WASHINGTON – The Obama administration will next week unveil a cornerstone of its climate-change initiative with a proposed rule aimed at allowing states to use cap-and-trade systems, renewable energy and other measures to meet aggressive goals for reducing carbon emissions by existing power plants, according to a report this week in the Wall Street Journal.
Energy companies and others affected by the proposal will be watching for key details, including the percentage by which companies and states must reduce carbon emissions, which is expected to be proposed in a range instead of a single number. The baseline year against which those reductions are calculated will also be closely monitored.
The proposal will be designed to give states, which will administer the regulations, flexibility to meet the benchmarks, as opposed to placing emissions limits on individual plants, according to people familiar with the Environmental Protection Agency's work on the rule.
Central to the strategy of flexibility: the option to include a cap-and-trade component where a limit is set on emissions and companies can trade allowances or credits for emissions as a way of staying under different benchmarks the EPA sets for each state. Power-plant operators could trade emissions credits or use other offsets in the power sector, such as renewable energy or energy-efficiency programs, to meet the target.
The anticipated June 2 release is likely to reverberate across the nation's political, legal and environmental policy landscape as competing interests debate the economic cost and the science of climate change. The EPA is scheduled to complete the rule by June 2015, and states must submit their implementation plans the following year. However, the likelihood of lawsuits and political opposition could upend this schedule.
The proposed rule would affect hundreds of power plants nationwide and is expected to be challenging for utilities with a large number of coal-fired generators, which the EPA says account for about one-third of U.S. greenhouse-gas emissions. Burning coal produces more carbon dioxide than oil and natural gas, but it is also the cheapest and most plentiful source for power, providing 40% of the nation's electricity.
Politicians from coal-producing states are likely to fight the proposal, as are power companies that burn coal and business groups that say the rule could increase costs. Congressional Republicans and conservative groups have criticized cap-and-trade policies as "cap-and-tax," saying that if companies have to pay for emissions allowances, it amounts to a hidden tax on them, which could be passed to customers.
Some utilities supported cap-and-trade legislation that failed in Congress a few years ago because it was the most flexible way to cut emissions. The House of Representatives in 2009, controlled by Democrats at the time, passed cap-and-trade legislation but it ended up dying in the Senate in 2010 where criticism gained traction and scuttled the initiative.