The Obama Administration today took a major step toward reducing the carbon dioxide emissions that are impacting our climate. The Environmental Protection Agency (EPA) released its “Clean Power Plan,” which leverages existing authority in the Clean Air Act to propose carbon pollution standards for existing power plants, the largest single source of U.S. carbon emissions. The proposal would cut emissions in the power sector by 30 percent by 2030, based on 2005 levels. We reviewed the basics of the Clean Power Plan with four critical questions in mind:

1. Is the standard based on emission reductions outside the power plant fence line?

The short answer is “yes.” EPA cannot require states or power plant operators to take any specific measures, but it can set the emissions target stringent enough so that it would be challenging to achieve unless certain measures are taken. EPA is proposing state-specific targets based on the capacity of each state to leverage four “building blocks.” They are:

1. Make fossil fuel power plants more efficient.
2. Use low-emitting natural gas combined cycle plants more where excess capacity is available.
3. Use more zero- and low-emitting power sources such as renewables and nuclear.
4. Reduce electricity demand by using electricity more efficiently.

Although “outside-the-fence-line” measures are not specifically required under the proposal, states would be hard-pressed to meet their targets without using programs to reduce the demand for fossil electricity, by, for example, increasing energy efficiency and encouraging renewable energy.

Looking to Figure 1, EPA has chosen the System-level Option.

2. How much flexibility will states have?

Quite a bit. States can use any of the four building blocks listed above to achieve emission reductions in whatever combination each state sees fit. States have a variety of policy options under each of the building blocks. Additionally, states will have the option to join together in multi-state initiatives to pursue cuts in cooperation, for example through a regional cap-and-trade program. Other policy options include:

• Energy efficiency programs
• Appliance efficiency standards
• Building efficiency standard
• Clean/renewable energy standards
• Power plant performance standards

Moreover, the proposal encourages state innovation, noting that states can propose programs not specifically identified by EPA.

3. Will the proposal account for regional variation in generation mix?

As noted on our previous post on this topic, current state power sector emissions vary widely due to differences in population, generation mix, industry distribution, climate, policy landscape, and other factors. To account for this, EPA has proposed a unique emissions baseline for each state based on its fossil-fired power plant emissions divided by its total generation, which includes fossil generation, zero-carbon generation through renewables and nuclear energy, plus generation avoided through energy efficiency programs. EPA then calculates a unique target emission rate (lbs CO2 per megawatt-hour) for each state based on its projected capacity to leverage each of the four building blocks.

4. How smoothly will existing state programs be integrated?

It appears as though EPA has gone to great lengths to intimately understand the policies states are already using to reduce CO2 emissions in the power sector. By setting a baseline that accounts for existing state action, EPA is allowing programs already in place to count toward state targets.

What’s next?

EPA and states still have many major hurdles to overcome before new carbon-cutting programs will actually be put in force. The next phase will be a public comment period, during which states, power companies, and other stakeholders will submit comments to EPA about changes they’d like to see in the proposal.

In June 2015, EPA is expected to finalize the rule. After this, states will have until June 2016 to propose plans to EPA on how they will implement the standards, although a one-year extension is available. Once a plan is submitted, EPA will have a year to determine if it is acceptable and can go into force or needs revision. EPA has the authority to impose a federal plan in cases where no adequate state plan is submitted.

Although there are many challenges before carbon-cutting programs will be put in effect under the Clean Power Plan, EPA’s proposal today represents a very promising step toward a lower-carbon power system.