EPA Plan For Narrow Clean Power Plan Replacement Sparks Early Debate

12/27/2017

December 21, 2017

EPA Administrator Scott Pruitt's plan to repeal the Obama administration's power-sector wide Clean Power Plan (CPP) and replace it with a narrower measure that requires only inside-the-fence greenhouse gas cuts is sparking early debate over the legality of the original rule, the chances that a less ambitious one will survive court review and prospects that states may adopt stricter requirements.

At a Dec. 19 event hosted by the Energy Bar Association (EBA), “The Clean Power Plan: What Lies Beyond,” attorneys representing environmentalists and industry groups, as well as an EPA attorney speaking in his personal capacity, previewed arguments that are likely to be debated as the agency advances its deregulatory efforts.

The debate featured David Doniger of the Natural Resources Defense Council (NRDC); EPA deputy general counsel Justin Schwab, speaking in his personal capacity; and Tom Lorenzen, a former Justice Department lawyer who now represents rural electric cooperatives.

Additionally, Michael Dowd, air division director for the Virginia Department of Environmental Quality, argued that states should have the ability to go further than the federal requirements to cut GHGs, which the air law allows though some states prohibit.

The event focused on the proposed CPP repeal, on which EPA is accepting comment through Jan. 16, and its new advance notice of proposed rulemaking (ANPRM) to replace the CPP, which will set a 60-day comment deadline once it is published in the Federal Register.

Pruitt has long argued that the Obama-era rule was unlawful because it sought to regulate “beyond the fenceline” of individual power plants. As such, the bulk of EPA's ANPRM specifically seeks comment on several issues conducive to replacing the CPP with a narrower regulation focused primarily on actions, such as heat rate improvements, that occur “inside the fenceline” at specific power plants.

One early dispute, prompted by a question from moderator Justin Savage of Sidley Austin, focused on prospects that a future administration in four years could seek to undo the Trump administration's rollback.

The question is significant, reprising a debate that emerged during the Obama administration about whether EPA has the authority to update a section 111(d) standard. In a likely prelude to potential fights over any effort to tighten a future CPP, the utility industry sued over the Obama EPA's revision to landfill methane rules, citing this issue.

In response to the question, Lorenzen argued that if the Trump EPA successfully finalizes a CPP replacement that is upheld by the courts, there would be no opportunity for a new administration to redo that rule because Clean Air Act section 111(d) -- the section under which the rule was drafted -- is “one and done. So if you promulgate a standard for existing sources and it's upheld, that is the end of it.”

He said that makes sense because section 111(b), which applies to new sources, requires the standard be updated every eight years. But existing sources will “eventually become obsolete. They do their one improvement” required by the standard, “and that is the end until they cease operating” or make a modification and trigger new source mandates.

'Little Red Wagon'

However, Doniger replied that if “anyone bets that the Clean Air Act will be interpreted to preclude revision of the 111(d) standard, they are a very foolish person, and I don't really think that is a legal argument.” Instead, he said the dynamic is akin to a “little red wagon,” in which revising new source standards means that the companion existing source standard “needs to come along behind it. It's certainly not immune” from updating, Doniger argued. He added that if blocking future revisions to a 111(d) is the Trump administration's “secret plan,” then “it would be hard to explain to lenders,” suggesting that new fossil plants will have difficulty winning financing.

But Schwab criticized Doniger's interpretation of a future EPA's ability to redo 111(d) rules to complain that he appeared to be telling the regulated community and states that opposed the Obama CPP to not listen to anything the Trump administration is doing.

The EBA debate also focused on whether EPA has an obligation to address climate change or whether it is constrained by the tools it has available under the air law.

“We have, as a country, an obligation to address this pollution that is changing the entire world's climate,” Doniger argued, adding that the air law's purpose is to reduce pollution problems that go beyond market forces.

But Schwab said the argument for the agency's proposed view in the CPP repeal -- that generation shifting and defining the entire electricity system as the best system of emission reduction, as the Obama administration sought -- collides with important doctrines of law, including that agencies cannot argue that congressional silence confers regulatory authority on them, nor can agencies find elephants in mouse holes, citing a high court ruling.

He added that the Obama CPP ignored specific provisions of 111(d), such as taking into account the remaining useful life of a plant, and “hides the ball and removes Congress' clear intent to provide flexibility in the standard itself” for existing sources.

EPA's legal justification for repealing the CPP is based in part on the argument that the Obama rule disregarded the states' role in implementing air rules, but it is generally seen as responding to state opponents rather than supporters.

But Doniger questioned what he called the “specious argument” floated in the repeal proposal that any CPP replacement must craft targets based only on actions taken “within the fenceline” of regulated plants. He also predicted that courts would reject any attempt to allow trading for compliance flexibility but not for standard setting because it throws out 30 years of power sector regulatory framework and industry flexibility requests.

He said he expects the Obama version of the CPP would prevail. “It is within EPA's discretion to do it the way it did” under the Obama CPP, he said. A rule along the lines of the ANPRM would be “outside EPA's discretion” because the replacement will produce “miniscule results . . . I think we will be successful in arguing that EPA has come nowhere near its obligation to deal with this global climate change problem in the cramped way it has set forth,” he added.

In response, Lorenzen defended EPA's “fenceline” legal argument, noting that section 111 sets performance standards for individual sources, which is strictly defined as a facility. He added that the Obama EPA “went astray” by starting with a GHG reduction goal and then getting “creative” in interpreting the air law to achieve it. “I'm suggesting you examine the units and what they can do, and build a number from that.”

'Rebound Effect'

Doniger also criticized the ANPRM's requests for comment on concerns that new source review (NSR) would be triggered by an inside-the-fence CPP replacement because more efficient units would run more and increase pollution. “You don't get that problem if you have a meaningful standard that takes into account the full range of measures the power sector would use,” including generation shifting, he said.

Schwab noted that EPA opted not to seek to replace the CPP by simply issuing a new rule limited to building block one of the Obama regulation, which requires heat rate improvement at coal plants. He added that the Trump EPA agrees with the Obama EPA that block one cannot stand on its own because of concerns there would be a “rebound” effect that would result in increased dispatch of more efficient coal plant power, having the perverse effect of increasing GHG emissions, an issue on which EPA is taking comment in the ANPR.

Lorenzen acknowledged such a “rebound effect” of more efficient plants running more under a narrow replacement, but said that is irrelevant because section 111 is about performance, not emissions reductions. A facility that improves its efficiency can run around the clock if it is efficient enough, he said. The air law's national ambient air quality standards (NAAQS) program is the place to set overall limits on pollutants, he said, noting there is no carbon dioxide NAAQS.

Yet Doniger said a NAAQS is not needed to trigger a GHG reduction obligation. “It's the endangerment finding that does that, and we want to see EPA fulfill its obligation. A NAAQS for a pollutant that disperses like cream in your coffee is not the ideal way to address CO2.”

Schwab would not comment on whether he would advise EPA to seek to revoke the finding, a move many free-market groups are pursuing.

Doniger also called the Trump EPA's changes to the regulatory impact analysis (RIA) accompanying the proposed CPP repeal “a massive way to cook the books” because the analysis departs from Obama administration calculations of global benefits under the social cost of carbon (SCC), health-related co-benefits from reducing particulate matter (PM) and whether to treat energy efficiency as a benefit or an avoided cost.

For example, he noted that the 2003 White House guidance on cost-benefit reviews known as Circular A-4, which the Trump EPA cites as the reason to raise the carbon cost “discount rates,” actually tells agencies to use lower discount rates for inter-generational issues such as climate change. He said the changes in co-benefit calculations for PM, including a scenario that includes zero benefits, “will not withstand any arbitrary and capricious analysis.”

And he said the decision to move energy efficiency to the benefit side of the cost-benefit equation rather than as an avoided cost “assumes that power companies spend a huge amount to produce power that the energy efficiency benefits on the other side of the ledger avoid the need for. That sounds like cooking the books to me.”

But Schwab strongly defended changes in the draft RIA as reverting back to the norm, rather than “cooking the books” as NRDC's Doniger charged.

He said, for example, that use of a higher discount rate for calculating the SCC, as well as focusing on domestic costs and benefits is “a return to generally accepted standards and practices prior to the” Obama era, which “stacked the deck” in favor of lower costs for its GHG rules by not conducting an apples-to-apples comparison.

Schwab also declined to speculate how long it would take to complete a rule to replace the CPP that the agency released Dec. 18 other than to say that Pruitt and air chief Bill Wehrum have said while they cannot prejudge the outcome of the proposed repeal, they intend to take final action on the repeal by next fall, and that the ANPRM is on a fast boat, not a slow one. -- Dawn Reeves (dreeves@iwpnews.com)