Photo by Richard Caperton of Opower, who joined AEE's Malcolm Woolf and Arvin Ganesan in the audience for the announcement. 

The big news came early this week. On Monday, President Obama announced the final version of the Clean Power Plan, the Environmental Protection Agency’s new rule regulating carbon dioxide emissions from power plants under section 111(d) of the Clean Air Act. Here at AEE, our experts are poring over the nearly 1,500-page rule, making sure we can help our members make the most of the opportunity for advanced energy growth created by the new regulation. But this week, the media has been writing the first draft of Clean Power Plan history – what the plan is, and what the reaction to it has been thus far.

For one layperson’s understanding of the rule, there is this explainer from Brad Plumer of Vox, “How Obama’s Clean Power Plan actually works – a step-by-step guide.”

“It’s easy enough to describe the basics of the Clean Power Plan,” Plumer writes. “Heck, we can do it in a single paragraph.”

The EPA is giving each state an individual goal for cutting power plant emissions. States can then decide for themselves how to get there. They can switch from coal to natural gas, expand renewables or nuclear, boost energy efficiency, enact carbon pricing ... it's up to them. States just have to submit their plans by 2016-2018, start cutting by 2022 at the latest, and then keep cutting through 2030. Oh, and if states refuse to submit a plan, the EPA will impose its own federal plan, which could involve some sort of cap-and-trade program. Done.

We at AEE are reading the final rule a bit differently – and very different from the rule as it was proposed over a year ago. The final Clean Power Plan does not set out to “give each state an individual goal,” but rather sets out to establish a national standard for each type of fossil-fuel power plant (coal and natural gas, primarily) under the jurisdiction of the Clean Air Act.

How exactly did EPA set these standards, and how do they translate into state targets? That is a little bit more complicated. 

It all comes down to a formula called the “best system of emission reduction,” or BSER. Very, very briefly, EPA divided the country into the three interconnections of the power grid: Eastern, Western, and ERCOT (which is the grid for most of Texas). EPA then calculated emission rates from fossil fuel generation (coal and natural gas separately) in 2012, which served as the baseline for further calculations to reduce rates for each generation type. Then the EPA applied a set of Building Blocks – numbered 1, 3, and 2, in that order – to determine how much each emission rate could be reduced in each interconnect by various means.

Building Block 1: Heat Rate Improvement

This building block is the most traditional of all the measures. At its root, it’s just making existing coal power plants more efficient, so they burn less fuel for the amount of electricity they generate. Heat rate improvement includes technological improvements like equipment upgrades and intelligent soot-blowing systems, but also better training for staff, smart systems to use data to improve performance, and cleaning off the fans every once in a while.

Building Block 3: Renewable Energy

This building block incorporates renewable energy into the energy mix. EPA used NREL capacity factors for renewable energy (windier states can generate more wind power), historical growth rates of renewable technologies, and some artificial restrictions on the growth of variable renewables to predict the potential future growth. The growth was broken down regionally using an energy sector model.

Building Block 2: NGCC (Natural Gas Combined Cycle)

Building block 2 phases in a ramp-up in the use of existing natural gas combined cycle turbines (NGCCs for short), displacing higher-emitting coal plants. These natural gas turbines are the most efficient form of fossil-fuel electricity generation. (Learn more about the different types of natural gas turbines here.) Increasing the dispatch of existing NGCC power plants to 75% of summer load displaces a lot of higher-emitting coal-fired generation.

But why in that order?

Emission rates are rates, which is to say they are calculated using a fraction. The denominator is the amount of electricity generated, and the numerator is the resulting emissions. For all renewable energy, which has no emissions, the denominator increases but the numerator stays the same, so the rate decreases. Where that happens in the calculation matters.

Then what?

After applying the emission reduction potential of the building blocks to the coal and natural gas rates separately in each interconnect, EPA selected the least stringent of the resulting rates across the three interconnects. These separate coal and natural gas rates were the national standardized targets for the two technologies.

States have the option of creating a plan in which fossil-fueled power plants must meet the national coal or gas emission rates, or a statewide emission rate target that EPA set according to the current generation mix within the state. How states meet those targets is up to them. States also don’t have to use the measures that make up the building blocks. Indeed, EPA made a point of stressing the value of end-use energy efficiency – which was a fourth building block in the draft rule, but dropped in the final – as a low-cost compliance measure that also produces savings for electricity customers.

While states get to choose how they achieve these overall emission reductions from fossil-fuel plants, there are limits. If the states don’t do it, EPA will enforce a federal plan instead that will require power plant owners themselves to meet emission rate targets.

To incentivize early state plan development, EPA created the Clean Energy Incentive Program that offers matching credit for renewable energy generation from new installations (commencing construction after a state plan is submitted to EPA) in 2020 and 2021, prior to the start of the official compliance period in 2022. EPA gives double credit for energy efficiency improvements in low-income communities that reduce emissions in those two years.

Overall, the final rule is structured to push states toward renewable energy and energy efficiency, along with underutilized natural gas plants, as the way to reach the mandated goals, rather than a large-scale build-up of new natural gas capacity (as some were predicting under the draft plan).

Some interesting tidbits

The final version of the Clean Power Plan does not cover Alaska, Hawaii, Vermont, nor the District of Columbia. Hawaii and Alaska will eventually be covered under a later version of Clean Power Plan, but they are special cases. Each has an electricity system that is less a grid than a series of islands (in Hawaii’s case, literally!). Vermont and D.C. will not be covered, as neither contains a fossil-fuel power plant inside its borders. The way the rule is written, the states are impacted based on facilities located within their borders, not their energy use.

One way for states to meet their goals might be to join or create regional carbon reduction programs like the currently nine-state Regional Greenhouse Gas Initiative (RGGI). The Richmond Times-Dispatch editorialized this week that joining RGGI may be the best compliance option for Virginia. (And it was noted that New Jersey’s Governor pulled his state out of RGGI – a process he started that became official as the final CPP rule came out.)

The rule comes “trading-ready,” as it allows for various ways that states, or even power plants themselves, can swap the value of the emission reduction measures they undertake. Because this is a national standard, trading works best if an emissions reduction credit (ERC) is measured the same way in Oklahoma as it is in California, allowing states to exchange ERCs for ERCs rather than ERCs to oranges.

Reactions to the Clean Power Plan

When the EPA’s proposed rule was released last year, AEE and other groups pointed out that the EPA was probably undercounting the potential contribution of advanced energy technologies, especially underestimating renewable energy based its pace of growth. In the final rule, that changed in a big way.

“We were not surprised to see EPA substantially increase the contribution of renewables in meeting Clean Power Plan rules,” AEE’s SVP of Policy and Government Affairs Malcolm Woolf, told the Washington Post. The approach to calculating the contributions from renewables under the proposal badly understated the current size of the renewables fleet and the growth trajectory of this industry that is driven by customer demand and rapid cost declines that have made these technologies cost competitive today.”

Some states have decided to fight the rule in court. Sixteen states, led by West Virginia’s attorney general, have asked the EPA to put the rules on hold. The states are Alabama, Arizona, Arkansas, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Carolina, South Dakota, Utah, Wisconsin, Wyoming, and West Virginia.

AEE partner organizations sounded more positive notes in many states. Matt Elliot, senior policy advisor for the Keystone Energy Efficiency Alliance, said that Pennsylvania’s economy has been growing with advanced energy for some time now. “This (plan) means that can continue to boom into the future," he said in an interview with the York Dispatch. The Philadelphia Inquirer’s editorial on the issue, titled “Better fuels than fossils,” features a cunning picture of a dinosaur imploring, “there’s no need for this country to act like some dinosaur,” and encourages governors who oppose the plan to “pick up their phones to talk new energy companies into coming to their states.”

Steve Patterson, executive director of the Arkansas Advanced Energy Association, extolled the final rule as an improvement over the draft – and a potential boon for the Natural State. “In the agency’s final rule, EPA admitted that its final rule is more of a ‘glidepath’ for Arkansas through 2030 rather than the ‘cliff’ that was proposed last year. AAEA is now more confident than ever that the Clean Power Plan’s carbon reduction targets for Arkansas can be achieved while producing lower energy costs and more jobs for Arkansans.”

In Nevada, Jennifer Taylor of the Clean Energy Project expects the Clean Power Plan to bring more jobs and investment to the state. In an op-ed published Wednesday in the Las Vegas Sun, Taylor writes that advanced energy investment in Nevada has a return of better than 10-1. “Nevada’s renewable and energy-efficiency sector already has seen more than $5.5 billion in investment since 2010, and the state has nearly 22,000 employed in green jobs, making clean energy one of the fastest growing industries in the state,” she said.

As the President pointed out in his speech on Monday, the Clean Power Plan is not a departure from the current trajectory of the U.S. power system, but an acceleration of what is already happening:

“Over the past several years, America has been working to use less dirty energy, more clean energy, waste less energy throughout our economy. We've set new fuel economy standards that mean our cars will go twice as far on a gallon of gas by the middle of the next decade. Combined with lower gas prices, these standards are on pace to save drivers an average of $700 at the pump this year. We doubled down on our investment in renewable energy. We're generating three times as much wind power, 20 times as much solar power as we did in 2008.”

These numbers are borne out in AEE’s annual Market Report, Advanced Energy Now. In the 2015 Market Report, the U.S. advanced energy market grew to nearly $200 billion from 2014’s $169 billion. The Clean Power Plan builds on existing trends in the deployment of advanced energy technologies that not only reduce emissions but also improve the electric power system and contribute to a growing economy.