Feature

Will the Clean Power Plan actually change anything in the power sector?

Critics say many in the industry are already moving faster to cut emissions than the plan mandates

The release of the Clean Power Plan this week was expectedly met with apocalyptic reliability and cost predictions from the most strident fossil fuel supporters, but in energy and environmental policy circles, a much different discussion is taking shape.

For many policymakers and commentators, the big question as they piece through the thousands of pages of regulations this week is less about whether utilities and states will be able to comply with the Clean Power Plan targets, and more about whether the regulatory package will actually have a significant impact on the fuel mix and American greenhouse gas emissions.

Those concerns were best encapsulated by Politico’s Mike Grunwald in a post on Tuesday entitled, “Why Obama’s epic climate plan isn’t such a big deal.” The piece is worth reading on it’s own, but the crux of his argument is that the Clean Power Plan won’t change the fuel mix significantly from business-as-usual projections. In fact, by the agency’s own estimates, coal will decline at a slower rate over the next 15 years than it has over the last 10, and “the trends for all other types of generation … will remain generally consistent with what their trends would be in the absence of this rule.” At least, that’s how the EPA itself put it in the finalized rule.

Grunwald isn’t the first or only commentator to make this point about the Clean Power Plan. He and others similarly critiqued the draft proposal, which included what he called “absurdly low” forecasts for renewable energy. And it’s not just journalists. Leaders from the nuclear-friendly Breakthrough Institute slammed the plan on Twitter all week for not bringing down emissions further (and not focusing on gas and nuclear more).

The line of reasoning has also found its way into conservative circles. The National Review and Daily Caller both ran articles this week bashing the plan for, in the Review’s words, intending to “spend billions of dollars to not help the environment.” Congressional Republicans have brought the point up as well in their critiques of the plan.

On the other hand, Grunwald pointed out in a subsequent article that the plan will likely have a big impact on coal-reliant red states. The emissions targets for the dirtiest states are quite a bit stricter under the final plan than the draft proposal, and Grunwald extended this argument in an appearance on the “The Energy Gang,” a podcast from Greentech Media.

But the kernel of the argument — that the plan is basically insignificant and won't reshape the U.S. fuel mix, so much as follow business-as-usual projections — retains many supporters, and is well worth analyzing further. Whether it proves true or not will have far-reaching consequences for the power sector.

A rosier outlook

With the critic’s position in mind, we reached out to an organization with intimate knowledge and a die-hard commitment to the Clean Power Plan — the Natural Resources Defense Council. The NRDC, the New York Times reported last year, was part of a team of stakeholders and scientists that worked with the Obama administration to craft the original draft proposal. Critics have called the organization’s involvement in the drafting process improper, and the GOP-controlled Senate Environment and Public Works Committee released a report this week condemning what it calls “collusion” between the organization and the White House. The NRDC denies such charges.

Whether the NRDC’s role was outsized or just an example of normal advocacy work is a subject for another day, but suffice it to say that the organization’s leaders know the plan pretty well. When Utility Dive jumped on a press call with NRDC officials, David Doniger, the director of the climate and clean air program, took issue with how critics are framing the Clean Power Plan significance debate. Just because energy trends look one way today, he said, that doesn’t mean they will tomorrow.

“On this notion of a trajectory: If you’re going in a car at 40 mph, and the plan calls for you to continue to go 40 mph, a car doesn’t keep going that way unless you step on the gas,” Doniger, who the Times article pegged as the NRDC’s leading man in the drafting process for the Clean Power Plan, said.  

“There still needs to be policy to drive that car to continue on that pace, and to drive the power system to continue on its trajectory.”

That argument  that the Clean Power Plan is essentially a guarantee against emissions backsliding — is a legitimate one, and it has its adherents, although nearly all of them quickly add that the plan is quite modest. It’s an important point, however, given recent research on the source of emissions reductions in the past few years.

Emissions reductions from 2010-2013 largely credited to the natural gas boom are increasingly seen by researchers as driven by the recent recession and subsequent slow economic recovery. If that’s the case, and the economy continues to pick back up, one could argue that the emissions projections policymakers are looking at could be significantly underestimated, making the Clean Power Plan all the more significant.

But framing the Clean Power Plan as a guarantee against backsliding isn’t a fair characterization, the NRDC leaders said. While it’s true that it will provide a backstop, Doniger pointed to projections that show the plan bringing down emissions more than the EPA’s base case scenario.

“If you had no policy, [emissions] would flatten out and go back up,” he said, pointing to the graph below. “So we think this is making a big difference, it’s historic to have carbon limits, and it’s making a difference in what will happen.”

 

The investment climate

The chart the NRDC provided is unlikely to persuade the Clean Power Plan’s critics. The EPA, they would argue, bases its emissions projections on faulty federal government data from entities that have historically underestimated severely the growth in renewables and retirement rate for coal plants. Real emissions reductions, they might legitimately point out, could well end up exceeding all the EPA’s projections at this point.

But if they were to do that, everyone agrees it would take much enhanced investment in clean energy technologies, and that’s the NRDC’s second point. While the rule might have been more ambitious for some states, deputy director of Midwest policy Becky Stanfield said, it gives utilities and renewables developers a clear indication about where the power sector in the U.S. is headed.

“There’s certainly a huge benefit and a market signal to market participants like wind and solar companies that when they build their projects, there will be a market for that clean power,” Stanfield said. “The rules and targets are consistent with the trajectory we’re on, but that doesn’t mean there’s a guarantee that we’re going to meet those targets or stay on that trajectory. Having the targets again provides a huge benefit to companies who are thinking about building those projects that there will be a market for that power when they build it.”

The investment security point, as you might call it, is becoming more common for supporters of the plan, and it can surely be considered a potential upside to the regulations. But those close to the power sector warn that things aren’t so certain, or at least not yet.

Joe Hall, a utilities and power sector lawyer at the firm Dorsey Whitney, said the finalized plan arguably adds more uncertainty for utilities and developers than the other way around. With states still mulling if and how they will write their compliance plans, lawsuits against the plan piling up, and the threat of a possible court stay on the regulations, the future from a utility perspective doesn’t look much clearer this week than it did last. And let's not forget that the next U.S. president could weaken or eliminate the rule in its entirety.

“When you're doing big projects and have long-term planning goals, the one thing you want to avoid is uncertainty,” Hall said. “From that perspective, you’re looking at years of litigation, and then you're going to have each of these implementation plans being developed over the next few years and all of these fights at the federal level are going to be repeated at the state level.”

Whether the threat of litigation or a court stay affects utilities and their planning processes remains to be seen. As Ken Colburn of the Regulatory Assistance Project pointed out to Utility Dive last week, a lot of power companies have expected some form of governmental climate action for years now, and are already working to get ahead of the curve by ramping up their gas capacity, integrating more renewables, and retiring coal plants. And state regulators, even in states that are suing the EPA over the plan, will likely be readying themselves to implement compliance plans if their court cases fail, which could help avoid more market wrinkles as the plan makes its way up to the Supreme Court.

All of this is to say that many of the market certainty concerns surrounding the plan will likely be decided by forces outside of the EPA, as well as the stipulations of the plan itself. For a more detailed account on what the plan means for investors, check out cleantech investor Rob Day’s post at Greentech Media.

A framework for the future

So far this week, most of the assessments of the Clean Power Plan have logically focused on breaking down its finalized version and expected impacts. (Utility Dive did so here.) But it’s also important to think about the historical context surrounding such regulations, said Rachel Cleetus, lead economist at the Union of Concerned Scientists.

While she called the plan “very important,” Cleetus echoed what she told Utility Dive months ago about the proposed rule and its impact on climate change: “It’s not enough on its own. We’re going to need to do more.”

Having said that, Cleetus reminds us that “it’s important to see this plan in the context of the Clean Air Act overall.”

“When the Clean Air Act was first enacted in 1970, pretty early on it was clear that it wasn’t strong enough,” she said. “The 1990 amendments did a lot to strengthen them.”

Now that there are carbon regulations for power plants officially on the books, Cleetus says that the very trends leading critics to conclude the Clean Power Plan isn’t aggressive enough could lead to its strengthening down the line.  

“Under the Clean Air Act there’s a regular review process, and there’s certainly an opportunity going forward to strengthen it over time, as we see the cost of renewables fall and greater deployment to the point that it’s cost effective and economic to go much further and bring down emissions more.”

The plan released this week, she continued, gives the nation “a very solid framework,” especially in its “real push for renewables and an acknowledgement that a rush to gas is not helpful from a climate perspective.”

“I think people shouldn’t underplay what that is relative to market trends, which can go one way one year, one way another, and have this boom-bust cycle,” Cleetus said. “This plan … allows those planning lon- term infrastructure to make sure that the transmission that we need to get more renewables on the grid is actually being built in the timeline the rule is going for.”

Colburn, a veteran air regulator from New England, concurred with Cleetus’ historical take. It’s not unusual for major EPA air regulations, especially in their first iteration, to end up lagging behind private sector progress.

“Due to the progress that is already evident in the power sector today, through technologies and policies and what they’re achieving, it’s entirely plausible that this rule will encounter the same kind of difficulties that the acid rain program did in its implementation,” Colburn said. “Which is to say, it will end up being remarkably less costly than anticipated, and remarkably effective and more easily achieved than anticipated.”

The power sector makes up only about a third of American carbon emissions, Colburn reminded us, so it’s unreasonable for the plan’s critics to expect it to make a big dent in climate change on its own. But, he said, it is a “major step in the right direction, and even if it isn’t enough yet, it does reflect mobilization and concerted action.”

The global stage

While the regulations aren’t enough themselves to combat climate change, the Clean Power Plan’s impact may well be greatest beyond our shores. As the administration has argued, a binding commitment to reduce U.S. carbon emissions could help solve the collective action issue of international climate initiatives.

A major climate summit is coming up in December in Paris, one that environmentalists around the world hope will beget a landmark international climate agreement. The Clean Power Plan, the supporters’ argument goes, is essential in coaxing reluctant countries like India, China, Brazil and others to agree to emissions cuts along with the U.S. Already, administration sources credit the proposed plan for greasing the negotiation wheels that led to China, for the first time, agreeing to peak and reduce its emissions.

David Goldston, the NRDC’s director of government affairs, said “the fact that EPA is now putting out federal limits on power plant carbon pollution, that alone is going to change things.”

“That sets up a policy, political and legal debate that we have to have. It’s kind of crossing the Rubicon,” he said. “The debate and the nature of the issue will be fundamentally different after that, and so will the way that states and the federal government think about planning on energy.”

Hall concurred in an email to Utility Dive after his interview.

“The Obama administration clearly views the Carbon Rule as the ‘tip of the spear’ for a global initiative on climate change," he wrote. “From this perspective, the rule reflects a historic moment in domestic power industry policy because it is the first time that a national policy is being held out as a model for a global objective.”

How the Clean Power Plan will actually play a role in the Paris negotiations remains to be seen, but Cleetus warns the environmental community to keep its expectations realistic.

“The agreement we get in Paris, that’s just the beginning,” she said. “It’s certainly not an agreement that’s going to be the be-all, end-all. Its going to create a good framework, one for ratcheting up ambition over time. That’s how you get things done in the real world. You don’t get your hopes and dreams the first round, but you get a solid framework and you work at it over time, like we have with the Clean Air Act.”

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Filed Under: Generation Regulation & Policy