Plumes of water vapor emit from the Tennessee Valley Authority Paradise Fossil Plant in Paradise, Kentucky. The plant generates and delivers 14 billion kilowatt-hours of coal-fired electricity per year to Western Kentucky and Nashville, Tennessee. A new climate policy would allow states and companies flexibility in how they will meet emissions standards. (Luke Sharrett/Bloomberg)

With less than two weeks to go, the Environmental Protection Agency is readying a climate rule for existing power plants that requires a steep reduction in carbon emissions while allowing states and companies broad flexibility in how they limit overall greenhouse-gas discharges.

While key aspects of the proposal are still under discussion, according to several people briefed on the matter, the measure will spur regional carbon-trading programs on the East and West coasts and is likely to draw a legal challenge from some utilities. As currently drafted, the rule would cut greenhouse-gas emissions from the utility sector by 25 percent, the individuals said, but the baseline for that reduction has not been finalized.

The EPA plan resembles proposals made by the Natural Resources Defense Council, which would allow states and companies to employ a variety of ­measures — including new ­renewable-energy and energy-
efficiency projects “outside the fence,” or away from the power-plant site — to meet their carbon- reduction target. While the overall target may fall slightly short of what environmentalists have pressed for, the approach is in line with their push to make major cuts in greenhouse gases while seeking to soften the impact on consumer electricity prices.

Usually when the EPA regulates pollutants under the Clean Air Act, the agency sets an emission limit for each facility. By contrast, under a “mass-based system,” which the EPA is poised to adopt, states would have to meet an overall target for greenhouse-gas emissions and ensure that power plants either make those reductions at their facilities or finance efforts to achieve them in other ways, such as by reducing consumer energy demand or investing in carbon-free electricity generation.

The size of the reductions will vary by state, according to those familiar with the rule, and it will consist of a two-step process that will require smaller carbon cuts at first and larger ones by 2030.

Coal-intensive utilities, coal-mining companies, the U.S. Chamber of Commerce, conservative think tanks and a dozen or so state Republican attorneys general have lined up to potentially challenge the EPA’s proposal. They question any approach that isn’t tied to a specific plant site, in part because it may require utilities to make deeper emissions cuts than they would otherwise achieve by installing demonstrated pollution controls.

“Any standard that is predicated on reductions happening outside the fence line is illegal and would be overturned by the court,” said Joseph Stanko, who heads government relations at the law firm Hunton & Williams and represents several utility companies.

The proposed rule, to be announced June 2, represents the centerpiece of President Obama’s climate action plan. Utilities account for roughly 40 percent of the nation’s emissions of carbon dioxide.

“This is a magic moment for the president — a chance to write his name into the record books,” Frank O’Donnell, who directs the advocacy group Clean Air Watch, said by e-mail. “But history will ultimately judge this less by an excellent speech than by the final contents and outcome of this initiative.”

The EPA declined to comment on the draft rule. Both Bloomberg News and Reuters have reported some aspects of it over the past few days.

Kelly Speakes-Backman, who is commissioner of the Maryland Public Service Commission and chairs the board of directors of the Regional Greenhouse Gas Initiative, a nine-state emissions- trading compact, said in an interview last week that a mass-based system allows states and utilities to cut carbon in a more efficient and cost-effective way. Under this system, states must meet an overall greenhouse gas limit rather than a specific rate per hour for each power plant.

EPA Administrator Gina McCarthy is traveling this week to Utah, Washington and Oregon, where she will meet with the states’ governors.

Climate gauges

Temperatures at sea, on land and on ice all point to a warming trend over the past century, according to several indicators in the government's National Climate Assessment.


Sources: NOAA's "State of the Climate in 2012," National Snow and Ice Data Center. Graphic: Bonnie Berkowitz and Patterson Clark - The Washington Post.

Washington Gov. Jay Inslee (D) has pressed the EPA to adopt a strict carbon standard and is currently pushing for several policies so his state can reduce its overall emissions to its 1990 level by 2020, and 50 percent below that by 2050.

Other states are resisting the EPA plan. Oklahoma Attorney General E. Scott Pruitt, for example, argued at the National Press Club on Tuesday that the Clean Air Act gives states the power to determine what pollution standards should be and how to achieve them. Only later, he said, can the EPA reject a state’s plan and impose its own, so the EPA’s task now is to design a procedure and general emissions guidelines.

“I find it offensive that the EPA feels regulators in states are not interested in air quality or pollution,” he said. And he said that the EPA has a “dictatorial attitude that as long as you agree with us, everything is kosher.”

Pruitt also said that EPA can only regulate single sites “unit by unit” rather than offer states and utilities the flexibility of meeting new guidelines through energy-efficiency programs or renewable investments that might not be on the site of a regulated coal plant.

But David Doniger, policy director for NRDC’s climate and clean-air program, said the EPA does have the authority to set an overall carbon limit — authority that was recognized by the Supreme Court in American Electric Power Co. v. Connecticut and Massachusetts v. EPA. “I don’t think there’s much ambiguity there,” he said.

NRDC supports establishing a three-year baseline for power plant emissions, which would start either in 2005 or 2008, and allowing states and utilities to take credit for anything — new nuclear plants, energy efficiency, carbon capture and storage — that reduces carbon emissions.

The EPA’s proposal is likely to resemble renewable portfolio standards already in effect in about 30 states and the District of Columbia, which require a certain portion of the state’s electricity to come from non-
fossil-fuel energy. Those states would likely have an easier time meeting new guidelines for existing plants if the EPA opts for an “outside the fence” approach to power plants.

Some companies that have invested heavily in nuclear power — such as the energy firm Exelon, where nearly 91 percent of its fleet is nuclear — back a strict carbon standard for existing plants. Joe Dominguez, Exelon’s senior vice president of governmental, regulatory affairs and public policy, said several of the company’s 24 units may not be economically viable if the EPA’s proposal is not stringent enough.

“We think the reality is in the absence of carbon policy, it’s going to be difficult to keep the existing [base] of clean energy in service,” he said.

The wind industry is also lobbying for an “outside the fence” approach so that companies can add wind power as a strategy. “The EPA rule is going to be doable and affordable assuming wind and other renewables count,” said Tom Vinson of the American Wind Energy Association.