A Mass-Based Cap for Power Plants

EPA’s proposed new rule for greenhouse gas emissions from power plants gets a lot of things right. For one thing, it recognizes that electric utilities can employ a variety of measures to reduce greenhouse gas emissions. They can switch to natural gas or even renewable energy sources. They can fund end-use efficiency improvements—such as energy efficient windows, better insulation, and light bulbs that burn brightly even while they conserve electricity. All of these techniques reduce power plant emissions. So, EPA is right to make them building blocks for its rule.

But the final rule should correct a very poor policy judgment about the form of the emission limits that utilities can meet with these technologies. EPA should demand state limits on the mass of emissions from power plants rather than limits on emission rates. Let me explain why this seemingly arcane issue matters.

In the past, EPA has often promulgated rate-based limits for emissions. For power plants, such emission limits often limited the pounds of a pollutant emitted per million British thermal units of energy produced. This form of emission limits is a pretty natural fit for regulations based on end-of-the-pipe controls. Such controls would limit the rate of emissions, but the total mass of emissions would vary depending on the amount of electricity produced.

With the acid rain program, the United States made a major improvement in the form of emissions limits by moving to mass-based limits on pollution expressed in tons of sulfur dioxide per year. Although these mass-based limits provide a hard target such that the total emissions do not vary with production rates, they prove quite flexible, because a wider range of emission reduction activities reduce the mass of emissions than reduce the rate of emissions. California, the northeastern states involved in the Regional Greenhouse Gas Initiative (RGGI), the European Union (EU), and many other countries have since moved to programs that rely on mass-based emission limits for greenhouse gas emissions.

Just about every detail of EPA’s rule cries out for mass-based limits. End use efficiency reduces the mass of annual emissions (and saves money), but does not reduce emission rates. A switch to renewable energy also reduces the mass but not the rate of emissions per unit of energy produced. Dispatching renewable energy reduces emissions at coal-fired power plants, because it allows the dirty plants to produce less electricity, thereby decreasing the mass of emissions. But the rate of emissions per unit of electricity produced does not go down when the dirty plants runs for fewer hours.

Mass-based limits have huge policy advantages. Perhaps the most significant involves the assignment of responsibility for reconciling environmental goals with economic growth to industry, rather than to understaffed and politically hampered regulatory agencies. This is especially important for a long term and critical problem like climate disruption. If increased demand causes emissions to increase, as they will under rate-based limits, we will need more rules, which many state agencies have little capacity or will to produce. Mass-based limits can keep emissions low even if demand rises.

A rate-based rule would also establish a precedent that might be used to undermine the mass-based limits that provide the linchpin for California’s program, RGGI, and similar program throughout the world. All of these programs have some problems, but their move to mass-based limits provides the basis for vastly improved environmental policy.

EPA’s use of rate-based limits would also lead to gaming and lost emission reductions, especially in states that wish to avoid doing much to reduce greenhouse gas emissions. In order to make the use of money-saving energy efficiency measures, cleaner fuels, and development of renewable energy useful for compliance with rate-based limits, EPA has proposed complex conversion formulas, which translate estimated masses of emission reductions into estimates of equivalent emission rate improvements. This process makes planning for compliance and identification of non-compliance extraordinarily complex. By contrast, mass-based limits can be set much more simply and, more importantly, compliance can be checked by rather reliable emissions estimation methodologies.

EPA chose rate-based limits when mass-based limits are known to be superior because it wanted to offer states “flexibility.” While flexibility is an attractive word, it can mean the flexibility to use a variety of technologies and methods to achieve good results, or it can mean the ability to game the system and avoid real limits on emissions. EPA’s building block approach gives states substantially technological flexibility regardless of the form of emission limits. The principle function of rate-based limits involves licensing chicanery and escape from a hard cap on emissions. This might seem politically desirable to EPA, but it is dreaming if it thinks that the form of emission limits will buy it support from Governors and legislatures that will create political problems for this program.

Similarly, EPA’s opponents will accuse it of implementing the failed Waxman-Markey bill through the back door regardless of the form of emission limits. EPA is not really implementing Waxman-Markey through the back door. It acts pursuant to the Clean Air Act, regulates industry by industry, will not auction off allowances, and does not provide for long-term large scale reductions, as Waxman-Markey would have. If EPA wishes to escape the charge of implementing Waxman-Markey and lower its risk of have its vital rule invalidated by a court, it should eliminate emissions trading, not mass-based caps. It is possible to have mass-based caps without trading. See Cap Without Trade:  A Proposal for Resolving the Emissions Trading Problem Under CAA § 111, 43 Envtl. L. Rep. (Envt’l L. Inst.) 10555 (2013).

Climate disruption is an urgent problem. It is important in this context not to undo a major advance that has occurred in the world of climate regulation—the use of mass-based caps.