Franz Litz, Nicholas Bianco, Michael B. Gerrard (Center for Climate Change Law at the Columbia University L… and Gregory E. Wannier (Center for Climate Change Law at the Columbia University La…
This working paper explores how states and the U.S. Environmental Protection Agency (EPA) could reduce greenhouse gas emissions from power plants and industrial facilities using the standards
of performance under section 111 of the Clean Air Act.
This working paper examines the process for establishing
performance standards covering existing power plants and
industrial facilities in the United States and finds:
Congress granted the EPA and the states considerable flexibility
in determining how to cover existing power plants and
industrial facilities under section 111 of the Clean Air Act.
After lengthy collaboration with stakeholders, twenty-three
states designed and many implemented flexible, marketbased
emissions-trading mechanisms to reduce greenhouse
gas emissions from existing power plants and
The discretion afforded to states under the Clean Air Act
should permit them to propose a variety of policy mechanisms,
including cap and trade.
The regional cap-and-trade designs present specific
opportunities and challenges when reconciling the designs
with section 111 of the act, including the following:
Offsets cannot be used to meet federal minimum
reductions but may be allowed above and beyond federal
Trading between regulated categories of sources depends
on the EPA’s interpretation of the act.
Borrowing and safety valve mechanisms are problematic
unless they can be designed to ensure minimum
reductions within federal time frames.
In the absence of congressional action on climate change, all eyes are on
the states and the United States Environmental Protection Agency (EPA) to
see how they will regulate greenhouse gas emissions from existing large
power plants and industrial facilities. Indeed, power plants and industrial
facilities are the sources of half of all U.S. greenhouse gas emissions,
making those plants and facilities central to any effort to reduce the
country’s total emissions. This working paper explores a promising
pathway for the states and EPA to make these reductions using the standards
of performance under section 111 of the Clean Air Act.
EPA has announced that it will begin the process for regulating power plants
and refineries under section 111. EPA has scheduled listening sessions with
stakeholders and intends to issue draft performance standards for new and
modified power plants by July 26, 2011, and at the same time issue to the
states a draft mandatory guideline that requires states to develop plans to
impose performance standards on existing power plants. The final performance
standards and mandatory guidelines are expected in May 2012. The
process for refineries will lag behind that for the electricity sector by about six months, with draft rules to be issued in December 2011
and final rules expected in November 2012.
Like many other requirements of the Clean Air Act (the
Act), the standards of performance under section 111 are
designed and implemented through a federal-state partnership.
EPA lists the categories of sources and establishes
performance standards for new and modified emitters
within listed categories. EPA also establishes a mandatory
“guideline” for states, creating a federal “floor” for
regulation of existing sources that applies only if the states
fail to set their own standards of performance that meet or
exceed this floor. This guideline includes possible
“system[s] of emission reduction” that the states may use
to set standards of performance. In promulgating these
plans, the states will have considerable flexibility, since the
standards of performance under section 111(d) may take
the form of traditional emissions rate limitations or any
number of other more flexible mechanisms. The emergence
of state cap-and-trade programs raises the question of
whether these cap-and-trade programs could be used to
meet a state’s obligations under section 111(d) of the Act.
The traditional approach to regulating power plant and
industrial facilities is through performance standards that
prescribe specific emissions limitations on individual
sources. This approach has been used for years to control
conventional pollutant emissions, and is the safest
approach from a legal defensibility standpoint. Because
many states have already begun regulating some existing
sources using cap and trade, the traditional approach may
not be the one preferred by the states or their stakeholders.
Indeed, states that have already chosen to reduce emissions
from power plants and industry using flexible, marketbased
approaches, can be expected to develop plans calling
for alternatives to the traditional source-specific performance
standards. EPA under George W. Bush concluded
that the Clean Air Act allows cap and trade as a demonstrated
and effective form of regulation under Section 111(d), and the Obama EPA has not contested this interpretation. Until federal courts rule on this approach, however,
there will be some uncertainty about its viability.
The assumption that the states and many of their stakeholders
will propose cap and trade under section 111(d) of the
Clean Air Act has led to a number of questions around
program design features, such as whether the Act allows
offsets, or trading across listed categories of sources and
whether the existing regional cap-and-trade program
designs would be acceptable to EPA under section 111(d).
Even though many of these issues are questions of first
impression and therefore cannot be answered with absolute
certainty, this paper explores the arguments for and against
specific cap-and-trade design features in the context of
section 111, including the implications for existing and
planned regional cap-and-trade programs.