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There Are Good Reasons for Obama to be Confident on Carbon Rules

The Obama administration has taken a lot of heat for creating climate change rules that bypass Congress. But recent court decisions are bolstering the president’s clean air agenda – and they come at a crucial time.

The Environmental Protection Agency (EPA) has won a series of air quality challenges in recent months leading up to its much-awaited carbon dioxide standards for existing power plants. Known in energy-speak as Section 111(d) of the Clean Air Act, the carbon rule is expected to significantly boost clean energy and further erode use of coal-fired generation.

The three legal victories did not involve carbon, but instead dealt with mercury, soot, nitrogen oxides, sulfur dioxide and other pollutants. But the decisions gave credence to the EPA’s technical expertise and reasoning, say industry observers. So now, the agency faces the rough-and-tumble arena of carbon regulation with heightened credibility as it makes its most game-changing climate change ruling yet.

“The general trend is favorable,” said John Walke, the Natural Resources Defense Council’s clean air director in Washington, D.C. “The EPA has won three very significant clean air cases in court, all of them having an impact on the utility sector, and all of them recognizing that old dirty coal plants need to do more to internalize their cost of pollution.”

Michael Ferguson, an associate director at Standard & Poor’s, said the recent court action is part of a “bigger picture” for energy regulation. “It shows that the EPA has more expansive power.”

That recognition comes as the EPA is reportedly positioning for a risky legal maneuver to reduce carbon dioxide in new power plants under the Clean Air Act, The approach moves beyond regulating what comes out of the smoke stack and instead allows companies to take a portfolio approach, reducing their overall emissions by adding renewables and energy efficiency to their mix.  NRDC has championed this outside-the-fence strategy.

Good Neighbors

One of the three recent EPA wins involves the Cross-State Air Pollution Rule (CSAPR). Dubbed the ‘Good Neighbor Rule’ by the EPA, it creates new accountability for 28 Eastern, Midwestern and Southern states. The rule focuses on sulfur dioxide and nitrogen oxide that wafts over state borders.

The rule was set to take effect in 2012, but was delayed when utilities and several states won an appellate court ruling. The Supreme Court, however, in late April decided in favor of the EPA.  Specifically, the court upheld the EPA’s way of using costs to allocate state emissions budgets and federal intervention if states fail to comply.

“Some people think this emboldens the EPA for its other efforts that are coming up.  I don’t know if embolden is the word I would choose, but it affirms the common sense approach that the EPA took in the cross-state rule,” said Graham McCahan, a senior attorney with the Environmental Defense Fund.

The cross state ruling, however, is not expected to lead to big changes in power portfolios. Those trends already are underway because of other factors, among them state renewable portfolio standards, falling solar and natural gas prices, and other emission rules that have led to a bevy of coal-fired plants closing.

“You are probably not going to see a renaissance of clean energy development prompted by the cross state rule. Although in any given market or state or region there could be exceptions to that,” said NRDC’s Walke.

Market Impact?

The bigger impact already came about because of the Mercury and Air Toxics Standards (MATS), which were upheld in April by the Court of Appeals for the District of Columbia Circuit. MATS regulates mercury, acid gases, and other hazardous air pollutants. The MATS rule was not staid while it was heard by the court, as the cross-state rule had been. So power plant operators were at work meeting the requirement even before the April court ruling upholding MATS.

 “MATS confronted power plant operators with retirement, versus, repowering, versus retrofit decisions before the cross state rule did,” Walke said.

The third legal victory for the EPA came in mid-May when the Court of Appeals for the D.C. Circuit upheld the agency’s stricter standard on particulate matter or soot. The National Association of Manufacturers and a group of power plant owners had challenged the science behind the EPA’s new requirements. However, the court found that the opposition groups “have not identified any way in which EPA jumped the rails of reasonableness in examining the science. EPA offered reasoned explanations for how it approached and weighed the evidence…”

Such language gives clean air activists hope that the court will appreciate the EPA’s technical handling of carbon issues as well. At the very least it may encourage “the EPA to rely upon some discretion that the courts will give the agency in attempting to administer this carbon program in a cost effective and reliable manner,” said NRDC’s Walke.

He added, however, that different legal questions arose in each of these three cases. And the courts will grapple with another set of issues on the two carbon standards. (The EPA also has proposed carbon restrictions for new power plants.)

So one court win – or even three in a row by EPA – does not mean another. Still, it “gives the administration more backing” said S&P’s Ferguson.

With all eyes now on the carbon rule for existing power plants the big question becomes, once on the table, how soon will the rule actually take effect?

Not quickly. It’s going to be a long process. Observers say to expect at least a year to pass before the EPA finalizes the proposed rule. The process then gets turned over to the states. They must come up with plans to meet the new standard, and those plans will require EPA approval. Litigation could also delay the process, although clean air attorneys say it is more likely the courts will allow the rule to take effect while the cases are heard.

Of course, markets may respond sooner. Seeing the writing on the wall, utilities are likely to retreat further from coal-fired generation and move more quickly toward developing a clean energy fleet.

Lead image: Coal-fired power plant in Utah via Shutterstock

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