EPA Defends Generation Shifting in Clean Power Plan

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By Andrew Childers

March 28 — A Clean Air Act requirement that the Environmental Protection Agency determine the “best system” for cutting carbon dioxide emissions is broad enough to encompass the reductions anticipated in the Clean Power Plan, the agency argued in defense of the rule.

The EPA argued that shifting electricity generation from coal-fired utilities to cleaner sources of electricity constitutes a permissible “system of emission reduction” under Section 111(d) of the Clean Air Act, and that the power sector would make that transition anyway even if the Clean Power Plan were structured differently, according to a brief filed March 28 with the U.S. Court of Appeals for the District of Columbia Circuit.

“Congress’s language—identifying the ‘best system of emission reduction' as the central determination in the standard-setting process—establishes that a broad scope of potential pollution-curbing measures can serve as the basis of guidelines,” the EPA argued. “The plain meaning of the word ‘system' is expansive, encompassing ‘a set of things or parts forming a complex whole' or ‘a set of principles or procedures according to which something is done.' This broad statutory language shows that Congress was directing EPA to consider a wide range of measures to reduce emissions from sources.”

Opponents of the Clean Power Plan, (RIN 2060-AR33), including 27 states and several utilities and industry groups, have argued that the rule exceeds the EPA's Clean Air Act authority by regulating how electricity is generated rather than how emissions are controlled. The Clean Air Act only allows the EPA to impose emissions controls at the regulated utilities themselves and not across the entire power sector, the opponents had argued .

Rule Based on Interconnected Grid

In response, the EPA argued that the unique, interconnected nature of the power sector makes shifting generation from high-polluting sources to cleaner alternatives a viable control measure.

“Accordingly, every time a power plant either increases or decreases operations, that has automatic implications not just for the amount of pollution emitted by that plant, but also for the overall amount of pollution emitted by other plants within the interconnected grid, because those other plants must commensurately decrease or increase their operations to balance supply with demand,” the EPA said in its brief. “As a result, by shifting some generation from higher-emitting to lower-emitting plants, sources can achieve an effective degree of emission limitation that might otherwise have required them to make much more expensive investments in end-of-the-stack technologies at their particular plants.”

The EPA said generation shifting has been previously used as a compliance option for power plants under the Cross-State Air Pollution Rule and the acid rain program.

“By identifying the cap-and-trade program as part of the Best System, EPA recognized that sources need not reduce emissions at their own plants using add-on controls, but could instead use other approaches to reduce emissions, including using ‘dispatch changes' (i.e., generation-shifting) or buying allowances from sources that had reduced emissions at their plants,” the agency said.

The EPA had reviewed other emissions reduction strategies that could have been implemented directly at individual power plants, including carbon capture and co-firing with lower polluting fuels, but rejected those options as more expensive than shifting generation to lower emitting sources. As part of its Clean Power Plan analysis, the agency also found that there is sufficient generating capacity at existing natural gas-fired power plants and growth potential for new renewable generation to achieve the required emissions reductions.

In addition, the agency said its rule merely follows the changes already occurring in the power sector and helps spur that transition. The agency expects that coal will still account for 24.7 percent of total generation in 2030 when the rule would be fully implemented, only 5.4 percent less than would occur in the absence of the Clean Power Plan.

EPA Defends Expertise

The decision to pursue emissions reductions through generation shifting is a reasonable interpretation of the EPA's Clean Air Act authorities that is due deference from the court, the agency argued.

Opponents of the Clean Power Plan have pointed to the U.S. Supreme Court's review of the Affordable Care Act in which justices found the Internal Revenue Service was not due deference as an expert agency (King v. Burwell,, 135 S. Ct. 2480, 2015 BL 202885 (2015) ).

That case is seen as one of several recent decisions chipping away at the deference federal agencies have customarily received when interpreting ambiguous statutes .

However, the EPA argued the Affordable Care Act is not analogous to the Clean Power Plan situation because of the agency's long history and expertise with the Clean Air Act.

“The interpretive question here is whether EPA may appropriately set pollution limitations for power plants by applying the most cost-effective measures (generation-shifting), or whether EPA, to obtain comparable limitations, is limited to applying much more expensive technology-based measures like carbon sequestration and co-firing,” the EPA said.

The agency further argued that the Supreme Court has already spoken to the agency's ability to regulate greenhouse gases under Section 111(d) in a 2011 decision that held that the Clean Air Act displaces climate change nuisance claims brought under common law (Am. Elec. Power Co. v. Connecticut, 131 S. Ct. 2527, 2011 BL 161239, 72 ERC 1609 (2011)).

“That case addressed EPA’s authority to regulate the very same pollutant, under the very same provision, from the very same sources,” the EPA said. “The Court concluded that Congress had ‘delegated to EPA the decision whether and how to regulate [CO 2] emissions from power plants.' ”

State Authorities Preserved

The agency also argued that the Clean Power Plan respects the authority states have to regulate the generation of electricity, but that rules to control emissions will inevitably have an impact on how those markets operate.

“Indeed, taken to its logical extension, Petitioners’ sovereignty argument would absurdly preclude EPA from implementing any Section 111(d) guidelines, or any limitation for power plants under any other [Clean Air Act] provision,” the EPA said. “Any ‘system of emission reduction' that EPA might apply to the power sector under Section 111(d)—including Petitioners’ preferred technological controls—would require generators that emit more pollution to bear higher compliance costs than generators that emit less, and thereby would indirectly influence electricity rates and the relative utilization of plants.”

While the Clean Power Plan sets carbon dioxide emissions reductions targets for the power sector in each state, it is up to state regulators to determine how best to implement those reductions, leaving state authority to regulate electricity generation intact, the EPA argued. And should states not choose to implement the Clean Power Plan themselves, the EPA will issue a federal plan to achieve those targets, which, as proposed, focuses on emissions trading.

Hazardous Pollutant Rule

The EPA also defended its authority to regulate carbon dioxide emissions from power plants under Section 111(d) of the Clean Air Act even though those units are already subject to hazardous air pollutant standards under Section 112.

Conflicting amendments to Section 111(d) were both signed into law when the Clean Air Act was last amended in 1990. The House language would prevent the EPA from regulating industrial sources under Section 111(d) if they are already subject to toxic pollutant standards under Section 112, as power plants are. The Senate's language only bars the agency from regulating the same pollutants under both sections of the act. While both amendments are reflected in the statutes at large, only the House language appears in the U.S. Code.

The agency argued that the House amendment, which petitioners say bars regulation of power plants under both Sections 111(d) and 112, is itself ambiguous and open to interpretation. That would allow the EPA to interpret the competing amendments in a way to permit sources such as power plants to be regulated under both provisions provided the pollutant being regulated under Section 111(d), such as carbon dioxide, is not an air toxic or a criteria pollutant.

“Petitioners’ interpretation of Section 111(d) —which would strip that provision of nearly all effect—is not reasonable, let alone mandatory,” the EPA said.

Two hundred members of Congress, including Senate Majority Leader Mitch McConnell (R-Ky.); Sen. James Inhofe (R-Okla.), chairman of the Senate Environment and Public Works Committee; Sen. Lisa Murkowski (R-Alaska), chairman of the Senate Energy and Natural Resources Committee; House Speaker Paul Ryan (R-Wisc.); House Majority Leader Kevin McCarthy (R-Calif.); and House Majority Whip Steve Scalise (R-La.), argued that regulating toxic pollutants from power plants under Section 112 of the Clean Air Act precluded the EPA from regulating those same units under Section 111(d) .

Oral Arguments Scheduled

The D.C. Circuit has scheduled oral arguments in the Clean Power Plan litigation for June 2 and possibly June 3 before Judges Judith Rogers, Karen LeCraft Henderson and Sri Srinivasan. However, the U.S. Supreme Court has already stayed the rule's implementation until litigation is complete (West Virginia v. EPA, U.S., No. 15A773, 2/9/16).

Briefs for intervenors supporting the EPA are due March 29 with amicus briefs due April 1. Petitioners' reply briefs are due April 15.

To contact the reporter on this story: Andrew Childers in Washington at achilders@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

Key EPA Clean Power Plan Arguments

Generation Shifting: “Previous [Clean Air Act] programs and rules for the power sector have also drawn upon generation-shifting as one way for plants to cost-reasonably reduce air pollution, further demonstrating that generation-shifting is an adequately demonstrated system.”

Market Trends: “EPA further projects that significant reductions in coal-fired generation would occur even in the Rule’s absence, and that following full implementation of the Rule in 2030, the amount of coal-fired generation will be 27.4% of total generation — only 5.4% less than projected without the Rule.”

EPA Expertise: “Unlike Burwell, this case involves EPA’s construction of a statute that it has long administered and of provisions that go to the core of EPA’s mission to protect public health and welfare.”

Cooperative Federalism: “States have wide discretion in fashioning ‘standards of performance' under Section 111(d). This flexibility supports EPA’s interpretation that the ‘best system of emission reduction' that underlies such standards also encompasses a wide range of pollution-reduction strategies, including generation-shifting.”

State Authority Over Electricity Generation: “Petitioners ignore the important distinction between (1) regulation of pollution, as authorized by the [Clean Air] Act, which indirectly affects energy prices and markets, and (2) direct regulation of energy markets. This Rule is the former.”

The Section 112 Exclusion: “Petitioners’ interpretation of Section 111(d) —which would strip that provision of nearly all effect —is not reasonable, let alone mandatory.”