Comments on the Clean Energy Incentive Program Design Details

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Twenty-eight States joined by numerous industry and non-profit groups are challenging the legality of EPA’s carbon dioxide (CO2) emission standards for existing electric utility generating units—the so-called Clean Power Plan (“CPP” or “Power Plan”). Petitioners don’t address the Clean Energy Incentive Program (CEIP) in the litigation, but not because none objects to it. The proposed CPP rule and subsequent notice of data availability neither mention the CEIP by name nor describe its mechanisms or provisions, denying the public the opportunity to raise legal concerns about it in the CPP comment periods.

If the Court of Appeals, or subsequently the Supreme Court, vacates the Power Plan, the CEIP Design Details rule will be null and void as well. However, the Courts may uphold the Power Plan or parts of it. If so, the CEIP could be challenged in future litigation based on concerns raised during the present comment period. This joint comment letter raises both procedural and substantive concerns about the proposed CEIP Design Details rule.

Procedural Concerns. EPA claims the CEIP Design Details rule is “consistent with” the Supreme Court’s decision, on February 9, 2016, to stay the Power Plan. We disagree. The rulemaking is inconsistent with a major purpose for which the stay was granted: shield States from having to expend additional unrecoverable resources. The CEIP is both a method of complying with the CPP and an “incentive program” potentially affecting the bottom lines of hundreds of CPP-regulated entities. Therefore, Power Plan opponents can ill-afford to sit out this rulemaking. To participate effectively, opposing States will have to devote additional resources of time, money, and agency expertise. As Milton Friedman might have put it, there’s no such thing as a free rulemaking.

Nken v. Holder, the Supreme Court case EPA invokes to claim it is not enjoined from further action on the CPP, actually undermines the agency’s position. EPA took further regulatory action when the Cross State Air Pollution Rule (CSAPR) and NOX Sip Call were stayed; however, those proceedings are distinguishable in important respects from the current rulemaking.  

In addition, neither the proposed Power Plan rule nor the subsequent notice of data availability afforded public notice of, and opportunity to comment on, the program elements EPA would later adopt and call the “Clean Energy Incentive Program” in the final rule. Specifically, the public had no warning EPA would establish an early action credit program, provide bonus credits through a federal “matching pool,” and discriminate against investors in coal plant heat-rate improvements and gas generation by limiting participation to investors in renewable energy and demand-side energy efficiency. By springing the CEIP on the unwary public in the final rule, EPA illegitimately exempted the program from legal scrutiny in the litigation pending before the D.C. Circuit Court of Appeals.

Substantive Concerns. The CEIP is an “early action credit” program. Through the CEIP, EPA would award allowances and emission rate credits worth 300 million short tons of CO2 to utilities for qualifying renewable energy and energy-efficiency projects that begin commercial operation before the start of the CPP compliance period. EPA says virtually nothing about the statutory basis of the CEIP. That is not surprising. Three lines of evidence—statutory analysis, legislative history, and regulatory history—compel the conclusion that EPA has no authority to award regulatory credits for “early, voluntary” greenhouse gas reductions.