EPA’s Carbon Rules: Same Old Ways to Skin the Cat

by Marlo Lewis on June 3, 2014

in Blog

Cap and trade was just one way of skinning the cat; it was not the only way.  It was a means, not an end.  And I’m going to be looking for other means to address this problem. – President Barack Obama, Nov. 3, 2010

President Obama uttered those words the day after Democrats lost the House — a defeat in no small part due to their support for the American Clean Energy and Security Act (H.R. 2454), better known as the Waxman-Markey cap-and-trade bill.

The President did look for other ways of “skinning the cat.” For example, in his 2011 State of the Union Speech, he called on Congress to enact a national clean energy standard. By some strange coincidence, the policy would have restructured the electric power sector very much along the lines of the “basic” case in the Energy Information Administration’s analysis of the Waxman-Markey bill.

What President Obama neglected to mention, though, is that he – or his EPA – would also attempt to skin the cat in the same old ways.

  Cap-and-trade CO2 Performance Standard/CCS Mandate Renewable/Efficiency Standard Demand Reduction
New Source Rule      
Existing Source Rule  

EPA’s carbon “pollution” rules put back into play the potpourri of anti-fossil fuel policies that were core strategies of the Waxman-Markey bill.

Team Obama’s political chutzpah is off-the-charts.

Twenty-nine House Democrats who voted for Waxman-Markey lost their seats in the November 2010 elections. The unpopularity of cap-and-trade was a key factor in Democrats’ loss of control of the House. As Cato Institute scientist Patrick Michaels has pointed out:

Three days [after the House passed the Waxman-Markey bill on June 26, 2009], Rasmussen’s generic congressional ballot switched from Democrat to Republican, and it remained there continuously through the Democrats’ electoral debacle of 2010, when they lost 65 seats and their majority. Virtually every close race was lost by a Democrat who had voted for the legislation.

Meanwhile, U.S. Senate staffers noticed the polls and wisely counseled their bosses to make sincere noises but no law. In the fall, every close Senate race was won by a Democrat.

Neither President Obama nor other Democratic leaders campaigned for cap-and-trade in the 2012 election cycle. In fact, President Obama campaigned to the right of Mitt Romney on energy and environment issues, tagging his opponent as anti-coal.

As should now be clear, Obama’s “all-of-the-above” rhetoric was the setup for a bait-and-switch. His EPA’s carbon rules reprise the main market-rigging interventions contemplated by the defunct Waxman-Markey bill.

Waxman-Markey proposed to reduce U.S. carbon dioxide (CO2) emissions through four main policies:

  • Sec. 116 would establish first-ever new source performance standards (NSPS) for power-plant CO2 emissions under §111(b) of the Clean Air Act. The provision would require new coal power plants permitted after Jan. 1, 2009 and before Jan. 1, 2020 to achieve a 50% reduction in CO2 emissions. The only technology capable of meeting the requirement is carbon capture and storage (CCS), which can make a new coal plant more than four times more costly than a new natural gas combined cycle (NGCC) power plant (see Table 2 of this EIA report).
  • Title III of H.R. 2454 would establish a cap-and-trade program covering all major emitters. Stationary sources would have to achieve CO2-equivalent greenhouse gas emission reductions of 3% below 2005 levels by 2012, 17% below by 2020, 42% below by 2030, and 83% below by 2050.
  • Title I would require utilities to supply increasing percentages of electricity from a combination of efficiency upgrades and renewable sources (6% in 2012, 9.5% in 2014, 13% in 2016, 16.5% in 2018, and 20% in 2020-2039).
  • Sec. 144 of Waxman-Markey would require states to establish and enforce electricity demand-reduction goals, described as “the maximum reductions that are realistically achievable with an aggressive effort to deploy Smart Grid and peak demand reduction technologies and methods.”

EPA’s new source carbon rule, published January 8, 2014, would set an NSPS for CO2 comparable in stringency to that proposed in sec. 116 of the Waxman-Markey bill.

EPA’s existing source carbon rule, proposed Monday this week (June 2, 2014), requires each state to adopt a “best system of emission reduction” (BSER) constructed out of four “building blocks”: (1) Increase heat-rate efficiency of coal power plants; (2) increase base load generation from NGCC power plants while decreasing generation from coal power plants; (3) increase generation from wind, solar, nuclear and other low- or non-carbon energy sources; and (4) decrease electricity demand by industry and other end-users.

The biggest contributor to CO2 reductions is expected to be building block #2 — shifting base load generation from coal to gas. EPA explicitly and repeatedly identifies cap-and-trade programs like California’s Global Warming Solutions Act and the Northeast states’ Regional Greenhouse Gas Initiative (RGGI) as approved policies for replacing coal generation with gas generation.

EPA also approves combined renewable/energy efficiency mandates and demand reduction programs — other pillars of the Waxman-Markey plan.

EPA talks a lot about flexibility and how states will be able to mix and match components of the four building blocks to meet their respective CO2 reduction targets. But the targets will not be flexible. Once the rule is final, states will have to meet their respective targets, either via in-state reductions or “multi-state approaches” like RGGI.

And if EPA decides the state plan is not good enough, it will impose a federal implementation plan (FIP). Either way, EPA’s rule will be binding not just on the state’s electric generating units (EGUs), but also its utilities, public utility commission, and industrial consumers. In EPA’s words:

Accordingly, the EPA is proposing to authorize a state plan to adopt what we refer to as a “portfolio approach,” in which the plan would include emissions limits for affected EGUs along with other enforceable measures, such as RE [renewable electricity] and demand-side EE [energy efficiency] measures, that reduce CO2 emissions. . . . Under this approach, the emission limits enforceable against the affected EGUs would not, on their own, assure, or be required to assure, achievement of the emission performance level. Rather, the state plan would include measures enforceable against other entities that support reduced generation by, and therefore CO2 emissions reductions from, the affected EGUs. As noted, these other measures would be federally enforceable because they would be included in the state plan (p. 382).

The Table above shows that each important feature of the failed Waxman-Markey bill is in one or the other of EPA’s two carbon rules.


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