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Clean Energy Incentive Program: Why It Makes EPA's Power Plant Rule Even More Unlawful

EPA’s Clean Power Plan (CPP), which imposes carbon dioxide (CO2) emission rate targets and tonnage caps on state electric power sectors, is unlawful in at least half a dozen ways.

To mention just one flaw, Section 111(d) of the Clean Air Act, the CPP’s putative statutory basis, authorizes EPA to regulate “particular” “stationary sources,” not the wider marketplace, networked industry, or sector of which a source happens to be a part. Yet the CPP will compel states to revise their laws and regulations on electric dispatch policy, fuel mix policy, and demand-management policy.

EPA’s final CPP contains a key initiative not mentioned in the draft rule: the Clean Energy Incentive Program (CEIP). EPA added the CEIP to jumpstart investment in wind and solar power, assuring environmental groups and renewable energy interests the CPP won’t trigger a ‘dash to gas’ as it suppresses electric power generation from coal. In other words, the CEIP’s job is to make sure the Clean Power Plan rigs the marketplace against all fossil-fuel generation. 

The CEIP is an early action credit program. By “early,” EPA means the CEIP authorizes states to award regulatory credits for new renewable power provided before the CPP compliance period (2022-2030). EPA will, in addition, award up to 300 million tons worth of extra credits to ‘early actors’ on a matching basis.

You might suppose EPA would explain the legal authority for a policy change potentially affecting hundreds of companies’ bottom lines. Yet neither the final CPP, the CEIP fact sheet, nor EPA’s proposed federal implementation plan discusses the CEIP’s statutory basis.

That’s actually not surprising. Credit for early action was an issue of recurring controversy during 1998-2005, and the one thing virtually all stakeholders eventually agreed on is that current law does not authorize any federal agency to implement a greenhouse gas (GHG) early action program.

Early action crediting stirred up controversy because it was a strategy to mobilize lobbying for cap-and-trade. Emission-reduction credits worth peanuts or nothing at all in a free market can be worth millions in a carbon-constrained market. Thus every early actor has an incentive to lobby for a cap.

Former Sen. Joe Lieberman (D-Conn.) was the chief promoter of early action crediting in the U.S. Congress. Unlike EPA, however, Lieberman never pretended federal agencies already possess authority to award or certify credits for ‘early’ reductions.

Lieberman tried but failed to persuade Senate colleagues to support a version of the 1992 Energy Policy Act that included a GHG early credit program. Instead, House and Senate conferees established the Section 1605(b) voluntary reporting of greenhouse gases program, which does not award or certify credits.

During President G.W. Bush’s first term, the Department of Energy conducted a three-year rulemaking to transform the 1605(b) program into a credit system before finally admitting it had no authority to do so. Ironically, some of today’s most aggressive CPP advocates, such as NRDC and the Pew Center on Global Climate Change, helped nail the legal case against the Bush initiative.

Conceivably, EPA might claim the CEIP is kosher because it is based on the Clean Air Act, not the 1992 Energy Policy Act. That won’t cut it. Section 111 does not contain any of the terminology associated with an early action program (“early,” “voluntary,” “credit,” “allowance,” “allocation,” “transfer,” “award,” “participant”).

What’s more, if EPA does believe the Clean Air Act provides authority for a GHG early credit program, it is the first early credit advocate to do so. Consider the subtitle of Lieberman’s first stand-alone early credit bill, S. 2167, the “Early Voluntary Reductions Act,” introduced in the 105th Congress: “To amend the Clean Air Act to authorize the President to enter into agreements to provide regulatory credit for voluntary early action to mitigate greenhouse gas emissions” (emphasis added).

Note also that only a handful of early credit bills were introduced, all in the 105th, 106th, and 109th Congresses, and all went nowhere. None ever garnered more than 15 co-sponsors, none was marked up in committee, and none made it to a floor vote in the House or Senate.

In short, Congress never authorized the crediting scheme EPA now plans to implement. The CEIP makes the final CPP unlawful in a whole new way.

Will courts overturn the CPP? That may well depend on whether judges decide the case on the merits or—as in recent Obamacare rulings—conclude that presidential legacy policies are ‘too big to fail.’

For a more detailed examination of the CEIP, see my Clean Energy Incentive Program: New Unlawful Element in EPA’s Power Plant Rule?