© 2015 Haynes and Boone, LLP Overview of the EPA Clean Power Plan Suzanne Beaudette Murray February 19, 2016 Tulane Environmental Law Summit

© 2015 Haynes and Boone, LLP 2

Climate Action Plan - The Social Cost of Carbon “SC – CO 2” Proposed Methane rules (OOOO) Proposed DOI ban on coal exploration DOI proposed rule on venting and flaring at E and P sites Challenges to the export of natural gas Fracing Refinery MACT Clean Power Plan 3

© 2015 Haynes and Boone, LLP What is in the Clean Power Plan? Clean Power Plan (CPP) for Existing EGUs power-plants power-plants Carbon Pollution Standards for New, Modified & Reconstructed EGUs modified-and-reconstructed-power-plants modified-and-reconstructed-power-plants Proposed Federal Plan and Model Rule for the Clean Power Plan power-plants#federal-plan power-plants#federal-plan 4

© 2015 Haynes and Boone, LLP 5 CPP for new EGUs New Source Performance Standards (NSPS) for Fossil Fuel-Fired Power Plants pursuant to section 111(b)—requires coal plants to use carbon capture and sequestration (“CCS”) April 13, 2012 EPA proposes NSPS > 2.5 M comments January 8, 2014 EPA publishes withdrawal and re-proposed NSPS October 23, 2015 EPA publishes final NSPS

© 2015 Haynes and Boone, LLP 6 CPP for Existing EGUs The CPP for Existing Fossil Fuel-Fired Power Plants pursuant to section 111(d)—provides for a SIP-type approach in lieu of emission limitations

© 2015 Haynes and Boone, LLP Three Building Blocks of the CPP EPA has set uniform emissions rates for fossil fuel power plants derived from what the EPA calls the three building blocks of the CPP. 1)Improving heat rate at affected coal-fired steam EGUs. 2)Substituting increased generation from lower-emitting existing natural gas combined cycle units for reduced generation from higher-emitting affected steam generating units. 3)Substituting increased generation from new zero-emitting renewable energy generating capacity for reduced generation from affected fossil fuel-fired EGUs. 7

© 2015 Haynes and Boone, LLP What does the rule for existing sources do? The CPP final rule is centered on reducing CO 2 emissions from fossil fuel-fired power plants by 32 percent from 2005 levels by To meet this goal, electric generators will have to install controls on electric generating units (“EGUs”) or retire a percentage of coal-fired power generation within the next 15 years 8

© 2015 Haynes and Boone, LLP Set uniform emission rates for fossil fuel power plants Based on analysis of these building blocks, EPA set uniform emission rates for fossil fuel-fired units and for combustion turbines. EPA then determined on a state-by-state basis how much each state would have to reduce its CO 2 emissions in order to comply with the national target. 9

© 2015 Haynes and Boone, LLP Now it’s the states’ turn States have until September 2016 (2018 if they qualify for an extension) to develop plans to meet the new emission rates for CO 2. States must also meet certain interim milestones by To FIP or not FIP 10

© 2015 Haynes and Boone, LLP States have essentially three main decisions: 1)Whether to develop a state plan. The law directs the EPA to develop and implement a plan if the state does not do so. 2)Whether to establish limits applicable to each source or instead commit to a state plan for achieving reductions without establishing source-specific limits. 3)Whether they will use state rate-based goals or state mass-based CO 2 goals to comply. 11

© 2015 Haynes and Boone, LLP Cap and Trade If states choose to follow the mass-based goal approach, they can also participate in an interstate trading system (aka Cap and Trade). –The EPA has proposed a model trading rule with the CPP. –The proposal invites comments from stakeholders on the proposed trading program. 12

© 2015 Haynes and Boone, LLP Natural Gas and Renewables The final rule treats renewable energy and energy efficiency more favorably than natural gas. While construction of new natural gas-fired generation is still allowed, the ability of states to take credit for emissions reductions achieved by constructing new natural gas-fired generating units is limited. 13

© 2015 Haynes and Boone, LLP Energy Efficiency The final rule does not contain the fourth building block to require an energy efficiency component (probably due to the litigation risk after UARG) EPA still intends, however, to strongly encourage use of demand supply measures to achieve the emissions reductions required by the rule. This is reflected in part by the inclusion of a new “Clean Energy Incentive Program” (“CEIP”) not provided for in EPA’s earlier proposal. The stated goal of the CEIP program is “to encourage early investments in RE [(renewable energy)] and demand-side EE [(energy efficiency)].” Those states that take advantage of this option will be eligible to receive matching allowances from the EPA or emission rate credits (“ERCs”), up to a total for all states, which represents the equivalent of 300 million short tons of CO 2 emissions. The formula for awarding ERCs provides twice as many credits for each ton of early reductions achieved through energy efficiency measures as it does for renewable energy – and zero credit for early reductions achieved by increased use of natural gas. 14

© 2015 Haynes and Boone, LLP Will the rule survive challenge? 15

© 2015 Haynes and Boone, LLP Time line of proposal and challenges June 14, 2014 EPA proposes CPP and CPP FIP August 3, 2015 President Obama and EPA announce the CPP October 23, 2015 EPA publishes CPP –States and others challenge CPP and request stay December 22, 2015 Effective date of rule January 21, 2016 D.C. Circuit rejects stay January 26, 2016, a 26 state coalition petitions Supreme Court to stay the CPP February 9, 2016 S. Ct. stays the rule pending review of the petitions in the DC Circuit 16

© 2015 Haynes and Boone, LLP The central issues in the CPP challenge 1)111(d) vs. Mercury MACT controversy 2)Costs and beyond the fence-line analysis 17

© 2015 Haynes and Boone, LLP What does this mean for power generation? 1)Evaluate impacts to power supply for operations. 2)Evaluate how the CPP requirements may also impact SIPs for ozone, Regional Haze and CSPAR. 3)Opportunities for co-gen? 4)Effect of CPP on national power mix 18