Via Energy & Environment Publishing:

Jean Chemnick, E&E reporter

Foes of U.S. EPA’s Clean Power Plan are weighing the legal and political pros and cons of a “just say no” approach to the draft rule aimed at curbing heat-trapping greenhouse gases from power plants.

Senate Majority Leader Mitch McConnell last week urged states to not prepare plans for implementing the rule. Cooperating with the Obama administration, he said, would undercut legal and legislative efforts to kill the rule and allow EPA to impose a rule that exceeds its legal authority (Greenwire, March 4).

The Kentucky Republican’s call amplified an idea that had been circulating for months among industry representatives and policymakers, who say states have much to gain and little to lose by refusing to comply with the EPA rule.

In an article published by the Federalist Society last November, authors Peter Glaser, Carroll McGuffey and Hahnah Williams Gaines wrote that the Clean Power Plan seeks to enlist states to do what EPA cannot — write rules that pressure U.S. coal-fired power producers at the expense of ratepayers and grid reliability. The result, they argue: State officials, not EPA, will be blamed for price spikes and grid woes.

And some state leaders have suggested they won’t cooperate, including 15 governors who asked EPA last September about what would happen if they didn’t turn in plans.

“You have states that feel like they don’t want to be the public front for this,” Glaser, a partner at Troutman Sanders LLP, said in an interview. “So they’re better off either not submitting a plan or submitting a plan that they think is reasonable, although it may not be in compliance with EPA’s requirements.”

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If EPA responds by enforcing a federal implementation plan (FIP), as it has promised to do, “then so be it,” Glaser said.

A federal plan is likely to be very similar to the kind of state plan that EPA would approve anyway, he said, and might ultimately be less restrictive because EPA has fewer tools than states do for regulating the power grid.

EPA cannot order a state to enact a renewable energy standard or demand-side efficiency law, or set up one of its own as part of a FIP, Glaser and his co-authors contend.

If EPA aims for the kinds of emissions reductions in its federal model plan that it contemplates in its draft, the agency has little choice but to issue a “hard limit” on the operation of coal-fired power plants, whether or not alternatives are available to provide backup power. Such a plan could fly in the face of EPA’s pledge that its rule would not compromise grid reliability, they wrote.

“Given the stakes involved, it is hard to imagine that EPA would want to take this action,” they wrote.

If states craft strategies to meet EPA’s targets, any policy they put forward — renewable or energy efficiency mandates, carbon trading systems — will become federally enforceable as soon as EPA approves the plans, the article says. Not only would a state then have to seek EPA permission to modify or repeal its own energy policies, the lawyers wrote, but it will have armed third parties and environmental litigants with new legal grounds to sue for their enforcement.

High stakes for coal

No industry has more to lose under the Clean Power Plan than coal, which is nearly unanimous in its support for the “just say no” strategy. The Kentucky Coal Association has touted that approach to state policymakers (Greenwire, March 4).

And National Mining Association CEO Hal Quinn said in an interview last week he wasn’t concerned that the federal implementation proposal EPA plans to unveil this summer will be worse for his industry than plans coal-friendly state governments could have crafted on their own.

For one thing, Quinn, like Glaser, expressed confidence that the EPA rule would ultimately be overturned in court, making compliance a moot point. And the two also agree that EPA can’t step in with renewable energy and efficiency mandates for states.

But Quinn went a step beyond the Federalist Society analysis, asserting EPA also lacks authority to require coal plants to run less to lower emissions.

“The question is, what would EPA be able to really do?” he said. “And at best they’d probably be stuck with implementing one or maybe two building blocks of the four.”

The EPA draft uses four emissions-reduction categories — “building blocks” — to set state targets, although it does not demand that states use them in their implementation plans. Coal advocates have long held that EPA is only on firm legal ground if it mandates incremental heat-rate improvements at coal-fired power plants — an “inside-the-fence-line” approach EPA designates as the draft’s first building block.

If EPA is forced to implement one or two building blocks, the rule would be orders of magnitude less stringent than the current proposal. The Clean Power Plan assumes that coal-fired power plants can cut their carbon dioxide emissions by 6 percent through such improvements, though numerous commenters have said there is only potential for, at most, a 2 percent improvement at most plants.

The bulk of the rule’s reductions are assumed to come from its three other building blocks; fuel switching to natural gas, zero-carbon energy and demand-side efficiency. If the agency can’t require reductions in those areas, Quinn said, it must also scale back the rule’s target to a level achievable with whatever is left.

All of this, Quinn said, shows McConnell was right in advising state officials.

“I think what Leader McConnell laid out the other day in his op-ed is showing that this thing is a whole house of cards, and that the issue of ‘What can EPA do if a state doesn’t submit a plan?’ is really the other side of the same coin,” he said.

Rather than compelling states to take the Clean Power Plan more seriously, the threat of a federal plan might instead show how limited EPA’s regulatory authority actually is, leading to a less stringent rule, he said.

Call for ‘market-based’ regs

But “just say no” is by no means the consensus, even among conservatives.

Jerry Taylor of the libertarian Niskanen Center decried the strategy as a misguided rhetorical exercise that would lead to more repressive regulation.

“God put conservatives on Earth to minimize regulatory costs, not to inflate them in futile attempts at making a point,” Taylor said in a post Friday on the Niskanen Center’s website.

Taylor argues states should take the flexibility EPA has embedded in its existing power plant rule and run with it — enacting “market-oriented regulations” that would be less restrictive than the command-and-control models EPA would be likely to employ.

Like the Federalist Society’s paper, Loyola Law School professor Daniel Selmi also panned the idea in an essayfor the Sabin Center for Climate Change Law at Columbia Law School.

“The ‘just say no’ slogan is pithy, and as an immediate political response, states may be tempted to follow its advice by taking legislative or executive action that prevents or hinders the state from responding to the upcoming rules,” he wrote. “Before taking that step, however, states should carefully consider the consequences. If they do so objectively, it becomes apparent that opting out of the process at this point can result in significant disadvantages.”

Like the Federalist Society essay, Selmi says EPA could opt to require the power plants themselves to meet the full state targets.

But unlike Glaser and his co-authors, Selmi does not assume that EPA would shy away from this outcome. The agency could pursue “severe” emissions cuts in line with what the draft requires — which average 30 percent below 2005 levels by 2030 — and apply them directly to power plants.

Such a FIP would be subject to legal challenge, he acknowledges. “Still, the state’s inaction could very well result in EPA imposing the legal mandate entirely on the power plants, and they are certain to be quite disturbed by that outcome,” he said.

Power-sector lawyers for Van Ness Feldman LLP echoed this concern in an article published last month inPublic Utilities Fortnightly, which urges utilities to get involved in state implementation plan processes even if they are also backing litigation to change or kill the rule.

“It seemed to us for utilities this ‘just say no’ strategy carries a good bit of risk,” said Kyle Danish, a partner with Van Ness Feldman and one of the article’s authors. In an interview yesterday he noted that proponents of the strategy assume that industry’s legal case will prevail, resulting in a rule that is considerably narrower in scope. But that outcome will not be known for years.

“It seems to make sense to us that with so much at stake, utilities have an interest in working to ensure that they have a rational plan that they can live with, so that they’re covered regardless of the legal outcomes, and they’re not left effectively bearing the full brunt of any downside risk,” he said.

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