U.S. CHAMBER OF COMMERCE

New Paper Highlights Sleeper Issue that Could Determine the Outcome of EPA Power Plant Regulations

By Dan Byers

The EPA is expected to finalize its “Clean Power Plan”—sweeping new regulations that aim to transform the U.S. electricity system—sometime in the next 90 days. When it does, all eyes will quickly turn their attention away from Washington, DC and toward state capitals, as states scramble to come to grips with EPA’s mandate.

Since last June, when the plan was first proposed, EPA has gone out of its way to reassure the states that the rule will be flexible and won’t step on a state’s authority over its energy sector. In other words, EPA is claiming that if states like their energy sovereignty, they can keep their energy sovereignty. Hmmm, where have we heard that before?

The states play a critical role in this process. It is not an exaggeration to say that the decisions states make in response to EPA’s rule are likely to have historic implications for their economic futures. Most of the media attention to date has focused on the high-level question of whether or not a state “supports” or “opposes” EPA’s efforts. But the choices each state faces are infinitely more nuanced and complex.  For starters, they must weigh a broad array of factors, such as the rule’s legal outlook, costs, technological achievability, reliability implications, and potential interactions with neighboring states (issues detailed in the Chamber’s guide to state comments on the rule earlier this year).

As if that’s not enough, a new white paper  from the law firm Sidley Austin details something else the states need to worry about: how their freedom of action can be limited by EPA and even green groups. Specifically, the paper details how EPA argues that all aspects of a state compliance plan will become federally enforceable, thus bringing key aspects of electricity system oversight—long the purview of states—under EPA’s thumb. Of equal concern, under EPA’s position, states and private parties can be held legally liable for emissions reductions committed to under a state plan, opening the door for a storm of lawsuits from environmental groups using the Clean Air Act’s “citizen suit” provisions.

While these two characteristics—federal enforceability and citizen suit legal liabilities—are a standard component of Clean Air Act implementation, the “outside the fence” design of EPA’s proposed power plant rule broadens their potential reach far beyond just power plants, potentially extending it to the entire electricity system. As the white paper explains:

The unprecedented beyond-the-fence line structure of the proposed ESPS, combined with EPA’s assertion that all measures in a § 111(d) SIP become federally enforceable, would substantially expand federal authority to enable enforcement actions against States as well as third parties separate and distinct from the fossil-fueled generating sources that are the subject of the § 111(d) rulemaking.  It also could expose States to legal action under the citizen suit provisions of the CAA by NGOs seeking to compel such enforcement actions, as well as exposing third parties themselves to citizen suits.  The net result is that, if EPA’s view prevails, approval of a SIP by EPA will entail the loss of a significant portion of a State’s authority to regulate power production, distribution, and consumption within the State and to adjust its energy policies as economic circumstances within the State change. [Emphasis added.]

So what could this mean in practice? Both EPA and environmental groups could drop the hammer on states for any aspect of a state implementation plan that they contend is not being adhered to, regardless of a state’s best efforts. Perhaps a state encountered delays in renewable deployment due to permitting delays, missed energy efficiency targets due to unexpected electricity demand spurred by economic growth, or perhaps the Sierra Club disputed whether a state was adhering to its emissions monitoring and verification plan. All of these circumstances could trigger federal enforcement and third party lawsuits against states as well as private parties responsible for carrying out SIP obligations.  Thus, liability could attach to private parties who, heretofore, have not been subject to any regulation under the Clean Air Act.

You can be forgiven for not knowing this because EPA hasn’t exactly been upfront about their intentions. Nevertheless, amid hundreds of pages of regulatory mumbo-jumbo, EPA quietly came clean in a footnote noting that “citizens would also have the ability to file citizen suits to compel enforcement of state plan obligations.” A recent Energy Institute op-ed wrote about the importance of this tool to would-be environmental litigants:

The Sierra Club caught EPA’s hint, and has made realization of SIP lawsuit exposure a priority, emphasizing in its comments on the rule that “State plan requirements must also be federally enforceable against affected sources, by EPA and through citizen suits.” The Center for Biological Diversity went a step further, and warned EPA that any attempt to walk back from federal enforceability of SIPs would be illegal: “To the extent state plans were to count such non-federally enforceable measures to reach the BSER [Best System of Emission Reduction] guidelines set by EPA, such plans would be illegal and contrary to the Clean Air Act, and EPA would have to reject them.”

EPA and its allies have worked overtime to market this regulation as a flexible and empowering framework for states to achieve the agency’s assigned targets as they see fit. But sooner or later, reality catches up to the spin, and Sidley Austin’s white paper has exposed how the expanded liabilities that accompany federal enforceability of an outside-the-fence SIP ultimately expose EPA’s vision for the rule as an inflexible and disempowering proposition for states.

Make no mistake. Once EPA gets its way, if states like their energy sovereignty, they’ll never get it back.

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