Clean Power Plan on Solid Legal Ground

This post, written by David Baake. summarizes his forthcoming article in the Environmental Law Reporter.

Last June, the Environmental Protection Agency (EPA) proposed the Clean Power Plan, an initiative to cut carbon pollution from the power sector by 30 percent from 2005 levels. By any metric, the Clean Power Plan is smart policy. The Plan puts the United States on track to cut carbon pollution by 730 million metric tons, an amount equal to the annual emissions of 150 million cars. It is the centerpiece of the United States' effort to meet its commitments under the historic U.S.-China climate accord, and it will allow the United States to assume a leadership role in the international negotiations for a universal climate agreement set to conclude in Paris this December. It will prevent thousands of premature deaths (by reducing emissions of smog, soot, and other dangerous pollutants), create tens of thousands of new jobs, and save consumers money on their electric bills. All told, the Plan is expected to create tens of billions of dollars in net benefits for the United States.

Even so, the Plan will engender a fierce, protracted legal battle (as many of President Obama's other major domestic initiatives have). Industry groups, together with states that are opposed to greenhouse gas regulation, have promised to use every legal device at their disposal to "gum up the works" for EPA, and judging by the five challenges they have already filed to EPA's proposed rules, this is a promise they intend to keep.

EPA's opponents have developed a host of colorful legal arguments as to why the Clean Power Plan must be rejected in its entirety. But most observers expect the fate of the Plan to turn on a single issue: whether EPA may establish emission goals based on measures such as renewable energy and demand-side energy conservation that are implemented "beyond the fenceline" of regulated power plants.

Some background: the Clean Power Plan relies on Section 111(d) of the Clean Air Act, a provision that requires EPA to establish emission goals for carbon pollution from existing power plants. These goals must reflect the degree of emission reduction plants can achieve "through the application of the best system of emission reduction which . . . has been adequately demonstrated." The Clean Power Plan's emission goals reflect the application of four "building blocks" that electric utilities can implement to reduce the carbon intensity of their operations. These building blocks include efficiency improvements at individual plants and displacement of coal generation with natural gas generation, renewable energy generation, and demand-side energy conservation. EPA's proposal contemplates that power plants may comply with their obligations under the Plan by obtaining renewable energy credits and similar instruments.

The efficacy of these "building block" measures is not disputed. For decades, regulators have understood that these measures are cost-effective, reliable means of reducing pollution from the power sector. In 1990, for example, Congress directed EPA to establish a renewable energy and energy conservation program to reduce power plants' emissions of sulfur dioxide; more recently, many states have used the same measures to reduce smog-precursors. Nonetheless, opponents of the Clean Power Plan contend that EPA is forbidden to rely on these measures to justify emission goals under Section 111. According to these critics, Section 111 contemplates that emission goals will reflect the application of end-of-stack technology, and forbids consideration of measures that are implemented "beyond the fenceline" of the regulated plant.

This account reflects a selective reading of Section 111's history. Although it is true that most prior § 111 standards have been based on the application of end-of-stack technology, there is important precedent for incorporating beyond-the-fenceline measures in these standards. In 1977, for example, Congress provided that § 111 standards should reflect the availability of fuel pretreatment measures such as coal washing. Congress recognized that these measures were typically implemented at offsite facilities, and declined to distinguish between onsite and offsite measures. Instead, it instructed EPA to "give credit for accepted minemouth and other precombustion fuel treatment processes, whether they occur at, or are achieved by, the source or another party."

Two years after these amendments, EPA established a sulfur dioxide standard for coal-fired power plants that included a fuel pretreatment requirement. This standard was challenged in the D.C. Circuit in Sierra Club v. Costle. After explaining that the standard was premised on the assumption that "utilities would enter into contract arrangements with suppliers to obtain and guarantee . . . coal supplies [that] meet the needed treatment criteria," the court upheld the standard as a lawful exercise of EPA's authority under Section 111. This decision and the associated history indicate that EPA is permitted to establish standards under Section 111 that reflect the ability of regulated entities to obtain credits for offsite activities that prevent emissions from regulated sources.

Precedent construing analogous provisions of the Clean Air Act supports EPA's authority to establish standards that reflect the availability of credits for offsite activities. In 1983, for example, EPA established a lead concentration standard for small gasoline refiners that lacked octane-enhancing equipment. EPA explained that these refiners would need to purchase high-octane blending components or "lead credits" from their larger competitors in order to comply with the standard. Although the statute did not explicitly contemplate this type of inter-refinery trading, the D.C. Circuit upheld the standard as a lawful exercise of EPA's discretion.

All of this demonstrates that there is a strong legal basis for EPA's proposal to establish emission goals for power plants based on the availability of credits for "building block" activities. Section 111 does not speak directly to EPA's authority to adopt this approach; thus, EPA's reasonable interpretation of the statute will be controlling. In light of the precedent discussed above and the strong policy arguments for the "building block" approach, EPA's interpretation of Section 111 should easily withstand judicial review.