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Year in Review 2018: Climate Policy

The Trump administration this year took additional steps to dismantle key components of President Obama’s climate policy “legacy.” Supporting and guiding those efforts is a top priority of CEI’s energy and environment team.

Obama’s climate policy regime may be visualized as an edifice containing two foundation stones, three main pillars, and a capstone. The foundations are the Environmental Protection Agency’s 2009 endangerment finding, by which the agency authorized itself to regulate carbon dioxide and other greenhouse gases, and the 2009 California waiver, by which EPA deputized California to regulate motor vehicle fuel economy.

The pillars are EPA’s 2015 carbon dioxide emission standards for new and existing power plants (the so-called Carbon Pollution Standards and Clean Power Plan rules), and the 2012 EPA-National Highway Traffic Safety Administration (NHTSA) rulemaking to establish greenhouse gas and fuel economy standards for model year 2017-2025 motor vehicles.

The capstone is the Paris Climate Agreement, the treaty which aims to bind the United States in perpetuity, as a matter of national honor, to retain President Obama’s climate policy regulations and pursue an “ambitious” agenda of deep decarbonization.

As in 2017, the Trump administration in 2018 did not challenge EPA’s endangerment finding, and apparently has no plans to do so in 2019.

Clean Power Plan Repeal Rule

EPA’s Clean Power Plan (CPP) was President Obama’s marquee domestic climate policy proposal and the regulatory centerpiece of his Paris climate treaty emission-reduction pledgeTwenty-six states sued to overturn the CPP in 2015. In February 2016, the Supreme Court took the extraordinary step of staying the rule even though the D.C. Circuit Court of Appeals was still reviewing it.

In March 2017, President Trump directed EPA to review of the Clean Power Plan and rescind or revise it as appropriate. On October 16, 2017, EPA proposed to repeal the CPP. CEI filed comments in April 2018 on behalf of twenty free market groups in support of full repeal, stating: “This action is critical to end the previous administration’s economically destructive war on fossil fuels and deter future attempts to inflate EPA into a national climate policy legislator and energy czar.”

Unlike all previous stationary source performance standards promulgated under Section 111 of the Clean Air Act since 1971, the Clean Power Plan deliberately imposes unattainable emission standards on the targeted sources. For example, the CPP standard for existing coal power plants, including older facilities nearing the end of their useful lives, is 1,305 pounds of carbon dioxide per megawatt hour. That is well beyond the capability of even new state-of-the-art facilities, which typically emit about 1,900 lbs. CO2/MWh.

Section 111 emission performance standards must be “achievable,” reflecting the “best system of emission reduction” (BSER) that has been “adequately demonstrated.” How then does the CPP justify its imposition of unachievable standards?

CPP standards are meant to be attained not by any individual facility but across facilities on average as owners and operators shift generation from coal to gas power plants, and from fossil-fuel units to renewable units, elsewhere on the grid. To comply with the CPP, power plant owners and operators must purchase power from lower- or zero-emission facilities, invest in new renewable generation, or simply cede market share to lower-emitting facilities.

The CPP claims generation shifting is the “adequately demonstrated” best system of emission reduction because utilities routinely shift generation between different types of power plants for both commercial and environmental purposes. That reasoning is specious. Just because utilities engage in generation shifting to improve their bottom lines or comply with other legal requirements does not mean Congress authorized EPA to coerce such behavior for the peculiar purpose of driving coal generation out of the U.S. electric supply system. Indeed, even when Democrats had the majority in both chambers of Congress, any bill authorizing EPA to implement the Clean Power Plan would have been dead on arrival.

In any event, under Section 111, emission-reduction “systems” are designed for and apply to “sources.” The lawfulness of any potential “best system” thus depends on the meaning of “source.” Section 111 defines “source” as “any building, structure, facility or installation which emits or may emit any air pollutant.” Accordingly, a valid BSER must consist of non-exorbitant measures applicable to and at the source. Generation shifting, which in the context of the Clean Power Plan is just a euphemism for picking energy market winners and losers, is not a valid BSER.

To make it all look legal, the Clean Power Plan reimagines “source” to include power plant owners and operators in their capacity as marketplace actors. However, the statute clearly identifies “source” as a stationary physical object, not the owner or operator thereof.  

More fundamentally, the CPP envisions the entire U.S. electric power sector as a single source—a vast complex “machine” in which individual power plants are mere cogs. However, a sector is a market process, not a source as defined by the statute. The electric power sector, for example, comprises not only fossil-fuel power plants but also non-emitting wind and solar units that are not sources and millions of customers who do not produce power.

Holes in the ACE

The Trump EPA’s Clean Power Plan repeal proposal deserves high marks. However, on August 31, 2018, EPA proposed to replace the CPP with revised carbon dioxide emission standards for electric generating units (EGUs). EPA’s proposed Affordable Clean Energy (ACE) rule has significant legal problems of its own.

ACE proposes to determine that “heat rate improvement (HRI) measures are the best system of emission reduction (BSER) for existing coal-fired EGUs.” Unlike generation shifting, such measures can be applied at and by individual sources. Heat rate improvements also have the potential to make some coal power plants more competitive and increase their market share. A definite improvement over Obama’s anti-coal CPP. Nonetheless, the Affordable Clean Energy rule is legally dubious.

EPA’s 1975 implementing regulation for the Section 111(d) program is considered an authoritative source for understanding Congress’s intent in enacting the provision in 1970. Congress intended Section 111(d) to regulate air pollutants not eligible for control under the National Ambient Air Quality Standards (NAAQS) program because such pollutants are not emitted by “numerous or diverse stationary or mobile sources.” Reflecting the relatively small number of potential sources, Congress expected the effects of 111(d) pollutants to be “highly localized.” In other words, the health risks posed by such pollutants largely depends on one’s proximity to the source.

Carbon dioxide emissions have the opposite characteristics. Carbon dioxide is emitted by more numerous and diverse mobile and stationary sources than any other “air pollutant” regulated under the Clean Air Act. Moreover, whatever impacts carbon dioxide emissions may have on the Earth’s climate system, or climate change may have on particular communities, the risks to public health and welfare have nothing to do with proximity to the source.

Thus, from the standpoint of both regulatory structure and congressional intent, carbon dioxide and Section 111(d) are a complete mismatch.

In addition, in all previous Section 111 rules for both new and existing sources, the best system of emission reduction has been one or more specific emission-control technologies, not equipment upgrades and best practices to improve operational efficiency. It would be ridiculous, for example, to define BSER for fluoride emissions from primary aluminum plants in terms of heat-rate improvements rather than technologies, such as gas collection hoods, that actually control fluoride emissions.

As in the prior administration, EPA refuses to acknowledge that there is no adequately demonstrated best system for reducing carbon dioxide emissions from existing power plants. Absent a bona fide BSER, EPA lacks the key legal predicate for promulgating carbon dioxide emission standards for existing coal power plants.

Most importantly, Section 111(d)—the specific provision dealing with existing sources—excludes from its regulatory purview “any air pollutant . . . emitted from a source category regulated under Clean Air Act Section 112.” Coal power plants have been regulated under Section 112 since 2012. The Clean Power Plan is thus unlawful under the very provision that supposedly authorizes it. Any CPP replacement rule would be unlawful for the same reason.

The argument that Section 111(d) may not be used to regulate sources regulated under Section 112 is hardly unknown to EPA. The so-called 112 Exclusion was a key theme of the state and industry briefs challenging the CPP. Petitioners pressed it throughout the litigation, including in oral argument. All motions to stay the CPP, which the Supreme Court granted, either agreed with or featured the 112 Exclusion.

Yet the Affordable Clean Energy rule does not mention the 112 Exclusion, much less attempt to rebut it. Instead, in one sentence tucked away in the regulatory provisions, ACE furtively replaces the U.S. Code version of the 112 Exclusion, which would prohibit 111(d) regulation of existing power plants, with an alternative version retained in the Statutes at Large, which would allow such regulation. For the details, see my comment letter and blog post on the ACE proposal.

Suffice it to say, EPA attempts to revise its controlling legal authority without stating any reasons, soliciting public comment, or even acknowledging what it is up to. Such furtiveness could taint the proposal as arbitrary and capricious.

Revised New Source Power Plant Rule

On December 20, 2018, EPA proposed to revise the Obama administration’s carbon dioxide emission standards for new coal power plants, issued under Section 111(b) of the Clean Air Act. The Obama standards effectively ban investment in new coal generation—a policy Congress never approved and would not pass if put to a vote. EPA’s proposal will help restore the separation of powers and safeguard affordable energy for American consumers.
 
In more technical terms, EPA is proposing to revise the agency’s 2015 determination that partial carbon capture and storage (CCS) is the best system of emission reduction for new coal units. A CCS system uses various technologies to capture carbon dioxide emissions from fossil fuel combustion and deliver the emissions for storage in underground geologic formations.

EPA now proposes that the best system of emission reduction is the most efficient commercially-viable coal boiler combined with best industry practices. New coal power plants would have to meet a standard of 1,900 lbs. CO2/MWh rather than the current CCS-based standard of 1,400 lbs. CO2/MWh.

EPA’s proposal is based on an updated analysis of the cost and geographic availability of carbon capture and storage. Under the relevant case law, new source performance standards may not be “exorbitantly costly” and must be “achievable” in all regions of the country. CCS-based standards flunk both criteria.

Carbon capture systems increase coal power plant operating costs. EPA finds that in deregulated markets, where units with the lowest operating costs are the first to be “dispatched,” CCS power plants would often go to the back of the queue, rendering them uncompetitive.

EPA also notes that the most common CCS systems are water intensive, making it “prohibitively expensive” to deploy them in arid regions. Another geographic constraint, although not cited by EPA, may be even more critical. The only two utility-scale CCS power plants in existence—Petra Nova in Texas and Boundary Dam in Saskatchewan—depend financially on the sale of carbon dioxide for use in nearby enhanced oil recovery operations. Many potential sites of new coal power plants are not near oil fields. For that reason, too, CCS-based emission standards are not “achievable.”  

In a press conference on the proposal, EPA acting Administrator Andrew Wheeler stated: “By replacing onerous regulations with high, yet achievable, standards, we can continue America’s historic energy production, keep energy prices affordable, and encourage new investments in cutting-edge technology that can then be exported around the world.”

Critics instantly declared the proposal useless because the agency expects “few, if any” new coal power plants to be built in an era of cheap gas. That misses the point. Wheeler and EPA are not trying to guarantee a market for coal generation. Rather, they seek to rescind an unlawful regulation that blocks investment in new coal capacity regardless of how market conditions evolve.
 
What the critics overlook is that hundreds of new coal power plants are being built overseas, especially in Asia. If U.S. firms are free to compete in the global marketplace for advanced coal technologies, they can bring affordable energy to millions of people, helping them live healthier, more prosperous lives.

Developing new coal technologies is far more likely if the U.S. coal industry itself has a future. The Obama EPA’s unrealistic and unlawful standards were a regulatory death sentence. Good riddance to bad rubbish.

Revised Motor Vehicle Standards Rule

On August 28, 2018, EPA and the National Highway Traffic Safety Administration proposed to revise the 2021-2025 greenhouse gas and fuel standards adopted by the Obama administration in 2012. The proposal, dubbed the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule, would freeze motor vehicle carbon dioxide and fuel economy standards at the model year 2020 levels.

The agencies estimate that by relieving the regulatory burden and making new, safer cars more affordable to middle-income households, the SAFE rule will save $250 billion in auto industry compliance costs, $77.1 billion in avoided traffic fatalities, and $120.4 billion in avoided serious injuries.

CEI’s October 26th comment letter applauds the basic thrust of the SAFE rule, but faults the agencies for arbitrarily limiting the scope of its reconsideration of the Obama standards. The agencies solicit comment on eight options ranging from retaining the Obama standards through model year 2025 to the aforementioned freeze at the 2020 levels. But if freezing the standards at the 2020 levels would avert an estimated 12,700 crash fatalities through 2029, how many more lives could be saved by more ambitious deregulation?

My CEI colleague Devin Watkins crunched the numbers using NHTSA’s software. He found that freezing the standards at the current 2018 levels would save 15,600 lives and rolling them back to the 2017 levels would save 17,000 lives. NHTSA’s failure to consider those options, especially without providing any reasons for such omission, is arbitrary and capricious.

From CEI’s perspective, the best part of the SAFE rule is its proposal to end California’s de facto regulation of motor vehicle fuel economy. The nation’s fuel economy statute, the Energy Policy and Conservation Act (EPCA), preempts states from adopting or enforcing laws or regulations “related to” fuel economy standards. Carbon dioxide motor vehicle emission standards and fuel economy standards are closely and inherently related.

That is because there is no proven commercial technology for filtering or capturing carbon dioxide emissions from motor-fuel combustion. The only feasible way to reduce carbon dioxide emissions per mile is to reduce fuel consumption per mile, i.e., increase fuel economy.

California and its allies argue that EPA’s 2009 waiver transformed the state’s carbon dioxide motor vehicle emission standards into federal standards, rendering them immune to the EPCA preemption, which applies only to state laws and regulations. However, as the SAFE rule points out, under Supreme Court and Ninth Circuit case law, preemption language in federal statutes renders conflicting state statutes “without effect” and “void,” and applies ab initio (from the beginning). EPA could not authorize California to implement tailpipe carbon dioxide standards, because such standards were already “without effect” and “void” before California applied for a waiver.

Returning the California Air Resources Board to its appropriate role as a stakeholder rather than decision maker in fuel economy policy would greatly improve the institutional framework shaping the selection of fuel economy standards. Once California is preempted from adopting laws or regulations “related to” fuel economy, EPA and NHTSA will be less likely to ignore, discount, or deny the adverse impacts of fuel economy standards on vehicle affordability and occupant safety.

Paris Climate Treaty

President Trump’s June 1, 2017 Rose Garden speech, announcing his intention to withdraw the United States from the Paris Climate Agreement was a pivotal moment in the great unraveling of President Obama’s regulatory assault on fossil fuels. Mr. Trump’s steely resolve to protect America’s emerging “energy dominance” from Obama’s agenda of “deep decarbonization” was from that point forward beyond dispute. The U.S. delegation’s insistence, at the 2018 climate summit in Katowice, Poland, that the conference of the parties “take note of” rather than “welcome” the UN IPCC’s recent doomsday report reflects Trump’s continuing determination not to let the Paris Agreement harm the U.S. economy.

Trump correctly understands that sticking with Obama’s Paris Agreement emission-reduction pledge, the so-called U.S. nationally determined contribution (NDC), is an attack on the U.S. energy sector. To be sure, many fossil fuel producers could survive the NDC’s plan to reduce U.S. greenhouse gas emissions 26-28 percent below 2005 levels by 2025. However, the Agreement envisions an endless succession of five-year commitments, each more “ambitious” than its predecessor. Few investors will park their capital in industries the U.S. government has targeted for eventual extinction.

Pro-treaty forces make much ado of the fact that each nation’s emission-reduction pledges are “non-binding” under international law. However, for the United States, that is a distinction without a difference. Americans expect their government to keep its promises, and under the Paris Agreement, nations honor their internationally non-binding commitments by implementing them via domestically binding laws and regulations.

Whether America should stay in or pull out of the Paris Agreement comes down to a very simple question. Should we remain in a club organized to pressure us into acting against our best interests and better judgement? If, as Mr. Trump believes, a thriving domestic energy sector is vital to the national interest, we should exit the Paris Agreement as quickly and irreversibly as possible.

Trump apparently plans to withdraw under Article 28 of the treaty, which means withdrawal will not take effect until after election day 2020. That would allow the next president to rejoin the pact in 2021. Moreover, exiting through the Article 28 process would do nothing to repudiate the dangerous precedent Obama set when he purported to join the Paris Agreement, a major environmental treaty, as if it were a mere executive agreement not requiring the Senate’s advice and consent. If Trump sticks with the Article 28 procedure, his presidency could end up being a mere bump on the road to a carbon-constrained future of skyrocketing energy prices and industrial decline.

Fortunately, the U.S. Constitution provides a quick and durable remedy—the Article II, Section 2 treaty process. In 2019, CEI will keep making the case that President Trump should submit the Paris Agreement as a treaty to the Senate, where it would almost certainly fail to win the requisite support of “two-thirds of the Senators present.”

This approach has two great advantages over Article 28’s slow withdrawal procedure. First, America would effectively be out of the Paris Agreement as soon as the Senate votes. Second, once the Agreement is rejected and exposed as lacking broad public support, few if any future presidents would attempt to rejoin it on their sole authority. Or, if a future executive did so, the people and their representatives would be more likely to recognize and oppose such overreach.

Previous posts in the Year in Review 2018 series: