FREQUENTLY ASKED QUESTIONS

If you’ve got questions (and you likely do), we’ve got answers. Below, we address the most pressing questions about EPA’s climate rule, including how state leaders and the general public can fight back. The questions are organized into three broad topics: The Basics, Legislative Accountability, and Costs and Benefits, with several questions included under each topic. Click the + symbol next to each question to learn more.

The Basics

On October 23, 2015, the U.S. Environmental Protection Agency (EPA) published its final rule to regulate carbon dioxide emissions from existing power plants. Even though carbon dioxide is colorless, odorless, and not harmful to human health, EPA christened this regulation the “Clean Power Plan.” EPA’s Carbon Rule requires a 32 percent reduction in carbon dioxide emissions from 2005 levels by 2030, and establishes state-specific targets to do so. EPA’s final rule sets carbon dioxide emission rate targets for 47 states based on three EPA “building blocks,” or regulatory paths that states can take to comply with the plan (Vermont is excluded because it does not have any fossil fuel power plants, and EPA decided not to include Alaska and Hawaii in the rule).
EPA’s building blocks compose what it considers to be the “best system of emissions reduction” for the rule. The building blocks are as follows:

  1. Improve the thermal efficiency of individual affected sources (i.e. require existing power plants to be more efficient). These are commonly referred to as “inside the fence” reductions because the action makes change within the power plants themselves.
  1. Increase electricity generation from existing natural gas plants to replace generation from coal-fired power plants.
  1. Replace coal plants with new solar and wind facilities and other sources of low- and zero-carbon generation.

In its proposed rule, EPA included a fourth building block requiring people to adopt energy efficiency measures, but this category was removed in the final rule. For a detailed explanation of the building blocks, including building block 4, click here.

EPA has claimed that the rule gives each state “the flexibility to select the measures it prefers” to meet emissions goals. What the agency means is that states have the option to choose from a range of compliance options, including the building blocks and energy efficiency measures. In addition, states can choose between a rate-based approach (measured in pounds per megawatt hour) and mass-based approaches (measured in total short tons) to regulate carbon emissions.

Ultimately, EPA’s claim distracts from the ultimate result of any compliance approach. The Carbon Rule still mandates that states restructure their electric grids, closing down numerous gigawatts of affordable electricity resources in the process. The required emissions reductions are so severe that the rule pressures states to adopt costly policies that were either too politically unpalatable for President Obama and his allies in Congress to pass when their party controlled Congress (e.g., cap-and-trade, carbon tax, etc.) or are being rolled back in states that enacted them (e.g., renewable energy mandates).

Despite claims of flexibility, the rule will cause the premature closure of coal plants, some of the most reliable and plentiful sources of baseload power available, and replace them with more costly sources. A recent study commissioned by the Institute for Energy Research found that electricity from existing coal plants is less expensive than electricity from any new source, including natural gas, wind, and solar. Existing coal is one-third the cost of new wind and half the cost of new natural gas. In the end, it doesn’t matter what states do—the bottom line is skyrocketing energy prices and greater federal control.

EPA released its proposed Carbon Rule in June 2014 and finalized the regulation in October 2015. On a side note, while the EPA released a version of the final rule in August 2015, the rule was not officially finalized until publication in the Federal Register. As the agency itself has outlined, there are a number of differences between the proposed and final versions of the rule. Most significantly, EPA increased the rule’s goals for carbon emissions reductions from 30 percent to 32 percent by 2030 under 2005 levels.

Furthermore, the final rule made changes to the building blocks. Building block 1’s estimates of heat-rate improvement for coal-fired power plants were reduced from 6 percent to 2.1–4.3 percent, and building block 4 (energy efficiency) was eliminated, which implicitly recognized the legal problems with that aspect of the rule.

In addition, EPA added some other features to the final rule, such as a “model rule” for interstate cap-and-trade and a Clean Energy Incentive Program that is meant to get states to commit to renewable energy investments early. EPA also made some changes to how states can submit state plans, including setting a timeline for submittal, which is discussed below.

In sum, EPA is attempting to cut even more emissions by forcing states to restructure their electric power systems. The agency scaled back the part of the rule it traditionally had authority to undertake (i.e., building block 1) and expanded a number of legally questionable aspects of the rule. Ultimately, the changes to the final rule are arbitrary and not logical outgrowths of the proposed rule (as required by law)—a notion that states like New Jersey have already raised.

For a more detailed examination of the changes made to the Carbon Rule, see these analyses from the Institute for Energy Research.

In its final rule, EPA laid out the timing for states to submit State Implementation Plans (SIPs) in order to comply with the regulation. The rule sets both interim and final CO2 emissions goals for 47 states and calls on states to submit SIPs that outline the measures a state will take to achieve those goals. States are requested to submit either a final plan or an initial filing (with a request for extension) by September 2016, and finalized SIPs are due no later than September 2018. The compliance period begins in 2022.

Legislative Accountability

First, the final rule has major consequences for individuals, families, and businesses that should be decided by elected officials, not unelected bureaucrats. Since EPA’s emissions targets are so strict, any state plan will most likely have severe ramifications, including significant increases in energy bills and grid reliability concerns.

The rule will also limit a state’s energy choices. Traditionally, states have decided how to produce, generate, and distribute electricity. Most states decided that coal was an important energy source (it generated 39 percent of U.S. electricity in 2014), while renewables would play a small role (wind and solar generate 5 percent of U.S. power). Since EPA lacks the legal authority to simply force states to use more renewables, it imposed strict emissions reductions that effectively require states to use more wind and solar at the expense of coal. Unelected federal regulators should not make these decisions for a state’s citizens.

Second, most state legal and regulatory schemes do not currently permit state agencies to develop enforceable state plans that draw from all three building blocks. This means EPA’s approach will, in almost all states, require significant state regulatory and statutory changes. In its final rule, EPA acknowledged the concern of commenters that the changing state laws and regulations would be a result of the regulation. In fact, it was a primary reason for giving states more time to come up with enforceable state plans. Developing these plans outside the legislative branch circumvents the legislative process, undermines the separation of powers established by founding state documents, and exposes a state to increased litigation risk. To protect states and their constituents, elected representatives in the state legislatures should vote on any plan before it is sent to EPA.

Third, states that submit a plan expose themselves to “citizen suits” from litigious environmental groups. As seen in many other settings, these “sue and settle” agreements have become a pernicious tool of EPA to circumvent transparency and outsource regulatory authority to friendly special interest groups.  Any state commitment could quickly come under federal control rather than be decided by state representatives. Flexibility to adjust renewable energy mandates or control enforcement actions will be subject to the whims of EPA, despite the initial goal of keeping control over implementation at the state level.

In short, these are not decisions that should be left to unelected regulators. Elected officials at the state-level, who can be held accountable for their actions, should make these choices. Due to EPA’s revised submission timeline, legislators should be a part of every step of the process and not just have a say on final SIPs. For states that want to retain their sovereignty, legislative approval of a regulatory plan is essential. Adding this layer of accountability can also help ensure that a state plan is not implemented before legal challenges are resolved.

By calling for such steep carbon dioxide emissions, EPA is essentially forcing states to adopt some combination of cap-and-trade, carbon taxes, and renewable energy mandates. But most state regulatory agencies lack the statutory authority to impose these measures without new statutory authority. Thus, most state regulators likely cannot submit an enforceable plan unless their legislatures vote to expand their regulatory authority.

The Carbon Rule will not only convolute the regulatory authority over energy production between state and federal agencies, but the plan will also complicate the relationship among federal agencies, specifically the Federal Energy Regulatory Commission (FERC) and EPA. Tony Clark, commissioner of FERC, testified that “[a]bsent Congress stepping in and clearly defining FERC authority and EPA authority, it is not hard to envision a future jurisdictional train wreck.”

No, EPA’s rule is unconstitutional. It would force states to completely overhaul their energy markets and rework the entire energy regulation system (both state and federal). Harvard constitutional law professor (and Obama mentor) Laurence Tribe has explained that EPA’s rule reduces states to “marionettes dancing to the tune of a federal puppeteer.”

The Tenth Amendment reserves powers for the states (or the people) that the Constitution does not delegate to the federal government or prohibit to the states. By going “beyond the fenceline,” the rule extends “to the states’ regulation of their power sectors” and enlists the states and their officials to carry out the actions that EPA desires. In essence, this “commandeering” of state authority is an example of federal overreach into state affairs and is in direct opposition to constitutional law.

After the rule was published, a group of 24 states, led by West Virginia, filed a Petition for Review against the EPA, which contended that the rule infringes on “States’ power over the intrastate generation and consumption of electricity.” Federal energy laws and statutes have consistently recognized that this is a “traditional responsibility” of the states. (See here for the Office of the WV Attorney General’s full docket for the lawsuit.)

States that decline to dance to EPA’s tune have been threatened with financial sanctions from federal authorities, effectively coercing them to implement the plan. As Mario Loyola, a senior fellow at the Texas Public Policy Foundation, wrote in The Atlantic, “the Clean Power Plan will have one important benefit from its detractors’ point of view, in demonstrating the very real dangers of absolute deference to executive power.” Professor Tribe has said the rule amounts to “burning the Constitution.”

 

By forcing states to implement a federal program, this rule directly violates the Tenth Amendment. Even if the final rule were found to be within EPA’s statutory authority under the Clean Air Act, the courts would be forced to reject the rule as exceeding the limits of federal power found in the Constitution.

No, EPA’s rule is also illegal. For instance, EPA does not have the authority to regulate fossil fuel-fired power plants through the Carbon Rule (Section 111(d) of the Clean Air Act) because they are already regulated under another section of the Clean Air Act. According to the Energy and Environment Legal Institute, “the Clean Air Act prohibits EPA from requiring states to submit Section 111(d) plans [i.e., the Carbon Rule] for source categories that are regulated under Section 112 of the Act.”

In addition, the Carbon Rule requires states to take actions that are “outside the fence line” of power plants. This is an unprecedented action that impedes on “areas of traditional State prerogative such as electricity dispatch and the energy efficiency.” Only building block 1 actually regulates the sources that are supposed to be affected by the Clean Air Act. Building blocks 2 and 3 force states to take actions that go beyond EPA’s regulatory authority under Section 111(d).

Yes. Utilities will begin to implement any proposed state plans long before the legal challenges are concluded. For example, utilities began shutting down coal-fired power plants years before the Mercury and Air Toxic Standards took effect in April 2015, despite pending litigation. Although the Supreme Court ruled against EPA in Michigan v. EPA and remanded the mercury rule, the damage was already done. This means we will see higher electricity prices because the closures were premature.

EPA is relying on the same “shoot first, ask questions later” approach with the Carbon Rule. If states begin regulating before the case is decided, utilities will begin to close reliable, affordable plants, resulting in higher electricity rates. These changes will be nearly impossible to reverse even if the rule is invalidated. Any legal victory would be Pyrrhic.

EPA has promised to impose a federal plan on states that fail to submit their own plans. However, states have little to gain and much to lose by submitting a plan before the next administration takes office. States that submit a plan effectively sign away their rights to the EPA while exposing themselves to litigation from special interest and environmental groups. EPA lacks the legal authority to impose carbon trading, taxes, and energy mandates, so the agency wants states to voluntarily impose those measures. States that submit plans become complicit in EPA’s scheme, which means they will share blame with EPA when the rule raises electric rates and threatens grid reliability. The safer route is for states to resist and wait for legal resolution before proceeding.

 

Furthermore, even after the legal challenges are resolved, it is not too late for a state to submit an implementation plan. EPA admitted, “Even where a federal plan is put in place for a particular state, that state will still be able to submit a plan, which, if approved, will allow the state and its sources to exit the federal plan.” As a result, waiting for the courts to rule on the regulation does not limit a state’s options; instead, it is the best way to preserve them.

 

In fact, the final rule’s new submittal structure strengthens this option by allowing states to simply submit an extension request by September 2016 without making any binding commitments or moving forward with implementation in any way.

EPA proposed a federal implementation plan in August 2015. Since the legal basis for the EPA to impose emissions reductions “outside the fence” of power plants (building block 1) is highly questionable, the federal government doesn’t have many options to reach the rule’s emissions reduction goals. As a result, the proposed federal plan presents a rate-based and a mass-based emissions trading program for meeting the rule’s emissions cuts. Furthermore, the agency has crafted model trading rules for states to implement, which would effectively put in place a cap-and-trade scheme likely spanning across the entire country.

Through the model federal plan, EPA’s rule pressures states to impose failed policies like carbon emissions trading by regulatory fiat. In 2009, President Obama was unable to pass cap-and-trade, despite huge Democratic majorities in both chambers of Congress. Since 2010, the Obama Administration has released a steady stream of regulations and executive orders expressly aimed at pushing states (and energy markets) to implement policies related to its “Climate Action Plan.” The Carbon Rule is the Administration’s signature regulation within its broader agenda, and the rule’s proponents have not been shy about advocating similar cap-and-trade schemes as the “most cost-effective” approach states could take to comply.

The final rule is a significant challenge for many states, given that coal accounted for 39 percent of U.S. electricity generation in 2014. The enormity of this challenge might force states to adopt the model plan’s carbon trading approach, leaving states in the same place as they would be had they submitted their own plan. Essentially, this is EPA’s version of the old adage that there are many ways to skin a cat.

After receiving comments on the proposal, EPA is projected to finalize its model federal plan in summer 2016.

Rather than respond to EPA’s call to submit implementation plans, states should seek to “do no harm” and refrain from submitting an initial or final state plan before a final court ruling on the regulation. There are numerous reasons why states should not submit a state plan, but, most importantly, the rule will have detrimental impacts on Americans by driving up electricity prices. Here are 10 reasons why states should refrain from submitting SIPs and 10 myths about state plans that proponents of the rule publicize.

Costs and Benefits

Gina McCarthy, the EPA Administrator, has publicly acknowledged that the rule will have a negative impact on minority and lower income communities. This is in keeping with President Obama’s promise on the campaign trail that his policies will make energy prices necessarily skyrocket.

Private economic analyses confirm these claims. A study by NERA Economic Consulting estimated that EPA’s proposed rule could cost up to $290 billion and that residents in 40 states would see double-digit percentage increases, on average, in electricity bills from 2017 to 2031. The estimated annual price tag of up to $39 billion dwarfs every major rule before it under the Clean Air Act (e.g., the rebuked MATS rule cost only $10 billion per year). Although the NERA report assessed the proposed rule, it still provides a useful estimate because EPA’s final rule established even more stringent emissions reductions than the proposed regulation and relies on more than double the amount of (unaffordable) renewable generation to reach these goals.

Low-income households, minority groups, and the elderly would suffer the most under the rule, since those populations have a higher energy burden (i.e., they spend a larger share of their income on energy costs), on average, than higher-income households. A study by the National Black Chamber of Commerce estimated that poverty rates for Black and Hispanic families would rise by 23 percent and 26 percent, respectively, under the proposed rule. In essence, the Carbon Rule is a regressive energy tax on poorer communities.

The Carbon Rule would replace reliable sources of electricity—mainly coal—with unreliable and expensive sources such as wind and solar. IER has previously reported that “[t]he single greatest emerging threat to reliable electricity in the U.S. … [is] the host of bad policies coming from the federal government.” Up to 134 gigawatts of generating capacity could be shut down by 2020 due to federal regulations, including the Carbon Rule—enough power to supply 105 million households. That amount of lost capacity would be the equivalent of shuttering every single power plant in Brazil or France. In an evaluation of EPA’s proposed rule, the North American Electric Reliability Corporation that it would potentially impose significant challenges to grid reliability, including increasing the risk of blackouts.
EPA claims its final rule will improve public health and save lives, but that claim is questionable. First, the rule regulates carbon dioxide emissions. Carbon dioxide itself is not detrimental to human health—after all, humans exhale carbon dioxide. Moreover, EPA has a track record of overestimating and double counting benefits, cherry picking data, misrepresenting studies, and ignoring the negative health impacts associated with poverty.

President Obama and EPA administrator McCarthy have both stated that the rule will improve Americans’ health by reducing the prevalence of asthma. However, the administration struggles to present scientific evidence connecting carbon dioxide (or even ozone levels) with asthma. Making things more complicated, EPA and CDC data show that although the six criteria pollutants have decreased by 63 percent since 1980, child asthma rates have increased by more than 130 percent. This would imply that factors other than air pollution, such as poverty, are contributing to increases in the prevalence of asthma in the U.S. For more on this topic, here are 10 ways the Obama administration is exploiting dubious research to push its climate change agenda.

There appears to be no tangible impact. EPA claims the point of its rule is to mitigate climate change by reducing carbon dioxide emissions. Yet the agency can’t point to any actual climate impacts. While the costs to Americans’ health and welfare would be severe, the projected benefits would be miniscule. Using the EPA’s own models, the rule would limit global warming by less than 0.02 degrees Celsius by 2100 and reduce sea level rise by 0.008 inch. With so little benefit and such high costs, there are questions about the rule’s actual purpose and the ulterior motives of those proposing it.