KEEA Conference October 2013 Carbon Pollution Standards for Power Plants under Section 111 of the CAA: How Energy Efficiency Can Help States Comply 1 Jackson Morris Director of Strategic Engagement

Overview 2 President’s Directive to EPA (6/25/2013) EPA Process for Section 111 Standards State Plans Covering Existing Power Plants Review of Proposed Approaches for EPA Key Issues for PA EE Programs

President’s Directive to EPA New Source Performance Standards (NSPS) Section 111(b) Draft issued on September 20 th Available at: ; NSPS to be finalized “in timely fashion”; Draft Section 111(d) guidelines to states by June 1, 2014; Final Section 111(d) guidelines by June 1, 2015; and Require states to file Secton 111(d) plans by June 30,

President’s Directive to EPA Consult with states, power sector and environmental stakeholders --Questions from EPA to stakeholders re existing plants: Tailor regulations to reduce costs; Develop approaches that allow market-based instruments, performance standards and other flexibilities; Enable use of range of energy sources and technologies; and Maintain reliability and affordability. 4

EPA Process EPA must issue guidelines to the states that have: – Description of system(s) of emissions reductions EPA considers adequately demonstrated; – Degree of emissions limitation achievable, costs, and environmental impacts; – Time periods for compliance; and – Other helpful information. (40 CFR §60.22). 5

EPA Process Section 111(d) calls for a state plan that applies to sources that would be subject to the NSPS for any pollutant if the source were new. State plans are “SIP-like”—reference to SIP provisions of Section 110 of CAA. State plan must establish “standards of performance” for existing sources. 6

Standard of Performance Defined The term “standard of performance” means a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated. §111(a)(1)(emphasis added). 7

8 What Qualifies as a Standard of Performance? Emissions rate limitation applied at the plant level. – Could be output-based limitation (e.g., tons of CO 2 per MWh); – Could be input based (e.g., tons of CO 2 per MMBTu); and – Could be fuel-specific or fuel-neutral.

9 Standard that allows averaging across plants in the category: Some plants would meet the standard, some do better than the standard, and some do worse as long as the average is met. Implement through trading mechanism or portfolio averaging. “Source-based approach” vs. “System-based approach” What Qualifies as a Standard of Performance?

10 What Qualifies as a Standard of Performance? Cap and Trade? – The Bush EPA took the position that cap and trade is allowed as a standard under section 111(d), and this view has not been questioned by Obama EPA. – Clean Air Mercury Rule (CAMR) proposed cap and trade for reducing mercury emissions from coal plants. – President Obama’s Memo to EPA specifically directs EPA to allow “market-based instruments”.

11 What Role for Energy Efficiency and Renewable Energy? State Implementation Plan reference suggests broad latitude, but refers to “system of emission reduction” and “emissions limitation”. President’s memo mentions EE, but with reference to DOE appliance standards. Where do Renewable Portfolio Standards, Energy Efficiency Resource Standards fit?

NRDC’s rate-based program with credit trading, including RE & EE crediting: standards/files/pollution-standards-report.pdf standards/files/pollution-standards-report.pdf RGGI’s cap-and-trade model, which incorporates EE and RE without crediting. Xcel’s Portfolio Approach. CATF’s rate-based program with trading, no EE and RE crediting. 12 Proposals Floated

How does EPA set minimum federal stringency for states to meet in 111(d) plans? – In CAMR, EPA used cap and trade to model impacts of reductions required. – Question is whether it is reasonable to assume states will grant their existing sources flexibility. If reasonable to assume, then stringency should take into account flexibility. 13 Key Issues

Will EPA offer a federal model rule for states? May states allow crediting of avoided emissions through EE and RE? May states allow crediting of reductions outside of the category of sources covered? (Offsets, other sectors). How will states demonstrate equivalency if they choose their own plans? 14 Key Issues

Key Issues for PA Under existing Act 129 programs, what portion of PA compliance could be achieved through EE credits? How would PA compliance be affected by different baseline years? Are existing EM&V protocols sufficient to demonstrate compliance? What incremental EE/DR programs may be attractive and who should fund them? What actions are possible via PUC/DEP administrative action vs. legislation? 15