EPA finalizes its proposed repeal of the CPP? Recall that on the same day that US EPA proposed the repeal, they also filed an additional request to the Court of Appeals asking that they further extend the abeyance of the West Virginia v. EPA case. Repeated requests for abeyance may tax the patience of the Court of Appeals enough that they would rule prior to finalization of the repeal. If the Court of Appeals decides to uphold key parts of the CPP before the repeal is finalized, US EPA's efforts to repeal the rule would be undercut. On the other hand, if the Court of Appeals refrains from ruling, US EPA would be relieved of identifying how it plans to satisfy its statutory duties for the indefinite future.

What a Repeal Without a Replacement Rule Could Look Like

Assuming that CPP repeal efforts are successful, and then not having a replacement rule, effectively leaves the door open to civil suits and tort litigation from states, as well as legal action from non-governmental organizations (NGOs). It would also leave a void in policy that could be filled by a different administration. US EPA could also expose itself to legal risk if the court confirms US EPA's obligation to regulate GHGs from the power sector and there is no replacement rule in effect. Therefore, judges at the Court of Appeals have suggested to proponents of the rule that they approach the Supreme Court to lift the stay.

Based on these consequences, the prospects for a replacement rule are generally seen as positive. In addition, although related, it's thought that the Endangerment Finding is a separate issue. Recall that the basis for drafting the CPP dates to a 2007 Supreme Court decision, finding that GHGs are pollutants under the Clean Air Act. In 2009, the Obama administration completed an endangerment finding, with legal support, that GHGs endanger the public health and welfare of current and future generations. Because of the endangerment finding, EPA is required by statute to regulate GHG emissions. Legal experts and environmental advocates acknowledge that nothing is preventing the EPA from soliciting comment on the finding, but the Trump Administration would face a high burden to reverse it. In leaving the Endangerment Finding untouched (although not necessarily embraced), US EPA maintains some obligation to replace the CPP. If, in fact, that is their intent, US EPA has not signaled how long the replacement rulemaking process could take or what the replacement rule might look like.

What a Replacement Rule Could Look Like

The structure of the proposed replacement rule would most likely be a narrow replacement rule that includes facility-specific, scaled-back targets, and resembles the previously proposed Building Block 1 of the CPP. As a reminder, Building Block 1 of the CPP BSER requires "improving heat rate at existing coal-fired steam EGUs on average by a specified percentage." Building Block 1 was expected to be technically feasible and of reasonable cost, and already a common and well-established practice capable of achieving meaningful reductions in CO2. Such a narrow replacement would be consistent with the agency's current position on BSER as being applied to, or at, a single source.

Status of Other Power Sector CO2 Actions

In addition to the CPP, US EPA published other actions on October 23, 2015 intended to reduce CO2 emissions from the power sector. Developments to these actions are summarized in the following paragraphs.

Consistent with the March 28, 2017 Executive Order, US EPA announced on April 2, 2017 that it is "reviewing, and if appropriate, will initiate proceedings to suspend, revise, or rescind" the October 23, 2015 Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units. Prior to this announcement, 24 states and several other parties had already sought separate judicial review of the Standards of Performance in State of Dakota v. EPA, No. 15-1381, with oral argument heard April 17, 2017.

Also consistent with the March 28, 2017 Executive Order, US EPA withdrew the October 23, 2015 proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations.

Finally, on March 28th, 2017 the Council on Environmental Quality (CEQ) withdrew its final guidance for Federal agencies, dated August 5, 2016, "Final Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects on Climate Change in National Environmental Policy Act (NEPA) Reviews". However, two recent court rulings have found that Federal agencies could still have an obligation, despite the March 28, 2017 Order and CEQ action, to evaluate the role of GHG emissions in fossil fuel-related construction projects.

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To recap, US EPA's proposed repeal of the CPP and solicitation of additional comments will likely inform development of a future replacement rule. If it is a narrow replacement of the CPP, it will likely resemble Building Block 1 of the CPP. Repeal without replacement effectively leaves the door open to civil lawsuits and tort litigation from states, as well as legal action from NGOs. It would also leave a void in policy that could be filled by a different administration. Finally, activity by the Court of Appeals with respect to West Virginia v. EPA as well as activity by the Supreme Court with respect to the February 2016 stay can still influence the direction of future GHG rulemakings for the power industry.