Approaches to Address Potential CO2 Emissions Leakage to New Sources under the Clean Power Plan

Jan 22, 2016 | Dallas Burtraw, Joshua Linn, Karen L. Palmer, Anthony Paul, Kristen McCormack, Hang Yin


RFF experts comment on proposed requirements for greenhouse gas emissions and model trading rules under the Clean Power Plan, giving ten recommendations about allowance allocation, requirements for state compliance plans, and EPA’s role in implementation.

Key Findings

Findings about Allowance Allocation

  1. EPA should make the New Source Complement, thereby covering all sources, an element of the mass-based model rule. The federal plan should retain the mass-based option for states. (CFR page numbers: 64969, 64978).
  2. If EPA chooses not to require states that use a mass-based approach to adopt the New Source Complements, then EPA should require updated allocations for 100 percent of the emissions allowances. (CFR page numbers: 64978, 65015, 65016, 65020, 65021, 65022, 65027).
  3. EPA should recognize that updating allocation to existing natural gas combined cycle (NGCC) units and new nonemitting units reduces leakage to new NGCC units. Updating allocation to all affected units covered under the cap achieves comparable results and may have advantages. Updating allocation to existing nonemitting sources is not an effective leakage mitigation strategy. (CFR page numbers: 65018, 65020, 65021, 65022, 65025).
  4. If EPA does not require coverage of new sources in the model rule, EPA should reduce the delay between generation and updating allocation and eliminate the threshold on utilization. (CFR page numbers: 64994, 65021, 65024).
  5. Any free allocation not based on updated generation shares in the model rule or federal plan should be directed either to local distribution companies on an updating basis or to generators, assigning equal prominence to both approaches rather than the exclusive focus on allocation to generators in the current proposal. (CFR page numbers: 65016, 65017, 65018, 65027).

Requirements for State Compliance Plans

  1. States that attempt to demonstrate equivalence in their plans should use an appropriate baseline assumption for other states’ actions, and should be compelled to evaluate “other environmental outcomes.” (CFR page numbers: 64980, 64986, 65001, 65028).
  2. States that do not use the new source complement should be required to build programmatic energy efficiency into their compliance plans as a measure to reduce leakage. (CFR page number: 65020).
  3. The model rule and federal plan should require the use of consignment sales for entities that receive free allocation to build program confidence and transparent multi-state compliance. (CFR page numbers: 64977, 64981, 64997, 65018).

EPA Implementation of the Clean Power Plan

  1. EPA should provide greater certainty on program implementation and development by affirming the schedule for reconsideration of the New Source Performance Standard under section 111(b). (CFR page numbers: 64969, 64995).
  2. EPA should commit to a schedule for program review of 111(d). (CFR page numbers: 64976, 64977, 64995).