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Jun 2014
05
June 05, 2014

EPA’s “Clean Power Plan” Could Mean Big Changes for Michigan


The Obama Administration’s announced plan to reduce greenhouse gas emissions from power plants will require Michigan to significantly reduce the carbon footprint of its electric generation beginning in 2020. It’s a dramatic move, one that will force difficult decisions for state officials and likely increase the cost of electricity.
 
President Obama announced in 2013 that he was instructing the U.S. Environmental Protection Agency to use the federal Clean Air Act as a vehicle to regulate greenhouse gas (GHG) emissions from electric power plants. The president outlined a timeline calculated to have rules in place before his current term expires in January 2017.
 
An EPA proposal released in January would require new coal or gas-fired generation units to meet an emission standard for carbon dioxide (CO2) equivalent to the rate achieved by one technology – combined cycle combustion turbines fired by natural gas.  The EPA accepted comments on its proposal through May 9 and final rulemaking is expected by the beginning of 2015. If the EPA’s final rule tracks its original proposal, then for the foreseeable future the only new electric generation from combusting fossil fuels will be from combined cycle units.
 
On June 2, the EPA proposed CO2 emission standards for existing electric generation units that are far more complex than the proposed standards for new sources. Rather than establishing a single emission standard for all units, the EPA is proposing, on a state-by-state basis, CO2 emission rate average “goals” to be achieved relative to electric output in each state as a whole. The EPA’s stated timeline is to finalize as law these standards for existing electric generation in 2015.   
 
The state-by-state “goals” reflect existing differences between the states in the mix of electric generation resources. As a consequence Michigan, which has a relatively high reliance on coal fired electric generation, has a higher  CO2 emission rate “goal” than a state like California. The EPA proposal would allow states to convert these rate based goals to carbon tonnage caps applicable to the utility sector and implement multi-state emission trading programs for carbon allowances.
 
Under the structure of Clean Air Act, the EPA proposal, when final, would become a binding set of guidelines to state authorities. The states would then develop plans to implement the EPA’s guidelines.  Under the EPA proposal, each state plan can rely upon four different “building blocks” to lower the carbon “footprint” of electrical generation, which include a mixture of:
 
  • Mandating fossil fuel power plants become more efficient;
  • Mandating increased use of lower emitting power sources more (switching from coal to gas);
  • Mandating increased use of zero-emitting power sources (increased solar, wind, or nuclear); and
  • Identifying measures to reduce electric consumption.
 
Because efficiency measures at existing plants can only achieve marginal improvements in CO2 emission rates, states like Michigan are going to have to rely significantly upon the other building blocks or pursue a cap and trade approach. For Michigan, the EPA has proposed an interim emission rate goal (to be achieved on average for the years 2020-2029) of 1,227 pounds of CO2 per megawatt hour (MWh). The final goal, to be achieved from 2029 onward, is 1,161 pounds of CO2 per MWh.  The EPA’s calculated average emission rate for Michigan in 2012 was 2,120 pounds of CO2 per MWh, which means Michigan will have just five years to begin to substantially reconfigure its electric generation.
 
The next several years promise difficult policy judgments for Lansing. While current state law authorizes the Michigan Department of Environmental Quality  to promulgate rules necessary to implement the federal Clean Air Act, EPA proposal, once final, will clearly mandate decisions relative to electrical supply that historically have been in the province of the state Legislature, the Michigan Public Service Commission, the Independent System Operators or the Federal Energy Regulatory Commission. 
 
There will undoubtedly be litigation challenging the lawfulness of any EPA rulemaking, and that is unlikely to be resolved for several years. Adding to the uncertainty is whether President Obama’s successor might seek to modify rules adopted during the Obama Administration. But in the meanwhile Michigan and the electric providers in this state will have to begin to make hard judgments about shutting down or curtailing operation of coal fired units, the construction of new gas or zero-emission electric generation capacity, installation of new electric and gas transmission resources, achievable reductions in energy consumption, and how the costs associated with these measures will be spread to the ratepayers. 
 
 
Contact Steven Kohl at 248.784.5141 or skohl@wnj.com for more information.

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