Litigation Update: Clean Power Plan, New Source Performance Standards, and Effluent Limitations

Clean Power Plan.  As we previously reported following the President’s March 28, 2017 Energy Executive Order, the Department of Justice has requested that the D.C. Circuit hold the CPP in abeyance while EPA conducts a review of the rule.  The D.C. Circuit has not yet ruled on that motion, but other action on the rule has been an almost daily occurrence:

  • On March 28, a group of attorneys general from 16 states and D.C., led by New York Attorney General Eric T. Schneiderman, issued a statement expressing their intent to fight the CPP’s repeal. “We won’t hesitate to protect those we serve—including by aggressively opposing in court President Trump’s actions that ignore both the law and the critical importance of confronting the very real threat of climate change,” the statement reads.
  • In letters sent to state governors on March 30, EPA Administrator Scott Pruitt stated: “It is the policy of the [EPA] that States have no obligation to spend resources to comply with a Rule that has been stayed by the Supreme Court of the United States.” (A February 9, 2016 Supreme Court Order stayed the CPP pending review in the D.C. Circuit.)  The letter sent to Kentucky Governor Matt Bevin is available online from EPA.
  • Yesterday, EPA announced in the Federal Register that it will withdraw three proposed rules implementing the CPP: the Federal Implementation Plan for the CPP’s greenhouse gas emission guidelines, its model training rules implementing those guidelines, as well as the Clean Energy Incentive Program design details. Citing last week’s Executive Order, the Notice states: “At this time, the EPA is not under an obligation to finalize these rulemakings, nor is there a time-sensitive need for them given the Supreme Court stay of the CPP.”
  • Today, EPA announced in the Federal Register that it is initiating its review of the CPP, explaining that in light of last week’s Executive Order, it would “reevaluate whether this Rule and alternative approaches are appropriately grounded in EPA’s statutory authority and consistent with the rule of law.” EPA will also review the compliance dates set by the CPP, since some of these dates “have passed or will likely pass while the CPP continues to be stayed.”  A rulemaking proceeding will be forthcoming.

New Source Performance Standards.  EPA also announced today that it will review its CO2 New Source Performance Standards for New Power Plants, as well as the New Source Performance Standards for the Oil and Natural Gas Sectors.  The Notices explain that review of these rules was initiated by the President’s March 28 Energy Executive Order, and serve as advance notice of forthcoming rulemaking proceedings.  Last week, EPA moved to hold the CO2 NSPS litigation in abeyance while the agency conducts its review of the rule.  On March 30, the D.C. Circuit removed the April 17, 2017 date for oral argument from its calendar pending its decision on the motion.

Effluent Limitations for Steam Electric Power Generation (40 C.F.R. pt. 423).  Finally, on March 25, the Utility Water Act Group petitioned EPA for reconsideration and for an administrative stay of rules setting federal limits on the levels of toxic materials that can be discharged in power plant wastewater.  The petition argues in part that the Rule is “inconsistent with the President’s regulatory reform agenda reflected in recent executive orders,” referencing February’s Regulatory Reform Order and the “One-In, Two-Out” Order released in January.  EPA has not yet issued a decision on the petition.

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Breaking Down the Energy Executive Order

UPDATED 03.31.2017 The Executive Order has been published in the Federal Register, 82 Fed. Reg. 16,093. Also, the Office of Management and Budget released a statement regarding the budgetary impact analysis for this executive order.

Earlier this week, President Trump signed a much-anticipated Executive Order addressing energy and environmental policy.  As expected, the Executive Order specifically identifies the Clean Power Plan (CPP) and directs the EPA Administrator to review whether the CPP and related rules are consistent with the Trump Administration’s approach to these issues, and if not, begin the process of suspending, revising, or rescinding these rules.  (Since the Executive Order was released, the Department of Justice has requested that the D.C. Circuit hold the litigation over this rule in abeyance while the EPA conducts its review of this rule.)

However, the scope of the Executive Order is much broader than just the CPP.  Notably, it directs all agencies to review their existing actions that might burden the development or use of domestic energy resources, particularly non-renewable resources.  It also eliminates the social cost of carbon estimates that the Obama Administration put in place for agency cost-benefit analysis.  Below we break down each of the eight sections of the Executive Order.

Section 1 sets forth the Trump Administration’s overarching energy policy.  It identifies three energy-related national interests: (1) “promot[ing] clean and safe development of our Nation’s vast energy resources”; (2) “avoiding regulatory burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation”; and (3) “ensur[ing] that the Nation’s electricity is affordable, reliable, safe, secure, and clean, and that it can be produced from coal, natural gas, nuclear material, flowing water, and other domestic sources, including renewable sources.”  It then describes two policies.  The first policy is that “all agencies should take appropriate actions to promote clean air and clean water for the American people, while also respecting the proper roles of Congress and the States.”  The second policy is that “necessary and appropriate environmental regulations comply with the law, are of greater benefit than cost, when permissible, achieve environmental improvements for the American people, and are developed through transparent processes that employ the best available peer-reviewed science and economics.”

Section 2 outlines a 180-day process by which the heads of agencies are to review all existing agency actions that “potentially burden the development or use of domestically produced energy resources, with particular attention to oil, natural gas, coal, and nuclear energy resources.”  However, this review process does not include agency actions that are mandated by law, necessary for the public interest, or consistent with the policy described in Section 1 of the Executive Order.  The plans and reports required of agency heads under this section are to be provided to the Director of the Office of Management and Budget (OMB), the Vice President, the Assistant to the President for Economic Policy, the Assistant to the President for Domestic Policy, and the Chair of the Council on Environmental Quality.  After the final reports describing recommended agency actions are submitted, the OMB Director, in consultation with the Assistant to the President for Economic Policy, shall be responsible for coordinating these recommendations.

Section 3 revokes particular climate-related presidential and regulatory actions enacted by the Obama Administration.  Among these actions are: (1) Executive Order 13,653 (Preparing the United States for the Impacts of Climate Change); (2) The Report of the Executive Office of the President of June 2013 (the President’s Climate Action Plan); and (3) the Council on Environmental Quality’s “Final Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects of Climate Change in National Environmental Policy Act Reviews.”  This section also requires the heads of agencies to identify and, as soon as practicable, suspend, revise, or rescind existing agency actions related to these now-revoked presidential and regulatory actions.

Section 4 targets the Clean Power Plan and related actions.  It directs the EPA Administrator to immediately begin review of the CPP, the New Source Performance Standards, and the proposed Federal Implementation Plan and Model Rule for consistency with the policies described in this Executive Order.  The Administrator is to promptly notify the Attorney General of any actions taken pursuant to this Executive Order, so that the Attorney General may take appropriate actions in the litigation over these rules, such as requesting the court stay litigation, which the Department of Justice has since done.  While the new Administration’s stance opposing the CPP is clear, the Executive Order does not require the EPA to propose a replacement rule for the CPP, nor does it reference EPA’s 2009 greenhouse-gas Endangerment Finding.

Section 5 directs agencies to no longer use the Obama Administration’s social cost of carbon estimates.  The Executive Order disbands the Interagency Working Group on the Social Cost of Greenhouse Gases and withdraws several technical support documents issued by that group.  In their place, agencies are to use in their cost-benefit analyses estimates that are consistent with the guidance contained in the OMB Circular A-4 of September 17, 2003.

Section 6 directs the Secretary of the Interior to take all necessary and appropriate steps to amend or withdraw the Obama Administration’s moratorium on new leases for coal mined from federal lands, and to commence Federal coal-leasing activities, consistent with applicable law.

Section 7 requires the EPA Administrator to review the EPA’s final rule on emission standards for the oil and natural gas sector, as well as any related guidance, for consistency with the policies of this Executive Order.  As with the section addressing the CPP, this section directs the Administrator to promptly notify the Attorney General of any actions taken based on this Executive Order, so that the Attorney General may take appropriate steps in the litigation over this rule.

Section 8 sets forth general provisions explaining that this Executive Order does not impair or otherwise affect the existing authority of executive agencies or the functions of the OMB Director.  It also provides that the Executive Order is to be implemented consistent with existing law.

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President Releases Energy Executive Order

Earlier today, President Trump signed an executive order entitled “Promoting Energy Independence and Economic Growth.”  The full text of the order—which, among other things, outlines the Administration’s directives on the Clean Power Plan—is available here.  Stay tuned for a more detailed review of the order.

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California Regulators Vote to Move Forward With Auto Standards

Last week, the California Air Resources Board voted to keep its vehicle emissions standards through 2025 as part of its Midterm Evaluation of the standards.  The Midterm Evaluation is a process for the California Air Resources Board, EPA, and the National Highway Traffic Safety Administration to evaluate the Corporate Average Fuel Economy and greenhouse gas (GHG) emissions standards for vehicle model years 2022-2025.  The California Staff presentation and recommendations for this review are available here.  The Board also voted to pursue policies to support having over four million zero-emission vehicles in California by 2030.

While the Clean Air Act generally preempts state enactment of emission standards for new motor vehicles, California regulates vehicle emissions pursuant to a waiver under Section 209 of the Clean Air Act and is allowed to have more stringent standards.  The Clean Air Act also allows other states to adopt California’s standards, and about a dozen have done so.

The current California and federal vehicle GHG standards are almost identical in stringency.  EPA undertook its Midterm Evaluation of the 2022-2025 standards under President Obama.  EPA’s November 2016 proposed determination and January 12, 2017 final determination found that the standards are still appropriate and that a rulemaking to change the standards is not necessary.  However, on March 15, 2017, EPA Administrator Scott Pruitt and Department of Transportation Secretary Elaine Chao announced that EPA plans to reconsider the final determination.  Such reconsideration could result in a significant divergence between the federal standards and California standards.  EPA might also seek to reevaluate the waiver that enables California to craft its own standard.

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Columbia University Report: Repurposing Oil and Gas Financing for Renewable Project Development

Columbia University’s Center on Global Energy Policy published a report this week, Financing Solar and Wind Power: Insights from Oil and Gas, considering whether the financial tools used in the oil and gas industries for raising capital could serve as models for wind and solar projects.  The report is premised on the observation that while ample debt capital is available for utility-scale solar and wind with long-term power purchase agreements, raising equity to finance preconstruction development remains a significant challenge.  The report therefore considers whether financing tools used by the oil and gas industries to raise capital could provide insights toward the expansion of solar and wind.

The report explores the potential for solar and wind facilities to sell capacity into markets operated by independent system operators (ISOs).  Capacity markets are run by many ISOs in order to maintain an adequate resource reserve to meet projected demand and to ensure grid reliability.  Generators that expect to be available during a relevant commitment period may bid capacity into the market in return for capacity payments.  The report observes that while solar and wind resources can’t be dispatched on demand, they “may nevertheless qualify for capacity payments in some situations, in part because they are likely to be able to generate electricity during periods of peak demand.”  The report does caveat such capacity payments by noting that capacity may be discounted from nameplate and may require electric storage as well.

The report also suggests allowing developers to borrow against the expected value of wind and solar resources on a given project site to fund the cost of development, just as investors use reserve-based lending toward the exploration of oil and gas reserves by looking to the cash flows from the production and sale of the resource for repayment.  Finally, similar to the volumetric production payments often used in the oil and gas industry, renewable project developers could raise cash by selling to investors an Electricity Production Payment, or the right to receive a portion of the project’s future production, either as a number of kilowatt-hours per time period, or as a dollar value of electricity production.

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