Controlling Power Plants through Clean Air Act § 111(d): Achieving Co-Pollutant Benefits

Alice Kaswan

June 19, 2014

Power plants are not only one of the nation’s largest sources of greenhouse gases, they are also a significant source of sulfur dioxide, nitrogen oxides, particulates, and mercury, all of which have direct public health and welfare consequences. EPA’s recently proposed Clean Power Plan, which applies Clean Air Act § 111(d) to reduce greenhouse gases (GHGs) from the nation’s fleet of fossil-fuel power plants, will have important implications for these ubiquitous co-pollutants.  Although the primary goal of the Clean Power Plan is to reduce GHGs, ancillary co-pollutant benefits are an important consideration in evaluating alternative mechanisms for controlling GHGs. 

The key to maximizing co-pollutant benefits will be shifting away from coal-fired power, the energy source that emits the highest levels of both GHGs and co-pollutants, and encouraging a more widespread shift from fossil fuels to no-carbon alternatives like consumer energy efficiency and renewable energy.  Ultimately, notwithstanding environmental justice concerns about cap-and-trade programs, the most critical issue will be setting stringent targets that prompt change, not their particular regulatory forms.  EPA’s Clean Power Plan has laid the groundwork for a transformative and stringent approach by establishing a system-wide approach to reducing power sector emissions, but it remains to be seen whether the agency has established stringent enough targets to achieve § 111(d)’s full potential to reduce both GHG and co-pollutant emissions.  (This blog is based upon a longer article entitled: “Controlling Power Plants, The Co-Pollutant Implications of EPA’s Clean Air Act § 111(d) Options for Greenhouse Gases,” 32 Virginia Envtl. L. J. 173 (2014).)

EPA’s Clean Power Plan

Pursuant to CAA § 111(d), EPA identified the “best system of emission reduction … adequately demonstrated” (BSER) for reducing power plant emissions.  Importantly, EPA determined that a system-wide approach, that takes advantage of both “inside the fence” options at power plants and “outside the fence” options, like renewable energy and consumer energy efficiency, constitutes BSER.  EPA assessed each state’s capacity to achieve reductions through available measures and set interim and final “carbon intensity” targets for each state to achieve.  States will then be required to develop state-specific plans that demonstrate how they will achieve the EPA targets.  Although EPA defined each state’s target by identifying a range of available measures, EPA did not directly require each state to take the measures used to define its target.  Instead, EPA gave each state the flexibility to achieve its target through whatever combination of mechanisms it chooses.

More specifically, EPA’s BSER was based upon four “building blocks.” The first building block consists of traditional source-specific regulation: on-site retrofits and efficiency upgrades that could improve an individual facility’s emissions’ rate, so that it takes less energy to make energy.  EPA has determined that, on average, the nation’s coal-fired power plants could engage in retrofits that achieve a six percent reduction in emissions rates, and so EPA assumed each state could achieve a six percent reduction through on-site improvements. (79 Fed. Reg. 34856-57) 

The second building block consists of shifting energy generation from more-polluting coal-fired power plants to less-polluting natural gas plants.  Because many natural gas plants are currently underutilized, EPA projects that natural gas plants could run at seventy percent of their capacity, and so EPA assumed that each state could shift coal-fired generation to available natural gas plants currently operating at less than seventy percent of their capacity.  (79 Fed. Reg. 34857-58) 

The third and fourth building blocks reflect the fact that power plant emissions are influenced not only by on-site actions at power plants, but by “outside the fence” measures that reduce demand for fossil-fuel generated power.  For example, the more energy generated from renewable power, the less need to generate power from fossil fuels.  EPA evaluated the renewable portfolio standards in nearby states to assess the degree to which renewable energy options were available to each state. (79 Fed. Reg. 34851) And consumer-side energy efficiency measures, like efficient light bulbs and home insulation, reduce demand for electricity, thereby lowering power sector emissions.  EPA assumed that states could increase their energy efficiency by 1.5 percent annually.  (79 Fed. Reg. 34851)

The Clean Power Plan gives states considerable flexibility in meeting the state targets.    In developing their state implementation plans, states could impose a range of direct requirements and incentives, including facility-specific emission rate requirements, emissions-averaging systems that encourage utilities to generate more electricity from natural gas than from coal, renewable portfolio standards, or energy efficiency programs.  They could also work with utilities to shut down the most polluting sources and shift generation to less-polluting or non-polluting alternatives. 

States are permitted to adopt cap-and-trade programs, singly or in combination with other states.  To facilitate the use of cap-and-trade, which seeks to achieve an absolute limit on emissions rather than a certain carbon intensity rate, EPA allows states to translate the carbon intensity standard into a mass-based target that sets an absolute cap on the state’s emissions.  The cap in a cap-and-trade program would limit carbon emissions, and, if functioning effectively, the price signal created by the system would create incentives for system-wide reductions, including on-site improvements, shifts from coal to natural gas, and renewable energy and energy efficiency investments.

Environmental Justice Implications: It’s Complicated

Environmental justice advocates have been understandably concerned about the risk that cap-and-trade programs for controlling GHGs could have adverse distributional consequences for co-pollutants.  Power plants could purchase allowances rather than improving operations, thus failing to achieve co-pollutant reductions and, potentially, increasing emissions.  Advocates are also concerned by another feature of cap-and-trade programs: offsets.  Offsets allow a facility to avoid making actual emission reductions by purchasing “offsets” that represent reductions elsewhere – including, for example, forestry practices that sequester carbon.  The use of offsets might have equivalent GHG results, but offsets limit in-sector GHG, and associated co-pollutant, emission reductions.  However, in the unique energy sector context, and under the terms of CAA § 111(d), these concerns may have less salience.   

Source-Specific Controls Do Not Necessarily Provide Distributional Benefits

While cap-and-trade leads to uncertain distributional results, more direct source-specific regulation of the power sector could also have adverse distributional results.  In other words, even if cap-and-trade has problems, the alternative may not be superior. 

To begin with, it’s important to note that the options for reducing on-site emissions from existing coal-fired power plants are limited; enhanced on-site efficiency can achieve only modest improvements.  EPA says six percent (on average); some say more, but the options are ultimately limited. It is not clear that a major push to reduce emissions at every coal-fired power plant is worth it, especially if the money could be invested in lower-emitting alternatives. 

Other consequences flow from the fact that traditional source-specific controls are framed as emission rate standards, not limits on absolute emissions from particular facilities.  From an environmental justice perspective, limits on absolute emissions would be the most advantageous, but except in limited circumstances, environmental requirements control how pollutants are generated; they do not attempt to control the underlying production decisions that determine the volume of emissions.

Assuming, then, that source-specific regulation would take the form of emission rate standards, it is important to recognize that the existing efficiency of coal-fired power plants varies greatly, leading to the potential for uneven distributional results.  If EPA were to require states to impose the same standard on all plants, then many plants would already meet the standard, and would not need to make any changes.  Only some facilities would adopt improvements.  Overall, rates would equalize, but they would not necessarily improve at many facilities.

Other consequences flow from the interconnected nature of the energy system, and the fact that changes at one facility reverberate elsewhere.  Source-specific regulation could potentially lead to emissions increases at some facilities. Analysts predict that the least efficient facilities will retire rather than make efficiency improvements.  In that case, other power plants will operate more to make up for the loss of supply, creating localized emissions increases.  And even if facilities do make efficiency improvements, then EPA has identified a potential “rebound” effect: because these facilities are now more efficient, utilities may choose to operate them more intensively, leading to an increase in overall emissions, even though their emissions rate has been reduced.  Of course, if absolute emissions increase significantly enough additional co-pollutant controls might be triggered by the Clean Air Act’s New Source Review requirements, but some increases could occur under that radar. (See 79 Fed. Reg. 34949-50) Thus, traditional source-specific emission rate requirements will not assure even distributional results and will not prevent localized emissions increases.

Why Cap-and-Trade under § 111(d) Might Not Be So Bad

If a cap-and-trade program is sufficiently stringent (and that’s a big if), then cap-and-trade could potentially lead to positive distributional consequences.  If a cap-and-trade program has a sufficiently stringent cap, then allowances will be scarce and have a reasonably high price.  At least for utilities that are price-sensitive (which includes some but not all utilities), that price signal could create incentives with positive co-pollutant consequences.  Coal-fired power is the most GHG-intensive power source, so a cap-and-trade program will discourage the use of coal-fired power and encourage alternatives, including natural gas, renewables, and demand-side efficiency.  The disincentive to use coal will have positive co-pollutant consequences because coal-fired power is also the most co-pollutant intensive fuel source, notwithstanding the many new pollution control requirements that are currently being imposed on coal-fired power plants.  Thus, to the degree cap-and-trade creates disincentives for coal-fired power, that will have positive co-pollutant results.

Cap-and-trade under § 111(d) also avoids the risk that offsets will substitute for in-sector power sector reductions and reduce the level of co-pollutant reduction benefits.  EPA’s Clean Power Plan does not prevent states from using cap-and-trade programs that include an offset option.  At the same time, however, EPA appears to be requiring the states to show that, even with the use of offsets, the program as a whole will achieve the required degree of power sector reductions.  Thus, an individual facility might be able to cover its emissions with offsets, but the state would have to show that the program, as a whole, led to the required level of actual reductions in power sector emissions, notwithstanding the presence of some offsets in the system.  Thus, EPA’s approach to offsets under §111(d) maintains co-pollutant benefits by requiring in-sector reductions.

Maximizing Co-Pollutant Benefits: Create Stringent Emission Reduction Targets that Prompt Transformative Change

The most important factor for improving co-pollutant outcomes is creating transformative incentives to shift power generation away from polluting sources and toward less-or no-polluting sources, including demand-side energy efficiency. Because the interconnected energy system makes it difficult to control site-specific emissions and on-site mechanisms will have limited impact, the system-wide approach adopted by EPA is critical to achieving more transformative change.

The system-wide approach creates the potential to set stringent targets because it identifies a wide range of measures as “achievable” and builds them into the target.  Each state’s target should reflect not only modest changes at individual power plants, but more fundamental changes to energy supply and demand. A sufficiently stringent target will require states to make fundamental changes, not simply tinker at the margin.  And, if states choose to meet their targets through a cap-and-trade program, a sufficiently stringent target will avoid the risk of “lax caps” that has plagued other GHG trading programs.  A stringent target will generate a stringent cap that creates a robust carbon price that could drive fundamental change.

The question, at this stage, is whether EPA’s state targets are, in fact, sufficiently stringent.  EPA makes clear that it has not required each state to do the maximum possible under each building block.  While expecting each state to do the maximum possible under each building block might not be achievable, has EPA expected enough?  And has EPA included the full range of achievable measures?  For example, EPA does not include coal plants co-firing with natural gas, or improvements to transmission grids to reduce electricity leakage.  Assessing and encouraging the maximum degree of stringency should be a key focus of efforts to maximize co-pollutant outcomes. 

Use EPA’s Flexibility to Advantage

Environmental justice advocates also have the opportunity to help shape their states’ implementation plans.  EPA has identified a variety of strategies for achieving state targets and then left considerable discretion to the states.  Advocates can argue for shuttering the most harmful plants and shifting generation to cleaner sources.  They can urge state governments to promote renewable energy and energy efficiency so that targets will be met through no-emission sources rather than simply shifting to natural gas, a much lower emitting source, but one that is not pollution-free.  Advocates can encourage states to adopt energy efficiency programs that invest in low-income neighborhoods to ease the impact of potentially increasing energy prices. The flexibility offered by EPA creates some risks, but also attendant opportunities to re-direct state energy policies to achieve transformative changes that will maximize both GHG and co-pollutant reduction benefits.

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