And the Winner is….Cap and Trade

Today the EPA released its rules requiring reductions in greenhouse gases from existing fossil fuel fired electricity generating units (EGUs).  Nominally, the rules call for an overall 30% reduction in these emissions from 2005 by 2030.  The hallmark of the rule is “flexibility” as the EPA looked at the most promising tools for reducing GHGs from these power plants and depending on state circumstances, came up with a different target for each state.  (for instance, Kentucky, which currently has more coal fired power plants per capita than other states has a reduction target over 6 times higher than Washington State, which gets the largest amount of its electricity from hydropower).

The agency names 4 “building blocks” for reduction that a state can pick and choose from in order to make reductions: increased efficiency for fossil fueled plants, substituting natural gas for coal, substituting renewaables for fossil fuels, and end user energy efficiency.  These are all doable and are already happening as noted by the rulemaking.  The agency then takes these factors, looks at the state’s ability to reduce in these areas (giving credit for prior reductions), and proposes a “rate reduction” for each of the fossil fueled EGUs within the state.  Though couched as an individual “rate reduction,” the targets won’t actually be met by getting all fossil fuel fired units in a state to this level, but my taking the rate target, converting it into a total reduction (mass based) and letting the state figure out the best way to do that….in other words, each state has a “cap.”

But though the focus is discussing the four building blocks, the real upshot of the rulemaking comes in the fine print of its 645 pages, wherein the agency announces that states can also use “strategies that are not explicitly mentioned in any of the four building blocks…(e.g. market based trading).” (p. 39) and can combine programs with other states (p. 48).  With the multiple nods to California’s Greenhouse Gas Solutions Act (AB32) the EPA indicates as clearly as it can that states can create or combine with a cap and trade system to meet its own required cap.  In fact, given the state level caps, it is essentially a truism that a cap and trade system between states will be the most cost effective way to generate the reductions.  Presumably this will also allow offsets.

It will be a while before the litigation settles down, but 4 years after a defeat of a comprehensive climate change bill, in some ways, we are back where we started (at least for EGUs).