11.20.15

Newsletters,

Clean Power Plan Litigation Is Underway … But How Much Will It Matter?

PRACTICE GROUPS

The floodgates of litigation over EPA’s Clean Power Plan – one of the most controversial environmental regulations in years – are open wide.[1]  States and industries most affected by the rule, first unveiled in August and finalized just three weeks ago, have been preparing legal challenges for months.  Now that those challenges are underway, it is worth considering what effect they may have on the likelihood and timing of the Clean Power Plan’s ultimate implementation.

The Clean Power Plan, which limits carbon dioxide (CO2) emissions from electric generating units, principally affects regulated and municipal electric utilities, electric cooperatives, and independent power producers.  But a host of other industries will feel effects of the Clean Power Plan, too.  This includes industries directly dependent on generating entities, like transmission providers and electric power equipment manufacturers.  More generally, it includes all large commercial and industrial users of electricity concerned with power prices and reliability.  For other industries, the Clean Power Plan may be a harbinger of future greenhouse gas regulations targeted at sources outside of the power sector.  To be sure, many industries are closely watching legal challenges to the Clean Power Plan.

Yet efforts to implement the Clean Power Plan are already underway.  These efforts, together with market forces and other new regulations unrelated to the Clean Power Plan, will probably drive permanent shifts in the way electricity is generated and delivered throughout the country – even before a final ruling on the legal merits of the rule.  Legal challenges to the Clean Power Plan, in other words, are unlikely to forestall ongoing and irreversible changes to the electric power industry.

Clean Power Plan Overview

The Clean Power Plan is notable for two key reasons.  First, the Clean Power Plan effectively caps CO2 emissions for each state on a statewide basis rather than an individual source basis.  Second, the rule expressly applies to emissions from existing, unmodified fossil fuel power plants.[2]

The Clean Power Plan requires states to choose between a mass-based CO2 emissions cap (total short tons of CO2 emissions) and a rate-based emissions cap (pounds of CO2 emissions per megawatt hour of energy produced).  Once this choice is made, each state must submit a State Implementation Plan (SIP) that demonstrates how that state’s electric generation fleet will meet interim and final standards for that state’s chosen emissions cap metric.  EPA will impose a Federal Implementation Plan (FIP) on states that do not submit a SIP or on states whose proposed SIP is deemed inadequate.

Interim CO2 emissions standards established by EPA must be met beginning in 2022, and final standards must be met by 2030.  In aggregate, the Clean Power Plan requires a 32% nationwide reduction in CO2 emissions, using 2005 emissions levels as a baseline, by 2030.

Clean Power Plan Litigation

The Clean Power Plan’s legal challengers principally fault the rule’s “beyond-the-fenceline” approach to regulating existing sources of CO2.  By establishing statewide emissions caps that for many states cannot be met by current generating fleets, the rule will essentially require the construction of new electric generating units that emit less CO2 and the retirement of older units.  This broad sweep, challengers argue, is inconsistent with the text of the Clean Air Act[3] and with general principles that assign power sector regulation to the Federal Energy Regulatory Commission and to the states rather than to EPA.

Whatever the outcome of this challenge, it is likely to find its way to the Supreme Court, and a final decision is therefore years away.  Opponents of the Clean Power Plan have asked the D.C. Circuit to put the rule on hold while courts consider the underlying challenge.  But the legal standard for obtaining a stay is stringent, and given the relatively long compliance timeline under the Clean Power Plan, a stay is no sure thing.  The D.C. Circuit is not expected to rule on the challengers’ request for a stay until sometime in 2016, moreover, when Clean Power Plan implementation efforts will have been underway for perhaps a year or more.

Even With Litigation, Substantial Shifts In The Power Sector May Be Inevitable

In seeking a stay of the Clean Power Plan, many challengers have argued that implementation of the rule during litigation will require irreversible compliance decisions by states and regulated entities.  If such decisions are made, the Clean Power Plan will have affected substantial and permanent change within the power sector – regardless of the rule’s ultimate legality.

This argument is illustrated by a recent example.  In June, the Supreme Court blocked implementation of another key environmental regulation affecting the power sector – the Mercury and Air Toxics Standards (MATS).  Although the MATS rule may yet survive after remand to the D.C. Circuit, the Supreme Court decision represented a significant victory for the rule’s opponents.  But because EPA initially announced the MATS rule more than three years earlier, many power producers invested heavily in pollution control technology before the Supreme Court blocked implementation of the rule.  MATS also led power producers to plan for the retirement of numerous coal-fired generating units.  Affected companies are now unable or unlikely to backtrack from MATS-driven strategic planning, meaning that the rule will have had profound effects on the power sector even if it is never fully implemented.[4]

Similarly, if implementation of the Clean Power Plan is not stayed by the D.C. Circuit next year, the long timeline for a legal challenge may result in irreversible changes to affected industries regardless of whether the rule is ultimately upheld by the courts.  Most states are proceeding with the development of SIPs, rather than waiting for imposition of an EPA FIP, and this process alone is likely to build Clean Power Plan compliance momentum even as litigation proceeds.  That momentum may be hard to reverse later, if the rule is struck down, because many power sector participants – particularly regulated utilities – must make capital investment and long-term strategic decisions years in advance.  Such decisions will likely be formulated coterminously with state SIP development, even before SIPs are approved by EPA and then finalized.

Another reason why vigorous challenges to the Clean Power Plan may not stem major changes within the electric power industry is that other regulations are pushing the industry away from traditional coal-fired power generation at a rapid rate.  A recent series of important EPA rules, including MATS and separate regulations targeted at coal ash management and cooling water intake, has driven major strategic planning efforts by utilities and other power producers.  State renewable energy mandates have also driven a shift away from fossil fuel power generation.

Perhaps most important, a several-year trend of relatively low natural gas and wind energy prices has led to some displacement of coal generation on purely economic terms.  Recent heavy investment in natural gas storage and transportation infrastructure, as well as in wind generation and transmission infrastructure, indicates a continued market-driven decline in coal-fired power generation over the next decade.

No matter the success or failure of high-profile legal challenges to the Clean Power Plan, the rule is likely to result in substantial changes to the power sector before its legal fate is known.  And even if struck down, the Clean Power Plan is only one facet of an evolving new electric generation paradigm that is likely here to stay in one form or another.

The opinions expressed in this article are those of the authors and do not necessarily reflect the views of the firm or its clients.  This article is for general informational purposes and is not intended to be, and should not be taken as, legal advice.

The Riddell Williams Environmental Group has played a key part in addressing some of the region’s most challenging environmental issues.  Our group’s clients include utilities, pulp and paper manufacturers, petroleum companies, regional energy companies, airlines and airfreight carriers, steel manufacturers, waste management companies, technology businesses, real estate development partnerships, private landowners, and some of the state’s leading environmental groups.


[1] This is the first in a series of articles that will address evolving state and federal legal frameworks related to greenhouse gas emissions.  Many industries will be affected by these frameworks, which include not just direct regulation of greenhouse gas emissions, but also indirect regulation such as renewable energy mandates and clean fuel standards.  Some of these rules are new; some are not.  Almost all have been challenged, or will be challenged, in court.  Because these legal frameworks may have sweeping impacts across so many sectors of the economy, it is important to consider how the existing and proposed rules work.  It is also important to track and evaluate legal challenges to the rules and to monitor efforts by regulators and regulated industries to implement and comply with the rules.

[2] The EPA has also published New Source Performance Standards (NSPS) for greenhouse gas emissions from new and modified power plants.  The greenhouse gas NSPS rule is being challenged (and defended) by many of the same parties involved in litigation over the Clean Power Plan.

[3] The Clean Power Plan is rooted in a rarely-used provision of the Clean Air Act, § 111(d), that allows EPA to establish performance standards for any existing source that would be subject to NSPS regulation under § 111(b) if the source was new.

[4] Another example, with direct impacts outside of the electric power sector, involves recent EPA regulations limiting air emissions at industrial boilers.  These boiler rules have been bogged down in litigation for a decade, but legal challenges probably will not be resolved before the current compliance deadline in early 2016.

 

PDF of Newsletter.