The Environmental Protection Agency is expected to be sued for the carbon emission rules for existing power plants it is scheduled to roll out in early June, but who the plaintiff will be depends on whether the agency uses a broad scope of what it can regulate on the electric grid through one section of the Clean Air Act.
At issue is whether the EPA can take an "outside the fenceline" approach to regulating power plant emissions, a term that refers to imposing rules on the electric power sector that go beyond the smokestack. That could mean requiring that the users of electricity do it less -- a position the electric utility industry says would be difficult -- by installing "smart" devices, adding more renewable electricity or making improvements to transmission lines to curb "load loss" when power travels from generators to utilities.
The electric utility industry says the tactic is legally suspect, but environmental and public health advocates say it's necessary.
Most experts believe the EPA is leaning toward using that scope, which could significantly reduce the amount of coal used to generate electricity in the U.S. Doing so would rely heavily on administrative interpretation of the little-used section 111(d), the Clean Air Act clause the EPA is using to establish the rule that's the centerpiece of President Obama's climate strategy.
Little concrete information about the upcoming rule is known. Insiders say the administration is looking to be flexible by including a menu of options from which states can choose to comply with the forthcoming standard. The EPA would determine whether state plans are acceptable.
Some also believe it will include a short-term emissions reduction target, coupled with a long-term goal. It's not clear which baseline year the EPA will use for its reductions — the electric utility industry is hoping for 2005, which has become a de facto marker for carbon emissions at the U.S. and international levels. Starting from 2005 would allow states to use renewable portfolio standards and energy-efficiency upgrades as credits toward meeting the standard.
Rumors abound that Obama will personally announce the proposed rule -- finalization remains months away -- on June 2, seeking to put his stamp on what has become a legacy issue for him. That has lent credence to the understanding that the rule will go outside the fenceline, a move that would prompt far steeper reductions in greenhouse gas emissions that drive climate change.
Implementing a plan like that would require a broad interpretation of 111(d), which is fewer than 300 words. But the EPA has recently won several court battles, which has emboldened the agency.
One of the most challenging legal sticking points is determining what qualifies as a "system," as the main portion of section 111 says that the EPA must use the "best system of emissions reduction" available.
To industry officials, "system" refers to a certain technological system that can be applied only to the point of emissions, which are electric power plants themselves.
"Where does it end?" said Scott Segal, a partner with Bracewell & Giuliani and director of electric utility industry group Electric Reliability Coordinating Council, who questioned whether the EPA would be as flexible as it has presented itself when it comes to assessing state implementation plans.
"If the agency adopts this approach there will not be one area of industry, households or agriculture that would be outside of the eventual reach of the EPA's regulatory program," he said.
The Natural Resources Defense Council, however, has argued, "nothing in the language of Section 111 limits the EPA to considering measures implemented at the source itself when setting standards or guidelines. The term 'best system of emission reduction' points toward a broader perspective."
"Inside the fenceline" approaches, such as requiring energy-efficiency upgrades at power plants or requiring more use of natural gas relative to coal, would reduce greenhouse gas emissions by a few percentage points.
But that would be a drop in the bucket for U.S. power sector emissions, which contribute 40 percent of carbon pumped into the atmosphere each year, and therefore would not constitute the "best" system available, environmental groups have said. On top of that, some experts have argued congressional changes to the Clean Air Act have signaled lawmakers' intent to broaden the law's scope.
"I also think the agency is just as vulnerable to a lawsuit for too narrow an interpretation of that statute," Tim Profeta, director of the Nicholas Institute for Environmental Policy Solutions at Duke University, said on a conference call with reporters.
Still, there's little regulatory history with 111(d). The industrial sectors it has been applied to have been fairly small, and its prescription fairly narrow. The uproar on existing power plants is going to be far greater than when sulfuric acid plants, kraft pulp mills and aluminum plants got slapped with 111(d) regulations.
"The EPA is a bit more vulnerable legally the broader they go," one electric utility industry source said.
While industry groups say 111(d) has been used narrowly and only at the point of emissions in the past, environmental groups point to a December 2000 EPA standard for solid-waste incinerators as an example of the agency using 111(d) to apply an "outside the fenceline" tactic.
That rule, which allowed states to submit plans for reducing solid waste that EPA had to approve, drew from a different section of the Clean Air Act. It did, however, refer to 111(d) when instructing the industry to consider other ways to lessen the amount of waste coming into the facility.
Regardless, the relatively short track record of 111(d) combined with its brevity means the EPA has its work cut out for it if the agency goes with the broader scope.
Section "111(d) is a short provision and EPA needs to interpret it. We’ve seen the courts have allowed a degree of interpretation," Kyle Aarons, a senior fellow with the Center for Climate and Energy Solutions.