Why States Rejecting EPA's Clean Power Plan Could Face Bigger Rate Hikes

Since the Obama administration announced its plan to cut carbon dioxide emissions and combat climate change last year, many states have been on the offensive.  Some have sued the Environmental Protection Agency, arguing that the agency has overstepped its authority.  Republican leaders in Congress have vowed to dismantle carbon emission regulations.  And state legislatures have set up numerous blockades to delay the Clean Power Plan.

Given the current political climate, it seems inevitable that at least a handful of states will continue to fight the EPA over the Clean Power Plan.  Here's a rundown of what might happen if states refuse to cooperate––and why it might be in their best interest to comply with the EPA’s rules.

What exactly does the EPA want the states to do?

The EPA is trying to reduce carbon dioxide emissions nationwide by 30 percent by the year 2030.  The targets assigned to each state vary widely ranging from 11 percent for North Dakota to 72 percent for Washington.  Most states have a target between 20 and 45 percent.

The EPA calculated targets for states by evaluating a number of factors, including their access to renewable energy and ability to reduce emissions by switching to natural gas power plants.

To meet these goals, the EPA has proposed four methods, or "building blocks."

• Increase efficiency at coal plants by upgrading equipment and modifying operations.
• Switch from coal-powered plants to less carbon-intensive sources such as natural gas-fired plants.
• Expand investments in solar, wind and other types of renewable energy.
• Increase energy efficiency in homes, buildings and industries to reduce power consumption.

When do these plans have to be submitted?

The Clean Power Plan was announced last year in June.  The EPA is currently engaging with stakeholders and reviewing the comments it has received concerning the plan.  EPA’s top official, Gina McCarthy, has said that the final rules will be released mid-summer this year. Once the rules are announced, states have until summer of 2016 to submit a plan outlining how they intend to meet their targets.  These plans don't have to be final.  States can submit an initial plan in 2016 and request a one- or two-year extension.

What happens if a state doesn't submit a plan?

If a state doesn't submit a plan, or submits one that doesn’t meet the EPA's requirements, the agency will formulate a federal plan for the state.
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The EPA likely has authority to enforce only one, or, according to the agency, two of the four building blocks.  While states can adopt policies to support investments in renewables and increase demand-side energy efficiency, the EPA has only the authority granted by the federal Clean Air Act.  The act, as it stands now, allows the EPA to restrict emissions from plants but does not give it the authority to increase power generation from plants or order states to set up more renewable energy sources.

So, what would a federal plan look like?

A federal plan would probably be limited to curbing emissions from coal plants.  The EPA could force coal plants to upgrade equipment. It could also mandate that a state’s coal generators be run for a specified amount of time each day, effectively reducing emissions from the plant.  But this strategy would reduce the amount of energy produced, and states would be responsible for finding alternatives.

And what does that mean for a utility customer?

A federal plan is going to be bad news for customers.  Reducing emissions at coal plants is a lot more expensive than, say, increasing customer energy efficiency.  It’s fairly certain that a federal plan will result in higher electricity prices than a state plan would.

According to a study prepared for the American Coalition for Clean Coal Electricity, the National Mining Association and other groups, if states implemented a plan without building blocks 3 and 4, they could expect to pay an additional $15 billion per year nationally for power. In Texas, for instance, the study predicted that the state’s ratepayers will see a 54 percent increase in costs if only two of the building blocks were used, as opposed to a 10 percent increase if all four building blocks were used.  A typical Texas utility bill for a household for July is $224.  If a plan were implemented without two of the building blocks, Texans could expect to pay about $120 more.

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