Pruitt's move to repeal CPP sets up prolonged battle over carbon regulations
In 2016, then Republican presidential nominee Donald Trump pledged to "put coal miners back to work."
That promise included replacing the Obama administration's Clean Power Plan, which sought to slash power sector emissions, and was the centerpiece of the U.S. commitment to the Paris Climate Agreement.
Environmental Protection Agency head Scott Pruitt made good on that promise Tuesday, when he moved to rescind the CPP yesterday, setting up a prolonged legal battle and creating uncertainty for renewable energy investments in the power sector.
“With this action, the Trump administration is respecting states’ role and reinstating transparency into how we protect our environment,” Pruitt said in a statement.
Legal experts say the process to roll back the regulation is only beginning. Pruitt must justify the repeal in a lengthy review process, legal experts say, and legal fights with liberal states and environmental groups could push any final action concerning the regulation past the 2020 election.
Reactions from the power sector were mixed, ranging from general support for the Clean Power Plan's aims to outright praise for Pruitt's repeal action.
NRG is one utility straddling both sides of the debate. On one hand, the utility expressed support for "the overall objectives of the CPP – to decarbonize the U.S. power system – but we’ve also said that the methodology and the timeline could bear improving."
NRG, along with other utilities, said it would keep retiring uneconomic plants — specifically coal — in exchange for cheaper energy resources, like natural gas and even renewables.
Rolling back the regulation may not stop the power sector from meeting the targets laid out in the finalized version. Costs for natural gas and renewable energy have since fallen since the CPP rolled out two years ago, analysts say, and more states are implementing climate targets while utilities are eliminating coal from their power mix.
Even so, Pruitt's action threatens to curtail a potential framework that could strengthen climate targets nationwide and encourage utilities to ramp up investments in renewables.
"With the proposal to rescind the [Clean Power Plan] today, you are going to see a market change in investments in a lot of key states,” said John Larsen, director at the Rhodium Group. “The remaining states who well-placed to lead and continue to drive emission reductions on their own are already on track to do so.”
A quick refresher
The Clean Power Plan, finalized in 2015, aimed to slash emissions from the power sector 32% by 2030 compared to 2005 levels. Power plants emit nearly one-third of greenhouse gases in the U.S.
Under the plan, states were to develop implementation plans for existing power plants to meet emissions standards set by the EPA. If they did not, EPA would develop a plan for them.
The Obama administration crafted the regulation under an obscure section of the Clean Air Act: Section 111(d). The rule reached beyond individual plant upgrades by allowing generators unable to meet its emission standards to offset their power from lower carbon-emitting resources, such as renewables or natural gas.
The Obama EPA and supporters of the rule said this so-called "generation shifting" merely underscores how utilities would have sought to comply with the CPP, but generators argued at the D.C. Circuit last year that it amounted to forcing coal plants to subsidize their competitors or close altogether.
That application of Section 111(d) represented new or expanded interpretation of the agency's regulatory power, energy lawyers told Utility Dive, and be the lynchpin for future legal fights.
Amid the legal debate, the U.S. Supreme Court later froze the plan’s implementation in early 2016 until legal challenges concluded. The D.C. Circuit Court then took up the case, and put a 60 day hold in April. But the court has since remained silent since that timeframe expired in June.
Pruitt's EPA now plans to issue an advanced notice of proposed rulemaking to replace the Clean Power Plan, opening it up to industry to shape it.
"Any replacement rule will be done carefully, properly, and with humility, by listening to all those affected by the rule," he said.
Pruitt himself drafted an alternative to the Clean Power Plan in 2014 when he led the legal opposition as Oklahoma Attorney General. The narrower rule would focus on gaining efficiency improvements through better heat rates at coal plants — an "inside the fenceline" regulation, rather than a sweeping change to the national power mix.
The legal strategy
Pruitt’s critics say his silence on details to replace the Clean Power Plan could point to a strategy of delaying any action on carbon regulation.
“Oftentimes in litigation, delays can achieve your goal regardless of the technical outcome of the case,” said Josiah Neeley, director of energy policy at free-market think tank R Street Institute.
The Mercury Air Toxic Standards rule is a prime example, Neeley said. The regulation was allowed to go into effect while it was tied up in legal challenges for years. Despite the later ruling which compelled EPA to justify the costs of the rule, utilities had already largely complied with the rule.
“I think you see the same sort of thing in reverse,” Neeley said. If finalization of a replacement rule takes until the end of Trump's first term, a potential newcomer in the White House might find that "the original goals and timetables no longer make any sense.”
Ari Peskoe, senior fellow in electricity law with the Harvard Law School, noted the EPA did not issue a new finding contradicting the Clean Power Plan’s analysis on energy options for utilities.
“[There is] nothing in here about renewable energy was too expensive. They are not going back to the record to find new analysis,” Peskoe said.
But the D.C. Circuit Court is the true wild card in this legal debate, sector experts said. Analysts speculated the court is likely to remain silent on its pending Clean Power Plan case until lawsuits over the proposed repeal are resolved, and Pruitt asked the court to keep the case in abeyance again yesterday after the proposed repeal.
If the court breaks its silence, any decision would significantly shift the legal calculus.
“Obviously NRDC and others that are supportive would like to see the D.C. Circuit to weigh earlier,” said Thaddeus Lightfoot, a lawyer with firm Dorsey & Whitney. “If it does, I think that puts a big thumb on the scale for the proposed rule.”
If the D.C. Circuit sides with CPP opponents, it would be a substantial boost to Pruitt’s repeal. But siding with the regulation’s supporters would undermine Pruitt’s rationale behind the repeal and any potential replacement rule.
What regulatory framework?
Despite the repeal, new Rhodium Group report noted the power sector is largely on track to meet CPP’s original targets. But as Larsen noted, the CPP’s repeal would hurt efforts in some to cut carbon emissions.
Hardline targets were set at the state level and allowed power plants to trade compliance credits with power plants in other states. Doing so lowered the total cost of the regulation, Rhodium noted.
And if upheld by the courts and implemented, the plan would have built a “durable” national regulatory framework. EPA would have leeway within that structure to raise emissions targets as technology costs and market projections evolved.
“We don’t have any of that any more after Pruitt’s actions today,” Larsen told Utility Dive. “That original framework is now rescinded and may get completely tossed. EPA is asking fundamental questions on whether to regulate or not or even to decide whether to move on this. If nothing else, a new administration would have to start where this administration would end up.”
Even in a future with cheap renewable energy and natural gas, several states would fail to meet the CPP targets. And utilities, also facing potential tariffs on solar equipment that could ramp up prices and a proposed cost recovery rule from the Energy Department, could dial back renewables investment.
“The flagship position that the administration took in first 10 months has largely created uncertainty in energy markets,” Larsen noted.
R Street’s Neeley said the best option toward cutting power sector emissions hinges on Congressional action, particularly in the form of a carbon tax. But consensus on past proposals has proven elusive.
Even with all the uncertainty facing the power sector, it’s clear the current administration is unlikely to achieve its underlying goal in the debate: saving the embattled coal industry. Advances in hydraulic fracturing and drastically declining costs in renewable energy put utilities on a course toward investing in natural gas and renewable energy. And it’s unlikely to stop, even as coal has the White House backing and may see a slight renaissance stemming more favorable market conditions.
"States are building a new kind of electric grid instead of relying on an old-fashioned grid relying on coal," said Richard Kauffman, New York's energy czar and one of the chief architects behind New York's Reforming the Energy Vision. "The problem with coal has been less regulation than that cheap natural gas has changed the economics of coal ... the shape of the power sector and change shouldn’t be a bipartisian question at all."
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