RGGI Positioning For Pending Regs On Existing Power Plants, But Offsetting Unlikely

The chair of the Northeastern US carbon trading program says his organization is ready to meet whatever regulations emerge from the US Environmental Protection Agency (EPA) for existing power plants. But offsets likely won’t be part of the program, analysts say.

2 October 2013 | WASHINGTON, DC | The chair of the Regional Greenhouse Gas Initiative (RGGI)Board of Directors says that RGGI, which is the regional carbon trading program in the Northeast US, is a “perfect fit” for the pending federal regulations for existing power plants in the country, which are due in June, 2014.

Speaking at the International Emissions Trading Association’s (IETA) Carbon Forum North America conference here, Collin O’Mara said the RGGI system had been a substantial contributor to the decline in greenhouse gas (GHG) emissions in the region, and argued for a place in helping states comply with upcoming rules for existing power plants under Section 111(d) of the Clean Air Act. That section allows the EPA to develop a program that gives the states great flexibility to reach these performance standards. (The US EPA also proposed New Source Performance Standards (NSPS) under Section 111(b) of the Clean Air Act for new power plants, but Section 111(d) focuses on existing plants.)

“We do believe it’s a perfect fit for the 111(d) regime,” he said.

The RGGI states engaged in a comprehensive program review in 2012 that led RGGI officials to move to reduce the 2014 emissions cap by 45%, a decision made with an eye toward the upcoming EPA regulations. “That was one of the driving forces,” O’Mara said.

The tightening of the RGGI cap and the expectation that the EPA will give the states significant flexibility to meet performance standards, including possibly allowing states to prove that their trading programs are equivalent to the federal regulations, has led to renewed interest from other states in the RGGI program.

“We’re seeing a lot of interest from other states,” he says. “Because that system is in place, it’s a very attractive option for some states that are trying to figure out how to comply so that they don’t need to start from scratch. We’re having conversations with different states around the country that I won’t name.”

No Offsets Allowed?

Despite US President Barack Obama’s pledge that the states would be granted significant flexibility to meet the federal carbon regulations, however, most observers believe that carbon offset projects will not be eligible for compliance with the EPA rules.

“I don’t think they count,” says Brian Turner, Deputy Executive Director of the California Public Utilities Commission and former Assistant Executive Officer of Federal Climate Policy at the California Air Resources Board, the regulatory agency overseeing California’s carbon trading program.

His comments echo an analysis by the Natural Resources Defense Council.

In addition to the offsets component, California’s complex cap-and-trade program has numerous other elements that are critical to the state program, including its planned international linkage with Quebec’s program, he says.

“We’re going to have to cut all that out,” Turner says. “There are tremendous benefits to it. We get a carbon price throughout the economy. We get more revenues to do good things for our citizens and for clean energy. We have a broader market, a deeper, more liquid market. But in terms of showing compliance with EPA, we’re going to focus right in on those facilities and what’s happening to the electric generating units in our state. Are there emissions reductions there? That is the essential question we’re going to have to show EPA.”

Factors against the inclusion of offsets in the federal regulations include the NSPS language in the Clean Air Act, which would seem to prohibit offsets because those emissions reductions occur at sites other than the source, and the lack of enthusiasm for offsets expressed by EPA officials during industry consultations, says Jennifer Smokelin, Counsel for law firm Reed Smith.

In addition, the “Scalia risk” would work against any EPA attempt to allow offsets, she says, referring to the strict constructionist philosophy of judicial interpretation most closely associated with Supreme Court Justice Antonin Scalia.

“Anything that’s done from a 111(d) standpoint does not just has to pass EPA muster, but also has to be able to pass Supreme Court muster because there is going to be an inevitable challenge,” she says.

But there are factors in favor of the inclusion of offsets, namely that the language under 111(d) mandates the use of the best systems for emission reductions, incorporating the most cost-effective and technologically feasible options, which would include offsets, Smokelin says. States are also allowed a great deal of flexibility under the 111(d) provisions and should lobby on behalf of offsets, she says.

“Just because it hasn’t been tried before doesn’t mean that we shouldn’t be trying it now,” Smokelin adds.

The EPA has been the target of several lawsuits aimed at preventing the agency from moving forward with certain regulations, most notably the Cross State Air Pollution Rule, in which the agency’s attempt to develop new regulations to mitigate sulfur dioxide and nitrogen oxide pollution was flatly rejected by the DC Circuit Court. In June, the Supreme Court agreed to review the lower court’s decision, but the ruling has made EPA officials determined to develop a stringent, but flexible standard that is defensible in court, observers say.

“The more the EPA gets away from the traditional approach they used under Section 111(d), the thinner the ice,” says Frank Prager, Vice-President of Environmental Policy for utility Xcel Energy.

Can the EPA be stopped?

The US House of Representatives has tried on numerous occasions to thwart EPA’s efforts to regulate carbon emissions. But opponents of EPA regulation do not have the votes to stop the agency via the Congressional Review Act, which allows Congress to overrule federal rules issued by government agencies, much less the votes for an outright repeal of EPA’s authority to regulate GHGs, Turner says.

“We’ve got the opportunity to get this right,” he says. “I think this may be the law of the land.”

A dynamic similar to the healthcare reform efforts in the US, commonly known as Obamacare, could emerge in relation to the pending EPA regulations, in which some states will flatly refuse to establish state implementation plans to comply with the agency’s requirements. Texas, for example, has consistently rejected the EPA’s authority to establish GHG regulations and sued the agency over its GHG permitting requirements.

“If (the states) don’t submit satisfactory plans … it’s going to be up to the EPA to implement a program,” Prager says. “At some point, there has to be a federal backstop.”

But a state-level plan to comply with the federal regulations would be the preferred solution, he adds.

“From Xcel’s perspective, we would be quite concerned under any circumstance to have a federal solution imposed on us through the Clean Air Act,” Prager says.