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Stakeholders brace for White House move on power plant emissions

James DeYoung Power Plant
James DeYoung Power Plant

By Valerie Volcovici

WASHINGTON (Reuters) - Before President Barack Obama unveils a plan to lower carbon emissions from thousands of existing U.S. power plants, stakeholders on all sides of the issue have attempted to make their mark on the regulations.

Electric utilities, environmental groups, large electricity consumers, and states have been working furiously behind the scenes for months to have a say in new rules that will be laid out by the Environmental Protection Agency.

Obama, in a video released by the White House on Saturday, confirmed that he will deliver a major speech on climate change on Tuesday. "I'll lay out my vision for where I believe we need to go - a national plan to reduce carbon pollution," Obama said.

Administration officials have said the White House will use the Clean Air Act to tackle power plants, which account for nearly 40 percent of greenhouse gas emissions.

This comes as no surprise to the companies and states that will have to either comply with or carry out the regulations. For the past few months, they have been working behind the scenes to influence the EPA before it begins what could be a months- or years-long rule-making process.

"The traditional industry response to EPA rule-making is - the EPA puts something out and then we respond to it," said Emily Fisher, a director of legal affairs for energy and environment at electric industry lobby group Edison Electric Institute (EEI). "This is different in that we feel obligated to be more engaged early on."

Fisher said the EPA will be in a "gray area" when it takes its first steps to regulate existing sources because the agency will need to use a rarely used and broadly worded section of the Clean Air Act, known as 111(d).

Under that statute the EPA would set federal emissions guidelines and decide upon the best systems or technologies for reducing emissions. Each state would then be left to set performance standards for its power plants and to determine how the plants will meet those standards.

Because there is little legal precedent for the rule, the agency will rely on a range of external sources for input, said Dina Kruger, a former director of the EPA climate change division and now a regulatory consultant.

EARLY START

Environmental group the Natural Resources Defense Council (NRDC) has developed the most detailed proposal so far.

In December it unveiled a plan in which the EPA would set state-specific emissions rates that would give the states most reliant on coal-generated energy more time to comply.

Dan Lashof, NRDC's climate and clean air program director, said the group wrote the plan to "rehabilitate the reputation of the Clean Air Act," which critics say will raise electricity prices, "and show there is a flexible way to regulate carbon."

Under the plan, a state that currently gets more electricity from coal-fired power plants than cleaner-burning natural gas or renewable energy would set an emissions rate target in 2020 that is higher than for a state that is less coal-dependent. States would then develop their own plans to meet the target.

The NRDC said its plan would cut carbon pollution 26 percent under 2005 levels by 2020 and cost $4 billion, which it said was a fraction of the cost of health and environmental damages from not acting on climate change.

But this approach may be vulnerable to legal challenges, said Robert Wyman, a lawyer at Latham and Watkins in Los Angeles who heads up a coalition of major companies that are also trying to influence the EPA rule-making.

The EPA "lacks the legal authority to differentiate among states in setting the eventual performance standards for specific fuel and technology subcategories," Wyman said.

The National Climate Coalition, which includes companies such as Boeing, Shell and utilities NRG and Midwest Generation, has developed a framework for the EPA that Wyman feels would stand up to potential legal challenges.

Under their approach, the EPA would set separate emission performance standards for coal- and gas-fired power plants.

"The EPA would develop the basic building blocks for coordinated state action while leaving to the states the choice of approach," according to a summary of their plan.

The NCC approach would let utilities calculate average emissions across their range of facilities, which in turn would enable states to use market-based mechanisms, such as trading of emissions permits.

EARLY ACTORS

Several states and certain utilities that have already taken steps to lower carbon levels at their plants will lobby the EPA to get credit for emissions already reduced under states' carbon reduction or clean energy programs.

Xcel Energy, which operates in states with renewable energy mandates including Colorado and Minnesota, estimates that its greenhouse gas reductions by 2020 will be three to four times greater than if it kept its fleet of coal plants and tried to maximize their efficiency under future EPA regulations.

States such as California and the nine northeastern states in the Regional Greenhouse Gas Initiative, which have market-based cap-and-trade systems in place, have also said they will seek equivalency.

The EEI also warned in a white paper on existing power plant rules in 2012 that while the EPA should give companies "flexible approaches" to meet the standard, "some are concerned that flexibility may open the door to more stringent standards."

(Editing by Ros Krasny and Maureen Bavdek)

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