How States Implement the Clean Power Plan is Critically Important to Industries Outside the Power Sector
7 Pages Posted: 16 Aug 2015 Last revised: 23 Jun 2017
Date Written: August 14, 2015
On August 3, 2015, President Obama announced EPA’s “Clean Power Plan,” establishing guidelines under section 111(d) of the Clean Air Act pursuant which states will be required to regulate CO2 emissions from existing power plants. Under the structure of the statute, EPA’s guidelines establish the amount of the required emissions reductions and states are given considerable flexibility in choosing the policy construct for achieving those reductions. The states’ choice in how to implement the standard will have a significant impact on industries outside of the power sector, who are likely to become subject to future emissions standards under section 111(d). One of the major choices faced by each state will be whether to adopt a rate-based standard or a mass-based standard. Because states are likely to allow trading of emissions credits to comply with either type of standard, it is important for other industries that states adopt a mass-based standard. A rate-based standard in terms of lbs CO2/MWh will not be fungible or tradable with a standard for another industry expressed in terms of lbs CO2/product produced. A mass-based standard expressed in the fungible terms of lbs CO2 will allow trading across industries and across states. Because the power sector represents two-thirds of greenhouse gas emissions from stationary sources and other sectors involve far fewer emissions and sources, without the power sector there may be an insufficiently large market to facilitate trading for other sectors. A rate-based standard will also prevent use of auctions both to assure a vibrant trading market and to allow allowance allocation mechanisms to alleviate adverse impacts upon industries in international markets or to generate income to promote other purposes.
Keywords: Clean Power Plan, greenhouse gases, climate change, pollution trading
JEL Classification: K33, K23, Q25, Q48
Suggested Citation: Suggested Citation