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Final EPA CO2 rules include a few concessions

Power industry to cut CO2 32% from 2012 levels by 2030

Rockville, MD (August 24, 2015) –EPA released its final Clean Power Plan (CPP) rule this month, directing states to cut power-sector CO2 emissions 32% by 2030. The final rule pushed the first interim goal back to 2022 and would achieve the 2030 goal on a gentler path than the proposal, with states able to meet targets on average over two-year periods.

President Barack Obama gave a speech in the White House before the agency released the rule, which he called the biggest step to regulate greenhouse gases the government has ever taken. The CPP is just part of Obama's climate plan, which includes international negotiations set for Paris later this year.

"There is such a thing as being too late when it comes to climate change," Obama said. "That shouldn't make us hopeless. It's not as if there's nothing we can do about it. We can take action."

Over the past several years, the country worked to cut pollution through more efficient automobiles and more renewable power, Obama said. The increasing share of natural gas in electric generation – with the decline in coal and oil –contributed to fewer emissions, according to the EIA.

"Over the past decade, even as our economy has continued to grow, the United States has cut our total carbon pollution more than any other nation on earth," Obama said. "That's the good news. But I am here to say that if we want to protect our economy and our security and our children's health – we're going to have to do more."

EPA is using 2012 as the baseline year for its rules, as it had proposed, which means most of those cuts in the past decade will not count toward the final target. That year is the one with the most recently available data and EPA does not forecast future generation levels and their emissions, the agency said in a fact sheet on the targets.

The CPP sets individual state targets for 2030 based on the use of three "building blocks" – increased efficiency from coal plants, swapping out coal for gas and swapping out fossil-fueled power plants for renewables. The final rules did not include efficiency as a "building block," but did include a clean-energy investment program to grow efficiency and renewables.

While EPA did use building blocks to craft individual state targets, the states themselves can comply with the rules in other ways, as long as they meet their targets, the agency said.

Emissions trading expected

The power system is a big machine where emissions cuts at one generator can be used to drive down the overall rate and EPA used that in its building blocks, the rule noted. The way the grid works means that it is "entirely feasible for states" to set up standards that include emissions trading and it is reasonable to expect that some will.

"These approaches lower overall costs, add flexibility, and make it easier for individual sources to address pollution control objectives," the rule said.

Leaving energy efficiency, or building block four, out of the final rule allayed "legal and other concerns raised by commenters," that the rule would have swept up far more than the Clean Air Act ever intended, the CPP said. "Building block four is outside our paradigm for section 111 as it targets consumer-oriented behavior and demand for the good, which would reduce the amount of electricity to be produced," it added.

Efficiency advocates were not phased by the final rule's removal of building block four as states can still use the resource to achieve their targets.

"The inclusion of energy efficiency in compliance plans is much more important than whether energy efficiency is used in EPA calculations to develop individual state targets," American Council for an Energy-Efficient Economy (ACEEE) Executive Director Steven Nadel said in prepared remarks. "Energy efficiency is generally the cheapest, fastest and most readily available path for states looking to achieving substantial emissions reductions, while maintaining affordable and reliable power for their citizens."

Work moves to states

Much of the rule's impact will be unknown until states submit their final plans. Every state will have to at least submit an update in September 2016 explaining what approaches have been looked at, but they could file final plans by then.

States, or groups of states looking to comply with the CPP together, can get an extension out to 2018 to make their final compliance rules.

Some opponents to the rules suggested states should just not comply with the CPP and EPA put out a proposed federal implementation plan for such states. The federal plan includes a rate-based trading program and a mass-based trading program to comply with the rule.

The federal plan could also be used by states that actually do make their own filings as a basis for a trading program to comply with the CPP.

This story was originally published in Utility Markets Today (http://ow.ly/RiXBE) August 4, 2015 and has been slightly edited for this format. To read more articles like this one, sign up for a Free Trial to Utility Markets Today.

UTILITY MARKETS TODAY is published 245 times per year on business days by Modern Markets Intelligence Inc. UMT's mission is to deliver exclusive news chronicling ongoing efforts to build competitive wholesale and retail energy markets with in-depth analysis on why some fail and others succeed.

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