What is the Clean Power Plan?

Since June 2014, the U.S. Environmental Protection Agency (EPA), under President Obama’s Climate Action Plan, has been proposing a plan, the Clean Power Plan, to reduce carbon pollution from existing and future power plants. The main purpose is to cut greenhouse gas pollution and protect the environment while at the same time maintaining an affordable, reliable, energy system.

This summer, Obama’s administration announced the final version of the rule. The final plan enforces a 32% reduction of carbon emission of 2005 levels by 2030 (previously it was 30%). The EPA calculates the emission rate target based on each state implementing 3 types of changes, referred to as Building Blocks. These are:

1. improving efficiency at power plants,
2. shifting generation from higher emitting coal to lower emitting natural gas power plants, and
3. shifting generation to zero-emitting renewables.

The final version also acknowledges that nuclear power plants currently under construction will count toward compliance once they are in operation but they cannot be included in the goal-setting calculation, a reversal from the intial rule filing in 2014.

The updated version of the rules equalized the proposed emission reduction goals across states. This means loosening targets for those with greater reductions and tightening targets for those with lesser reductions. For each state’s updated proposed goals please see the EPA’s fact sheet: http://www2.epa.gov/cleanpowerplantoolbox/clean-power-plan-state-specific-fact-sheets

Each state is allowed to use its preferred combination of Building Blocks, and must submit an initial Statement
Implementation Plan (SIP) by September 2016, and a final SIP by September 2018. If a state refuses to write a plan, a federal plan will be implemented instead.

States are required to have their plans implemented by 2022 a delay of two years from the initial rule. Therefore, although this plan has more stringent goals for carbon reduction, it may ultimately be less constraining than the initial rules.

Is a 32% reduction from 2005 levels attainable?
32% emission reduction from 2005 levels may seem like an insurmountable cut. However, the EIA stated that total emissions in 2013 had already decreased 15% from 2005 levels.

This decrease can be attributed to the growing number of coal plants being shut-down due to the shale gas boom and generally lower electricity demand growth. The question remains, whether or not the “easy cuts” are behind us and the “harder cuts”, such as an increase in renewable power, are yet to come.

How final is the final plan?

This version of the plan is the final proposal, not the final plan. The rule needs to pass judicial review and become law. Until then, we expect strong opposition and extensive litigation before a final plan is implemented.

Given the 2018 timeframe, the future of this proposal will be dictated by future administrations (i.e. the possibility of a Republican administration may dilute the issue all together). Therefore it is difficult to forecast the effect of this plan on the energy market. Pending final litigation and decisions, there will likely be an increase in prices for both natural gas and power but this will likely not occur for 5 or more years from now.