U.S. CHAMBER OF COMMERCE

CPP Revisited: the Flexibility Façade

By Dan Byers

EPA’s Clean Power Plan (CPP) has been on quite the roller coaster ride since it was first announced in June 2014. The agency’s sweeping attempt to transform America’s electricity sector was the centerpiece of President Obama’s domestic policy legacy and is now one of the prime targets of President Trump’s ambitious regulatory reform agenda. Add in massive, complex litigation highlighted by an unprecedented Supreme Court stay in February 2016, and it’s difficult to think of a regulatory issue that has sustained such a high profile for such a long time. It ain’t over yet.

After months of planning, EPA earlier this week proposed formal repeal of the CPP, which promises to revive the intense debates of 2014-2016.

With that in mind, over the coming weeks Fuel for Thought will revisit some of the key issues and problems associated with CPP that are certain to be discussed as the rule goes through its next and likely final chapter. We’ll start today with a closer look at the CPP’s favorite word: “flexibility.”

If there were a hall of fame for regulatory marketing catchphrases, the word “flexibility” would surely have its own wing. EPA took this to an entirely new level with CPP, heavily employing “flexibility” as a central theme in both the agency’s public promotion and legal defense of the rule. From President Obama to EPA Administrator Gina McCarthy on down to the agency’s regulatory and litigation dockets, “flexibility” was the watchword of CPP supporters. Let’s roll the tape.

Upon announcing the final version of the rule, President Obama repeatedly emphasized that “we're giving states the time and the flexibility they need to cut pollution in a way that works for them.” EPA Administrator Gina McCarthy wrote that the final rule “put states in the driver’s seat” and was “even more fair and more flexible” than the proposal. Environmental groups proclaimed that “the wide array of flexible compliance options…undermines” state and industry arguments that the CPP was illegal. Our tally indicates the words “flexible” and “flexibility” appeared in the final version of the (304-page) rule a whopping 280 times, certainly some kind of a record!

Everyone loves flexibility, so what was the beef with its ubiquity in CPP? Well, it turns out saying so doesn’t necessarily make it so. To understand why, we have to briefly unpack the origin and use of the term as it relates to CPP requirements.

While the details are complex, the origin of all of the CPP’s requirements derive from its uniform national assumption that every coal- and natural gas-fired power plant could achieve emissions rates of 1,305 and 771 pounds of carbon dioxide per megawatt-hour, respectively (rates, by the way, that are lower than EPA was going to require for new (and therefore inclusive of the latest technology) coal and gas plants, a first for EPA).

Both of these rates are far, far below what is possible to actually achieve at the physical site of these plants—within the “fence,” line—as required by the Clean Air Act. In fact, we calculated that less than 10% of the reductions required by the rule could be achieved onsite (known as Building Block 1 in the rule). The remaining 90% of the required reductions would have to be achieved through “outside the fence” activities—i.e. through fuel switching from coal to natural gas (“Building Block 2”) or by replacing electrons generated from coal and natural gas with those generated by renewables (Building Block 3).

This left many states in an impossible position with respect to compliance. As the joint state-industry lawsuit against CPP explained, using Kentucky as an example:

Kentucky’s quandary again illustrates the chasm between EPA’s modeled projections and on-the-ground-reality. Kentucky’s generation fleet contains nearly all coal-fired units, plus a single gas unit. Because the Rule already imputed an unachievably high capacity factor to the single gas unit, Building Block 2 is effectively unavailable in Kentucky. Kentucky’s mere 4% in-state renewable energy potential also severely limits Building Block 3.

Yet EPA makes no showing that Kentucky sources can apply EPA’s BSER to achieve the national performance rates, or that Kentucky can craft a workable state plan. All EPA says is that Kentucky has a lot of “flexibility.” EPA cannot avoid its statutory burden by hiding behind such loose words. (Emphasis added.)

On one level, EPA’s refrain was accurate—states like Kentucky were in theory free to decide what combination of building blocks and/or carbon trading they wanted to meet the emissions requirements. But, because those requirements bore no relationship to the actual plants that were supposedly being regulated, some states would be forced to comply via wholesale transformation of their electric systems—a costly and onerous result surely not conceived by Congress when it wrote the Clean Air Act in 1970.

In other words, the CPP’s “flexibility” was in effect a pick-your-poison mandate on states that presented them nothing but objectionable options. The agency definition of flexibility was not grounded in fairness, and it did little to ease the pain of the rule.

This illusion of flexibility illustrates why more than 160 entities sued EPA to stop the rule, including 27 states, 25 business groups (led by the U.S. Chamber), and 8 labor unions.

Linguistic contortions aside, the business community remains an enthusiastic supporter of true compliance flexibility, and as EPA considers revised emissions guidelines that could be implemented in place of the soon-to-be-abolished CPP, we hope real flexibility remains not only a watchword but a genuine aspect of any new framework.

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