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Flexibility and Accounting are Both Critical to EPA’s Clean Power Plan

Submitted by EFC Team on September 15th, 2014

Flexibility and Accounting are Both Critical to EPA’s Clean Power Plan – John Jimison – June 3rd, 2014

Environmental Protection Agency Administrator Gina McCarthy’s ground-breaking announcement of a proposed rule for limiting carbon pollution from existing power plants also broke new ground in the flexibility it offers to the states that must carry it out. In their plans to achieve the proposed 30% reduction in emissions by 2030, states will be allowed to take credit for actions to achieve greater energy efficiency throughout their economies and for incremental generation of renewable energy, providing latitude to states with different energy mixes, different resources, and different politics. But the boon of flexibility does not come without its challenges.

From one perspective, this flexibility is welcome because it defines the clean energy challenge in its true and fully integrated character. The flexibility shows that the rule is not just about reducing pollution from power generation using fossil-fuel combustion; it’s also about optimizing the amount of power we use. It’s about adding incremental non-polluting renewable energy resources to the mix, improving their effectiveness and economics as they scale up. And it’s about identifying and implementing the changes that can allow a highly electrified and computerized economy to continue its growth. This approach recognizes that the electricity grid is an economy-wide network of interrelated infrastructure, in which greenhouse gas emissions generated at one stage of operations may be most cost-effectively mitigated by actions at another stage.

From another perspective, however, this decision to give credit for actions “outside the generating plant fence” requires a complex and detailed accounting protocol that may prove to be the most vulnerable part of the new rule. One can readily measure and verify the emissions from the major smokestacks of central power plants “inside the fence” – indeed, EPA already does so. To measure and verify energy that is not consumed (based on measures to improve energy efficiency) requires a credible estimate of how much energy would have been consumed in the absence of those measures. Similarly, providing credit for incremental renewable energy requires an assumption that otherwise more fossil-fired power would have been required. No one can prove what might have been, but that is the challenge EPA is taking on.

EPA has the further challenge of assessing what “would have happened anyway,” because some increase in efficiency and some gain in renewable energy would occur without the added inducement of a federal regulatory requirement. Not to do so would effectively allow electric generators to be “free riders,” accounting as credits against their emissions the gains made by others for wholly different motivations. If a factory closes down due to foreign competition, should that reduction in energy consumption enable the state’s utilities to emit more greenhouse gases? Electricity is used throughout the economy and the society in myriad ways, some growing, some shrinking. Taking the accounting “outside the fence” will raise questions as to what should and should not be credited against the emissions reduction requirements, and to what extent.

I expect that this will be a major battlefield in the war to come over the validity of EPA’s proposed rule. Those who oppose the proposed rule will argue that the law requires EPA to regulate pollution only at actual power plant sources, not throughout the economy. The opponents will want it both ways: they will insist that EPA define and adopt a strict method of accounting that spells out precisely what credit any efficiency or renewable energy initiative is worth, defined in tons of CO2 equivalent per MWh; and they will also attack EPA for any such accounting system as being too rigid, denying through back-door inflexibility the very flexibility the states are supposedly being offered as they comply. They will charge EPA with going beyond its jurisdiction by setting measurement and verification standards for measures that have nothing to do with fossil-fuel combustion. They will demand that EPA use the same credit accounting regime in all states, however different their circumstances. They know that EPA cannot achieve the reductions in greenhouse gases that are needed in the near term just by capping emissions at the power plants without serious reliability and affordability issues for the grid, and they will try to stop EPA from being flexible enough to achieve the lowest-cost result. In short, as EPA attempts to solve the complex equation of dealing with the risk of climate change in our modern, energy-hungry society, opponents will argue that EPA should only be allowed to work on one part of the equation.

EPA’s proposed rule is not only the strongest hope for action on climate change, but possibly the only one that can avoid the political obstacles that have stymied earlier efforts and appear likely to persist for years to come. Proponents must support EPA in making the case that (1) the agency has not exceeded its mandate by going “outside the fence” to provide emission credits for efficiency and renewable energy, and (2) there are valid, enforceable, reasonable ways for EPA to ensure that the contributions made by efficiency and renewable energy within the economies of the individual states are real, additional, measurable, verifiable, and effective in offsetting carbon pollution.

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