What to Watch For in EPA’s Final Clean Power Plan: What Will EPA Do If States Won’t Play Ball?

Nathan Richardson and Arthur G. Fraas

Later this summer, the US Environmental Protection Agency (EPA) will release its final Clean Power Plan, setting carbon emissions goals for existing power plants. This is the third post of ten in a new series—What to Watch For in EPA’s Final Clean Power Plan—in which RFF experts address what to look for when the final regulations are released.

As you likely know, the Clean Power Plan will require states to submit plans to EPA for approval, detailing how they will meet the agency’s emissions targets. Once approved, states are responsible for implementing the plans—they, not EPA, are the primary regulators. But what happens if states don’t submit plans, or if EPA rejects the plans they submit? In these cases, the Clean Air Act requires EPA to step in and regulate directly with a federal plan (sometimes colloquially called a federal implementation plan [FIP], after an analogous provision found elsewhere in the law).

With some states promising to refuse to participate in the Clean Power Plan, there’s a real chance EPA will have to step in somewhere. Moreover, what states believe EPA would do in such cases may influence whether they decide to play ball and submit plans. But when the Clean Power Plan proposal was released last year, EPA said nothing about what a federal plan would look like.

In January, Assistant Administrator Janet McCabe announced EPA’s intent to propose a federal plan along with the final rule this summer. As McCabe said, “EPA’s strong preference is that states will submit their own plans tailored to their specific needs and priorities. But we also know setting up a federal plan is an important step toward making sure our Clean Air Act obligations are ensured.”

Under the proposed regulations, states must submit their plans to EPA soon—by the summer of 2016, though they can request a one- or two-year extension. Proposing a federal plan now therefore prepares EPA to begin implementing it quickly, possibly as soon as next summer if states explicitly decline to submit plans. Also, EPA is responsible for a federal plan for tribal lands.

There are at least two general approaches EPA could take with a federal plan. Some have argued that EPA should develop a draconian federal plan—by, for example, including no or only limited ability to trade emissions credits, or operating in a rigid, one-size-fits-all fashion that ignores local idiosyncrasies. Such a model would put states on notice that failure to submit state plans would lead to costly, inefficient results, greatly increasing the incentive to cooperate.

Alternatively, others suggest that EPA should develop the best plan possible, including provisions for trading and tailoring to local conditions. This would give states a model for their own plans, help minimize the costs of the Clean Power Plan (regardless of whether states cooperate), and avoid unnecessarily antagonizing states (or the courts). Such an approach would be cost-effective (and easier to implement) if EPA can develop a generic “cookie-cutter” draft plan that can be automatically applied to each state.

Another option would be to provide a skeletal federal plan that would serve as a template for states—more on this in another post.

Anecdotal evidence suggests EPA will probably not propose a draconian or punitive federal plan, in the interest of maintaining good relations with states. But it’s impossible to be sure, and EPA could also revise the federal plan in the future if it decides a stronger approach is necessary.

Lack of legal experience with Section 111(d) also means that important legal questions about EPA’s possible role are unclear. For one, it’s unclear whether EPA can issue a general federal plan or must tailor a plan to each state that fails to act. If EPA must propose and seek comment on a specific plan for each state, then a general plan released at the same time as the final rule would be, at most, a rough preview of an actual federal plan.

Another issue is that states may have more options available to them if they submit a plan than if EPA is forced to regulate directly. For example, states can impose regulations that raise revenue or spend government funds to smooth compliance, while EPA probably lacks the authority to do either. Section 111 may constrain the scope of regulatory options for federal plans in other ways. For example, even though both EPA and the states are required to regulate with “performance standards,” states can regulate “beyond the fence line,” increasing renewable generation or energy efficiency, while EPA might (or might not) lack the ability to do so. We simply don’t know the limits of either state or federal authority yet.

Finally, the Clean Air Act allows EPA to impose sanctions, including suspension of federal highway funding, if states fail to comply with some of the act’s requirements—but it’s unclear whether this power is available under the Clean Power Plan. A quick reading of the statute (Section 179, 42 USC Section 7509) suggests EPA does have this power—sanctions can be imposed if a state has “failed to make any submission . . . required under this chapter” (i.e., the whole Clean Air Act). Similar authority also appears to be available under Section 110(m) of the law. But EPA Administrator Gina McCarthy has claimed in congressional testimony that EPA does not have this power. The Supreme Court’s decision in NFIB v. Sebelius also limits the federal government’s authority to condition grants to states on compliance with federal commands. But there’s no question that EPA must regulate through a federal plan if states fail to act. If EPA can restrict highway funding, then there may be no need for a draconian federal plan because that threat may provide enough incentive for states to act. If not, then the federal plan becomes the only real mechanism for ensuring state compliance, increasing its practical importance and value in negotiations.

Read the other posts in the series, What to Watch For in EPA’s Final Clean Power Plan:

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