Fight over power plants has parallels to fuel-economy push in Obama’s first term

Source: Jean Chemnick, E&E reporter • Posted: Thursday, January 17, 2013

When he entered the Oval Office four years ago, President Obama gave environmentalists something they had long sought: a presidential commitment to much stronger fuel economy standards.

The same advocates now hope Obama’s second term will bring a similar fervor for reining in carbon dioxide emissions from the nation’s current fleet of power plants, which contribute 40 percent of America’s carbon output.

“What we’re asking the administration to do is to treat existing source standards in the same way that they treated the car standards in the first term,” David Doniger, policy director of the Climate Center at the Natural Resources Defense Council, said in a recent interview. “It’s the big item.”

The second tranche of car standards was only finalized in August, so Doniger said he hoped to see Obama hit the ground running on the power plant rule on “Day Two” of his second administration.

“This is a project that will take the full second term, and it needs to be started right at the beginning of the second term, in the same way that the car standards were started at the beginning of the first term,” he said.

Conrad Schneider, advocacy director for the Clean Air Task Force, echoed this hope.

“We are in consensus in the environmental community, maybe for the first time ever, on what the No. 1 priority for this administration is,” he said in a recent interview. “And that is to address carbon pollution from existing coal plants.”

The existing power plant standard was the only specific policy item mentioned in a recent letter by a coalition of environmental groups to Obama, signed by NRDC, CATF and others.

“You have the authority under existing law to achieve urgently-needed reductions in the carbon pollution that is disrupting our climate and damaging our health,” they wrote, proposing that the rule cut emissions by at least 25 percent by 2020 across the existing fleet. Late last year, NRDC offered a suggestion on how to do that (E&ENews PM, Dec. 4, 2012).

U.S. EPA is widely expected to comply with the terms of a 2010 settlement agreement that requires the agency to write the existing power plant rule, together with a rule for future power plants that was proposed last year and is due to be finalized early this year.

But the controversial Clean Air Act rule may bring with it inherent challenges that the tailpipe emissions rule did not, and that might discourage the White House from playing the same role in its development.

The White House took a very central role in the tailpipe emissions rulemaking, setting the pace with executive office action that the agencies then followed.

Obama’s involvement began his first week in office, when he issued a pair of memorandums on Jan. 26, 2009, directing the Department of Transportation to finalize new fuel economy rules and EPA to reconsider California’s request for a waiver that would allow it to promulgate its own tailpipe emissions rules for greenhouse gases. Former President George W. Bush’s EPA had previously rejected California’s bid.


“It was a very clear direction,” Doniger said. “It didn’t have the content spelled out. It was not a proposal. But it was a direction to go do it.”


EPA approved California’s waiver in June and issued its endangerment finding in December, paving the way for the agency to write its own tailpipe emissions rules for greenhouse gases.


The White House orchestrated an agreement among automakers, states and other stakeholders the following May, which harmonized state and federal vehicle standards and provided for the coordination of DOT’s corporate average fuel economy (CAFE) standards with the new EPA standards.


A second set of standards was completed in August that will extend that program through model year 2025.


John DeCicco, a self-described “CAFE veteran” who worked on automotive environmental policy in Washington for the Environmental Defense Fund, among others, called Obama’s fuel economy deal a “huge cow-herding exercise.”


But he said it stemmed from the industry’s desire to find regulatory certainty amid a changing landscape where increased regulation had become inevitable.


The previous administration had begun to consider raising the standards, if only modestly, to address energy security concerns. Then in 2007 Bush mentioned the need to “reform and modernize” fuel economy standards during his State of the Union address.


DeCicco, who is now on the faculty at the University of Michigan, said this signaled to the industry that its allies in Washington would no longer be able to keep fuel economy standards where they had been for nearly three decades.


“To the auto industry, it was like their nightmare had come true,” DeCicco said. “Their longtime friends, the Republican administration, had turned on them because the political pressure to do something on energy security was so high at that time.”


Later that year, Congress approved and Bush signed into law the Energy Independence and Security Act, which set a fleetwide gasoline mileage standard at 35 miles per gallon by 2020.


But the industry that once voiced qualms about meeting that standard signed on to Obama’s agreement calling for 35.5 mpg by 2016 — less than three years later — in part to avoid a “pincer movement,” as DeCicco put it, by California, which was pushing for its own tailpipe emissions standards. Automakers would have had to bow to California’s separate, higher standards in order to compete for its large market share. “That created the leverage for when Obama came in,” DeCicco said.


There were other factors that greased the skids for the first-term deal on fuel economy but that might be absent from the discussion on power plants.


For one thing, two of Detroit’s Big Three had just been the recipients of a bailout by the U.S. taxpayer. Former EPA Administrator William Reilly said in a recent interview that that may have played a role.


“If the government owned the utilities as it did the car companies, it would probably make it a little easier,” he said.


And the fuel economy deal followed a 2008 spike in gasoline prices that some experts blamed for helping bring about the Great Recession.


Michael Livermore, executive director of the Institute for Policy Integrity at the New York University School of Law, said the public accepted that higher fuel economy standards would save them at the pump. “They have a lot of environmental benefits, but they also generate a lot of savings for consumers,” he said. “And that’s different from what you’re talking about with greenhouse gases” from power plants.


While the greenhouse gas rules are economically justified, especially when considering the cost of adapting to climate change, “it’s not like putting money in consumers’ pockets,” Livermore said.


“That energy security dimension on the politics is a very powerful driver for how policy has developed for the auto sector, compared with the utility sector,” DeCicco concurred. “There’s just not an equivalent.”


Advocates for power plant rules can talk about the health care costs that are avoided when the air gets cleaner, but it’s a more complicated message, he added.


Bryan Hannegan, vice president of environment for the Electric Power Research Institute, a think tank, said there were also several important differences between the rules themselves, which made the car rule less controversial and more manageable than the power plant rule was likely to be — and therefore a better candidate for direct presidential involvement.


For one thing, Hannegan said, CAFE sets standards only for new cars — not the existing fleet, as the power plant rule will seek to do. For another, he said, the Energy Policy Conservation Act, which provides for CAFE standards, allows for the consideration of a variety of factors including the economic consequences of the rule, while in most cases the Clean Air Act does not.


EPA’s greenhouse gas tailpipe emissions rules fall under the Clean Air Act, and they are coordinated with DOT’s CAFE standards.


CAFE standards average over a manufacturer’s entire fleet, giving carmakers additional compliance flexibility and cost savings, Hannegan said. But the U.S. Court of Appeals decision last year to remand a Clean Air Act rule for smog- and soot-forming emissions that included an averaging component casts fresh doubt on EPA’s authority to use one.


And then, political realities have changed since Obama was first elected. The tea party has gained steam, the House is in Republican hands and Obama has only just begun talking about climate change again.


Livermore said all these factors mean EPA is likely to take the lead on the rule, rather than becoming “part of an overarching political strategy germinating from the White House that drags EPA along.”


Utilities may profit from a seat at the table


Most observers agree that a grand bargain of the same kind that includes buy-in from the regulated industry is less likely for power plants. But utilities are likely to participate in writing the rules nonetheless.


Joe Mendelson, who helped bring about the regulation of greenhouse gas emissions under the Clean Air Act, said there are actually some similarities between the position of the automotive industry in 2010 and the one utilities find themselves in now.


“It’s obviously not exact parallels, but you’re looking at an industry sector that’s dealing with some pretty significant changes, and that has got regulatory pressure hanging out there with both EPA and regional programs,” he said.


Utilities are more heterogeneous than automakers, Mendelson said, with different interests and concerns, but they should still start shifting their efforts away from fighting EPA greenhouse gas regulation in court and by other means, and toward earning a seat at the negotiating table.


“The legal situation is such that the law’s not going to change, so it becomes incumbent on them to become engaged in shaping what the regulations look like going forward,” said Mendelson, who will join the Senate Environment and Public Works Committee staff as chief climate counsel next week.


“It may not be a peace accord type of agreement, but the process that’s going to go forward will have to yield that kind of outcome, I would expect,” he said.


CATF’s Schneider said even power companies with coal-heavy portfolios have something to gain from talking to EPA.


“I wouldn’t rule out the possibility that even companies with coal generation could see themselves being advantaged by rules like this,” he said.


For example, many of the same utilities are also facing EPA rules for mercury, smog, soot and other emissions, and knowing now what their carbon-related requirements will be might head off unnecessary investment in a power plant that they might otherwise choose to close, he said.


“They might avoid stranding costs in one emissions control or the other if they knew there was a carbon rule coming,” Schneider said.


Sen. Tom Carper (D-Del.) worked for years on legislation that would have coordinated Clean Air Act rules for a variety of pollutants, but he stopped introducing his “Three-P’s” bill in the previous Congress, citing a lack of utility interest. Schneider said that was exactly the kind of effort utilities might want to revive now.


“There were enough shortsighted utilities that kind of took the head-in-the-sand, drag-the-feet perspective that really weighs down that effort,” he said. “And I think that to the extent that companies and their ratepayers are going to pay the cost of that now — if there are costs in this — then that will show that Carper was wise and that they were not.”


Hannegan saw a different opportunity for collaboration. The Clean Air Act will prove a cumbersome way to limit greenhouse gases, he predicted, and proponents of regulation will find they have to ask Congress to approve amendments to it.


“At that point, you do need that coalition,” he said. “So that when members of Congress turned to utilities in their district, the utilities are supportive, and they say, ‘This is the right thing for the country and the right thing for us.'”