Blog Post

Preserving Flexibility

Apr 8, 2014 | Nathan Richardson

Decisions EPA is making today will have a major impact on the cost-effectiveness of its planned move to regulate carbon emissions from existing power plants. The agency has proposed and will soon finalize performance standards for new power plants. These new-source standards are a prerequisite for the planned existing-source standards, but are ostensibly otherwise unrelated - existing source standards can and will be less stringent, and will be ultimately imposed and enforced by states, not EPA directly. But, as I argue in a new comment to EPA, important structural elements of the new source standards - the "source categories" into which emitters are divided for regulatory purposes - will persist into the existing-source standards, with major implications.

From the comment, here's the short version of how the connection works:

  • EPA’s decision to separate coal and gas power plants into different regulatory categories for its proposed New Source Performance Standards (NSPS) has little effect on those standards, but has important implications for upcoming existing source standards (ESPS).
  • The approach—split or combined categories—that the agency uses for its NSPS will almost certainly persist for ESPS.
  • Other research indicates that switching from coal to gas generation is the largest and lowest-cost emissions reduction opportunity in the power sector.
  • Combined categories are therefore crucial to the cost- and environmental effectiveness of ESPS. Trading between coal and gas that could incentivize this fuel switching is almost certainly legal if categories are combined, and almost certainly illegal if they are not.
  • Combining coal and gas into a single category, as the agency did in its first NSPS proposal in 2012, would not reduce EPA’s freedom to set standards, increase the rule’s complexity or add any significant legal risk.
  • EPA should therefore combine coal and gas into a single source category in its final NSPS rulemaking.

Just last week, EPA submitted its proposed ESPS to the Office of Management and Budget for review. The decision on whether to combine source categories has therefore likely already been made, at least for purposes of the proposal. Here's hoping EPA has combined the categories. If they have not, I do not see how the agency can fulfill its promise to preserve existing state climate programs, many of which (like the cap and trade programs in California and the Northeast) have trading at their core.