President Barrack Obama and the US Environmental Protection Agency (EPA) released the final Clean Power Plan rule on August 3, 2015. The new regulation reduces carbon emissions from existing fossil fuel power plants. The final rule included provisions to expand compliance options; increase the target, but allow extra time to develop compliance plans and begin reductions; address reliability concerns; revise goal-setting methodology; and encourage early investments.
The EPA revised compliance goals to offer greater flexibility with emission trading. Notable changes include:
The final rule includes the option to meet mass-based goals in addition to the rate-based goals found in the proposed rule. State must now select and meet one of the following rate-based or mass-based goals established in the final rule:
A rate-based state goal measured in pounds per megawatt hour
A mass-based state goal measured in short tons of CO2
A mass-based goal with new source complement measured in short tons of CO2
States may meet goals through emission rate credits (for a rate-based standard) or allowances (for a mass-based standard); this encourages trading
In addition, the EPA pledged to support “states in the tracking of emission, as well as tracking allowances and credits, to help implement multi-state trading or other approaches”
When fully implemented in 2030, the EPA estimates the Clean Power Plan will lower carbon emissions 32% below 2005 levels – an increase from the 30% estimated in the proposed rule
To address reliability concerns, the EPA delayed compliance and allowed specific reliability exemptions in the final rule. Key provisions include:
Shift in mandatory reductions beginning in 2022 instead of 2020, which was in the proposed rule
Inclusion of a mechanism for states to revise implementation plans in the event unanticipated and significant reliability challenges arise and a requirement that the states consider reliability when developing their State Implement Plans (SIPs)
Addition of a reliability safety valve for individual plants when, in the face of extraordinary circumstances, there is a conflict between the requirements of the state plan and the maintenance of electric system reliability
The EPA significantly revised the goal-setting methodology by specifying a “best system of emission reduction” (BSER) and establishing CO2 emission performance rates for fossil fuel-fired electric utility steam generating units and stationary combustion turbines
In a change from the proposed rule, the EPA dropped the energy efficiency “building block” and revised the remaining three building blocks used to determine BSER. Specific revisions include:
Inclusion of additional renewable energy after the EPA determined these technologies have lower costs and greater availability than originally estimated
Removal of “under construction” nuclear plants in goal-setting calculations. New nuclear facilities and capacity uprates can count toward compliance. However, license extensions for existing nuclear plants will not count toward compliance
Elimination of the 6% credit for existing nuclear capacity; however, mass-based trading may make existing nuclear assets attractive in state or regional compliance plan
Removal of energy efficiency in goal-setting calculations; however, energy efficiency measures can count toward compliance
The final rule includes the Clean Energy Incentive Program to encourage early investments
States will receive emission rate credits or allowances for wind and solar projects and energy efficiency measures that generate carbon-free MWh or reduce end-use energy demand during 2020 and/or 2021
After receiving 4.3 million public comments, the EPA significantly revised the Clean Power Plan. Once published in the Federal Register, the debate will move to the states as they begin to develop implementation plans, and the courts where opponents have already begun to challenge the legality of the final rule. Early analysis suggests the changes in the rule will lead to more renewables and increased use of gas in the US electricity supply portfolio. In addition, large-scale adoption of mass-based trading may provide a path to save existing nuclear capacity.
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