Beware the CPP Lawsuit Shamers

Commentary & Analysis
September 21, 2016

After an extremely quiet summer, action on EPA’s Clean Power Plan (CPP) is set to heat up again, with oral arguments in the massive lawsuit to halt the regulations scheduled for next Tuesday. As part of the warm-up to the big event, EPA’s allies are rekindling a familiar narrative by asserting not only that CPP compliance is cheap and easy, but that many states will be able to comply without lifting a finger.

The effort amounts to a sort of shaming, aimed at trying to make states feel guilt and scorn for their opposition to EPA’s heavy-handed mandates. The argument goes something like this: “Why enter into expensive and time consuming litigation if your state can meet EPA’s mandates through business-as-usual actions? Don’t these lawsuits simply reflect political objections to EPA rulemakings unrelated to the CPP’s impact on consumers or the electricity system?”

The latest example of this came in a September 19th Reuters article titled “Most states on track to meet emissions targets they call burden.” It opens:

The 27 states challenging Obama’s Clean Power Plan in court say the lower emissions levels it would impose are an undue burden. But most are likely to hit them anyway.

Already, Arkansas, North Carolina, Oklahoma and South Dakota appear to be meeting the CPP's early targets. And changes in the power market, along with policies favoring clean generation, are propelling most of the rest toward timely compliance, according to researchers, power producers and officials, as well as government filings reviewed by Reuters.

In response, Montana Public Service Commission Chair (and National Association of Regulatory Utility Commissioners President) Travis Kavulla wryly noted on Twitter, the “Claim that Montana is ‘on target’ for EPA’s 2030 requirement is news to me. But what do I know?”

Montana is one of the states challenging EPA in court.  And of course, virtually nobody in Montana knows more about the ability of that state to meet EPA’s mandates than Kavulla.  But it’s worth taking a closer look at these claims. We did, and found the conclusions extremely misleading on numerous levels. Here are the main reasons why:

1. Consider the source. While Reuters states that its conclusion is based on info from “researchers, power producers and officials, as well as government filings,” the story and accompanying graphic cites only a single source of data in support of its headline: an analysis conducted for the Environmental Defense Fund and submitted to the court in December 2015 as part of a legal motion supporting EPA’s rule (study available here, beginning on page 637).

While this key info is noted in the 15th paragraph in the story, until that point readers are left with the impression that the article is reporting objective facts rather than the views of an interested party. The story’s conclusion that “most states are on track to meet targets that they call burden” is drawn from the EDF study’s finding that 21 of the 27 states suing to block the CPP are “on track” to meet its 2024 targets, and 18 of them are “on track” to meet the 2030 targets. We explore this finding in detail below.

2. Consider a different source. While industry is often suspicious of activist group studies such as EDF’s (and, to be fair, vice versa), there is one analytical source that is almost universally respected by both sides: the Department of Energy’s Energy Information Administration (EIA). Fortunately, in August EIA released in-depth modeling of EPA’s CPP as part of its Annual Energy Outlook (AEO). Its results strongly contradict the assertion that business-as-usual activities will result in compliance with CPP. While EIA’s modeling does not generate state-level results directly comparable with those advocated by EDF, the AEO’s no-CPP scenario found that nationwide U.S. emissions reductions would fall about 200 million metric tons (mmt) short of CPP targets in 2024, and 383 mmt short in 2030. In other words, if the country as a whole will fall far short of CPP targets, then it stands to reason that individual states will as well.

Further, as the Energy Institute’s Steve Eule has detailed, EIA projects that the CPP would increase electricity expenditures by $40.5 billion, reduce GDP by an average of $58 billion annually, and result in 376,000 fewer jobs in 2030. Coming from the Obama Administration’s own top energy experts, these projections speak volumes, and demonstrate very clearly the burdens mocked in the Reuters article.

3. The first mile is very different from the last mile. The central conclusion of the EDF study—which was used to further its legal argument that the CPP lawsuits should be thrown out—was that 21 of 27 states suing EPA are “on track” to comply with the initial interim compliance targets in 2024. But the CPP doesn’t end in 2024, and it should come as no surprise that initial compliance measures take advantage of “low hanging fruit.”

For example, prior EPA rules forced the closure of enormous amounts of coal-fired electricity, and plants that closed after the CPP’s baseline year of 2012 can be credited toward early CPP compliance. Similarly, the recent extension of the Production Tax Credit (PTC) is driving a boom in deployment of new wind turbines that will aid early compliance with CPP. However, the amount of the 10-year PTC credit is set to gradually decline each year beginning in in 2017, meaning that its incentivizing influence will substantially fade during the later years of the CPP compliance period.

The point is, being on track for an initial milestone does not mean one is on track for a final milestone.

4. With enough unrealistic assumptions, anything is possible. Not surprisingly, the assumptions used by EDF are quite rosy. It assumes all proposed renewable generation—even that which has not been permitted yet—will be permitted, funded, and constructed without delay (included associated transmission lines, which are a subject of increasing controversy). When EDF analyzed an alternative scenario that only included planned generation that has been permitted, only 16 of 27 states were found to be “on track.”

Additionally, EDF assumed 100% implementation of all state-level renewable portfolio standards (RPS) and energy efficiency resource standards (EERS), even though in many states RPS and EE policies are aspirational goals and not binding requirements. For states without energy efficiency mandates, the study assumes 2012 energy efficiency savings rates will be maintained through the entire CPP—a feat that many states have noted will be difficult to sustain once the low-hanging fruit of relatively inexpensive measures (such as transition to LED lighting) is exhausted.

Finally, the EDF study includes an eye-popping admission that the study’s assumed energy efficiency savings “may not apply to 100% of in-state sales” and therefore “may be substantially lower than indicated.” (See Page 668 of EDF’s amicus brief.) This is due to the complexity of state EERS laws, which typically contain numerous exemptions and caveats to the base standards (such as applying only to investor-owned utility sales).  This results in a significant overestimation of energy efficiency savings that is compounded each year of the CPP compliance period and results in states appearing to be “on track” to achieve targets when in fact they are not.

5. Everything is easier when the price isn’t a factor. A final important and understated disclaimer in the EDF study notes that the tool used in the analysis “should not be confused with an economic model that dispatches generation based on relative generation costs” and that “this analysis is not…intended to illustrate the most likely or cost-effective compliance outcomes under the rule.” In other words, EDF’s sweeping conclusions about CPP compliance did not actually model CPP compliance, and even if one accepts the study’s unrealistic assumptions and concludes that states opposed to the CPP are “on track” to achieve the initial compliance targets, the cost to consumers and the economy will be massive (as EIA found when it actually modeled the rule).

The bottom line here is clear. As stakeholders involved in the CPP awaken from their stay-induced slumber, they should beware sweeping rhetoric and narratives coming from all sides and be on the lookout for “CPP shaming” efforts in particular. And while it goes without saying, studies released by environmental groups as part of legal filings in support of EPA’s regulatory ambitions *might* be worth taking with a grain of salt—and certainly shouldn’t merit a wire story from a respected source of journalism.