Clean Air Act Section 111(d): The Case for Multi-State Compliance

This summer, the Environmental Protection Agency (EPA) will finalize its Clean Power Plan under Section 111(d) of the Clean Air Act, requiring existing fossil fuel–fired electric generating units (EGUs) to cut carbon dioxide emissions to 30% below 2005 levels by 2030. The rule will require states to meet specific reduction goals and also allow states to pool their compliance efforts. While the Clean Power Plan faces serious legal challenges, they will not be resolved until long after states must submit their implementation plans or face EPA implementation. Utilities and state regulators would best serve their customers and constituents by starting now to develop multi-state compliance responses. Regional approaches will facilitate least-cost emission reductions, maximize certainty of achieving state goals, and minimize friction between greenhouse gas (GHG) reduction and existing power infrastructure and markets.

Pooling Efforts to Ease Transition

Even modest levels of coordination in developing emission reduction programs will reduce the compliance burdens on individual states and the power industry, especially multi-state utilities. The benefits of cooperation increase as the number of states and scope of coordination grow. At the maximum level of integration, regional cap and trade would leverage states’ diverse circumstances to reduce emissions at least cost. Participation in a larger, regional pool of emitters will offer states access to more diverse emission reductions and funding sources. Certain states will be able to meet stringent goals less expensively, while others internalize the benefits of “excess” reductions that would otherwise go unrealized.

The regional structure of the electric transmission system naturally lends itself to a regional approach to GHG mitigation. Dispatch within a region is primarily driven by variable costs, and environmental regulations add an increment to those costs. Most notably, acid rain in the Northeast has been reduced dramatically by incorporating the price of tradable pollution allowances into power pricing—and at much lower costs than originally projected. For the same reasons, combining existing least-cost dispatch with a price on carbon promises to reduce GHG emissions with minimal added cost and regulatory apparatus.

Challenges for Multi-State Cooperation

Substantial challenges face any regional system, particularly if it includes politically diverse states. The most obvious barriers arise if states simply refuse to submit implementation plans. For example, states determined to fight the regulations might view any degree of joint planning as undermining their opposition to the EPA’s overall effort. But even states willing to engage in a regional approach are likely to need new state legislation enabling them to do so.

Successful implementation will also require cooperation among state agencies. Within each state, environmental agencies and public utility commissions (PUCs) often discharge their respective responsibilities with little interaction or cooperation, and sometimes even engage in jurisdictional turf battles. Across state lines, these complexities are multiplied by variation in regulatory structure, mission, and culture. In addition, differences among renewable portfolio standards could hinder the liquidity of renewable energy credits within a region or otherwise impede integration of new renewable energy projects into a multi-state plan.

Suggestions for the Path Forward

Despite these challenges, regional leaders in both the public and private sectors should pursue this path. The first step should be to open communication among states, led by governors, with policy advice and technical support from their respective environmental agencies and PUCs. Most importantly, state environmental agencies and PUCs must align their agendas (environmental protection and economic regulation, respectively) so that owners of EGUs can be confident that they will not be caught between the two. And that will only happen if the owners of those EGUs—especially those with facilities and/or customers in more than one state—engage in those discussions with their regulators.

As the EPA’s oversight role evolves through future administrations and litigation, a bipartisan group of states may hold advantages over a group or an individual state that appears wedded to one political party or the other. Not only would such states likely receive more deference from the EPA on innumerable discretionary determinations, but they will be better positioned to protect their interests if and when Congress legislates on GHG mitigation.

As partnerships emerge, participating states should enter into a memorandum of understanding (MOU) to guide development of a regional plan. A key provision of an MOU will be a commitment by each state to assure its own legal authority to participate in the agreed program. An MOU will also need to address program design elements, especially allocation of the substantial resulting revenues, and whether a new regional entity is required to administer the regional program.

Ultimately, uniform state enabling legislation would align state regulatory authority, streamline administrative requirements, and assure transferability of emission reduction compliance instruments. Adoption of uniform legislation may be a bridge too far in the current political environment, but should remain as a goal for the full integration of participating states. ■

Walker Kuch-Stanovsky (walkerstanovsky@dwt.com) is a third-year law student at the University of Washington and a law clerk for Davis Wright Tremaine’s energy and environmental practice group in Seattle, Wash. This article is based on work with Craig Gannett (craiggannett@dwt.com), co-chair of the energy and environmental practice and a partner in the firm’s Seattle office.