PEC Comments on Implementation of Clean Power Plan

November 12, 2015

Re: Comments of the Pennsylvania Environmental Council on Pennsylvania Implementation of the United States Environmental Protection Agency’s Final Rule for Carbon Pollution Emissions Guidelines for Existing Stationary Sources; Electric Generating Units (Clean Power Plan)

The Pennsylvania Environmental Council (PEC), in response to notice in 45 Pennsylvania Bulletin 5642 (Sept. 12, 2015), respectfully submits the following comments to the Department of Environmental Protection (Department).

PEC strongly supports Governor Wolf’s commitment to submit Pennsylvania’s plan to implement the Clean Power Plan by the U.S. Environmental Protection Agency’s (EPA) deadline of Sept. 6, 2016. We offer the following comments on the framework and elements of the state implementation plan.


Pennsylvania Should Adopt a Mass-Based Approach, Covering New and Existing Sources, and Should Allow for Trading

Pennsylvania should implement a mass-based trading program applicable to all new and existing power plants, where the majority of allowances are auctioned with a meaningful reserve price, and the value of the allowances are retained for investment toward additional emission reductions in Pennsylvania. The cap on emissions from new and existing plants should be set at or below EPA’s cap for existing plants only. This type of program is already authorized under the Pennsylvania Air Pollution Control Act[1] and the Environmental Rights Amendment to the Pennsylvania Constitution.[2]

The advantages of this approach include:

  • A mass-based program is simple to implement. Electricity providers are already familiar with mass-based trading programs for NOx, SO2, and particulates, and participate in active trading of allowances. A mass-based allowance system permits futures trading and simplifies compliance by maximizing flexibility in achieving emissions reductions. Existing mass-based trading systems have consistently resulted in achievement of emissions reductions at a far less cost and with less disruption than other programs. By contrast, rate-based trading is unproven, having never been implemented in the electricity system.
  • A mass-based program will best position Pennsylvania to achieve the necessary 80 percent emissions reductions by 2050. In addition to providing regulatory certainty, a mass-based program will be easier to integrate into regional programs and/or to facilitate trading with other states through “trading ready plans.” Allowing sources to trade allowances across state lines to achieve compliance promotes lower-cost compliance. Although EPA’s model rate-based approach would allow interstate trading, the market will be very limited. All 10 existing state regulatory programs governing greenhouse gas emissions from the power sector are mass-based, and there is no indication that these states will modify their programs.
  • A mass-based program covering all new and existing units is the only way to ensure real emissions reductions. A program that regulates only emission rates for some generating units and does not cap all emissions would potentially allow retiring existing zero emissions sources to be replaced by new fossil-fired units. Emissions could decrease less than anticipated under EPA’s definition of the best system of emissions reduction (“BSER”), and, in some circumstances, could actually increase.
  • Allowances used for compliance in mass-based programs are initially owned by the Commonwealth. They can therefore be auctioned to produce funds that can be used to further promote emission reductions and benefit residents and businesses. Pennsylvania could allocate allowances as investment credits for new zero emission projects, or energy conservation and efficiency projects.
  • It will be easier and less costly for Pennsylvania to verify that emissions reductions have been achieved under a mass-based plan. This will reduce both compliance costs and administrative burdens in demonstrating to EPA that Pennsylvania’s plan is effective. It will also simplify compliance for electricity generators, who are already required to measure and report the mass of greenhouse gas emissions. As long as the emissions cap and the number of allowances made available are less than EPA’s emissions goals, compliance will be automatic.
  • A mass-based program for the entire electricity sector is also necessary to facilitate a trading program for other industries that will be regulated in the future. Pounds per megawatt hour cannot be traded with pounds per ton of steel, cement or chemicals, but tons of emissions are fungible across all industries. The utility sector produces 80 percent of emissions from stationary sources, and a robust market for the utility sector is a prerequisite for effective emissions trading opportunities for other industries. Auctions assure that no one receives a windfall, will prevent market manipulation, and will provide much needed revenues to further investment in energy conservation, energy efficiency, and other emission reduction efforts.
  • Establishing a cap over both new and existing sources will also prevent leakage within EPA’s narrow definition of the term, and satisfy EPA’s requirements for approvable mass-based systems. EPA requires that states adopting mass-based systems include measures to prevent leakage,[3] and has indicated that adoption of a system capping both new and existing sources will be an approvable mechanism for doing so.[4]
Verification

Pennsylvania’s implementation plan must include robust compliance mechanisms that accurately measure and track actual emissions, so the state can easily demonstrate that it has fulfilled its obligations under the Clean Power Plan.

Existing Authority

The Pennsylvania Air Pollution Control Act (APCA) and Environmental Rights Amendment to Pennsylvania’s Constitution provide sufficiently broad authority to allow the adoption of a program that covers new and existing sources, and provides for interstate emissions trading, either as a “trading-ready” program or by way of participating in the Regional Greenhouse Gas Initiative or other program involving interstate trading.

These authorities also authorize any method for allocation of allowances, including an auction, as recognized by EPA in the Clean Power Plan. The express authorization in the APCA to adopt rules to implement the Clean Air Act includes the use of “economic incentives such as fees, marketable permits, and auctions of emissions rights” to implement emissions reduction requirements. Pennsylvania has already adopted rules implementing cap-and-trade programs, including interstate mass-based NOx trading within the ozone transport region, and regulations implementing the Clean Air Interstate Rule.[5] In doing so, Pennsylvania adopted its own allowance allocation mechanisms to implement the Clean Air Interstate Rule, and awarded allowances to “renewable energy qualifying resource[s] or demand side management energy efficiency qualifying resource[s].”[6]

Thus, there is nothing in the law to suggest that Pennsylvania must wait for the federal government to adopt a regulation under Section 111(d) of the Federal Clean Air Act before regulating greenhouse gas emissions from power plants or any other source, much less wait for the resolution of any potential litigation over the Clean Power Plan.


Pennsylvania Should Participate in the Clean Energy Incentive Program

Pennsylvania should participate in EPA’s early action program – the Clean Energy Incentive Program (CEIP) – to qualify for additional federal allowances and to benefit its low-income environmental justice communities in both urban and rural areas.

Because the matching federal allowances will come from a federal pool, this is the equivalent of the federal government providing matching grant funds for construction projects in Pennsylvania. Needless to say, obtaining federal funding for construction projects will generate jobs and economic growth. Accordingly, it is in Pennsylvania’s best interest to maximize the opportunity for receiving these federal allowances, which might otherwise go to other states. This makes it all the more critical for Pennsylvania to maximize the number of projects that qualify by submitting a final plan including this program by Sept. 6, 2016.

Although EPA has structured the CEIP program to provide operating subsidies, Pennsylvania should structure its allowance awards to create investment subsidies that will not undermine existing zero emissions resources. Pennsylvania should therefore structure its program to award matching allowances at the time that construction is completed (or operation commenced) based on the anticipated avoided emissions resulting from the project. This program could be readily administered like other grant and aid programs.

Pennsylvania should also broaden its definition of energy savings programs that will receive Pennsylvania allowances to include all types of energy efficiency projects in low income neighborhoods, including those that reduce emissions resulting from reduced use of fossil fuels for heating.

Pennsylvania Must Meet the September 2016 Deadline

It is essential that Pennsylvania disregard calls for delay, and submit a final plan to EPA by Sept. 6, 2016. Delay will impair Pennsylvanian’s ability to take advantage of the CEIP, and will harm the electricity generation industry by depriving it of regulatory certainty. Regulation of greenhouse gas emissions from the utility industry will be required under the Clean Air Act, regardless of what happens in any appeals from the Clean Power Plan. Even if those appeals should be successful, emissions reductions will be required under multiple sections of the Clean Air Act triggered by EPA’s endangerment finding. State regulation will be required as an element of those regulatory programs.

Delaying emissions reductions will only require more dramatic and more expensive reductions at a later time. Moreover, because the implementation program is not only authorized but arguably required by Pennsylvania law, a successful appeal to the Clean Power Plan will have no impact on Pennsylvania’s power, or obligation, to adopt and implement a plan to reduce emissions. Implementation of Pennsylvania’s program, regardless of the results of an appeal, will simply enable the utility industry in Pennsylvania to make the long term investments that will prepare the Commonwealth’s economy to make the emissions reductions that will be required and make our industry more competitive in the long run.

Read PEC’s initial public comments from Clean Power Plan Listening Sessions this fall.


Conclusion

Thank you for your consideration.

John Walliser
Senior Vice President, Legal & Government Affairs
Pennsylvania Environmental Council

[1] 35 Pa. Stat. Ann. § 4001 et seq.

[2] PA Const. Article I, Section 27

[3] Final Clean Power Plan, 80 Fed. Reg. at 64823, 64,887.

[4] Id.

[5] See, 25 Pa. Admin. Code Ch. 145.

[6] 25 Pa. Admin. Code §145.212.


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