Clean Power Plan

US Supreme Court stays the proposal for now

The much-hyped and ambitious Clean Power Plan (CPP) announced by 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 the EPA’s Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units final rule (the companion rule to CPP) recorded in the Federal Register on October 23, 2015.

The CPP is being touted as a historic and significant step towards combating the effects of climate change through a reduction in carbon emissions from power plants, which are the country’s largest source of carbon emissions. Its overarching objective is to reduce carbon dioxide (CO2) emissions to 32 per cent below the 2005 levels by 2030. This is expected to be achieved through standards for power plants, specific state-level targets to cut carbon emissions and federal-state partnerships. The CPP rules are the first-ever national standards that address the issue of 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 that the 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. These included 15 south and midwest states that come under the service area of the Southwest Power Pool (SPP) and the Midcontinent Independent System Operator (MISO). The opposing parties contended 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 outcome of the legal battle initiated by these states. Notably, 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.

A brief description of the key aspects of the CPP, its impact on electricity transmission and development, as well as the concerns of the states opposing it….

What is the CPP

The CPP standards have been developed under the Clean Air Act, which requires the EPA to take measures to reduce air pollution. The CPP sets CO2 emission performance rates for affected power plants that reflect the best system of emission reduction (BSER), and leaves it to the states to develop plans that will achieve those rates, with guidelines for the development, submitting and implementation of those plans. 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, the EPA considered the activities, technologies and strategies that reduce carbon emissions and are already in widespread use by the states and utilities. The CPP expresses the BSER as two source-specific CO2 emission rates for coal steam and oil steam plants as well as for natural gas plants, irrespective of their location.

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

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

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 for 15 years for the full implementation of all emission reduction measures, with incremental steps for planning and demonstration that will ensure that progress is 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 the interim CO2 emission performance rates or state CO2 emission interim step goals. During the interim period, states have to periodically report the results of the emission levels achieved by their affected power plants to the EPA.

The annual cost for complying with the CPP is estimated at $1.4 billion-$2.5 billion in 2020 and $5.1 billion-$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 have been estimated by the EPA at $20 billion in 2030, besides the millions of tonnes of reduction in carbon emissions annually. The estimates by the Union of Concerned Scientists (UCS) are more optimistic at $26 billion-$45 billion by 2030. In addition, the EPA expects the standards to help yield health benefits worth $12 billion-$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. These include 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, establishing specific goals for energy savings. Nine states are taking part in the multi-state Regional Greenhouse Gas Initiative to cut carbon 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 low-carbon/ zero-carbon-emitting power sources together to deliver power across the country, along with diversity of generation could not only offer cost advantages but also provide the required power while emitting less CO2.

Transmission infrastructure is vital to 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 integration of the actions needed to ensure reliability while achieving the required emission reductions. States need to show that 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 November 2015 study of the impact of the 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. PJM and SPP too are conducting similar detailed analyses.

In particular, fuel switching could impact transmission flow patterns, substation voltage, capacity, operation and reliability. Further, the transmission investments required due to changes in the generation mix will also be substantial. A study by ICF International estimates these at $1.5 billion-$2.5 billion. Most of these investments will have to be made by 2020. Another issue is 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 years to 15 years (in view of the time-consuming permitting and state-siting processes).

The 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 their clean energy plans. For instance, a study by UCS indicates that the existing clean energy commitments already place more than 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 a number of benefits, including cleaner air, improved public health and 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 mitigate climate change, the recent Supreme Court ruling (although not conclusive) has certainly delayed its implementation. The future of the plan, the extent of its dilution, if any, or its abandonment in a 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 them more time to finalise their plans.

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