EPA struggles to account for cross-state emissions reductions in power plant rule

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States that import their electricity from neighbors are giving the Environmental Protection Agency headaches when it comes to crediting them for emissions reductions under the agency's proposed power plant rules.

As it stands, the proposed EPA rule would not give a state credit for instituting an energy efficiency program if the emissions reductions occur at a power plant in another state. Instead, the state hosting that power plant would receive the benefit, even though it did nothing.

That's a problem for states that import their electricity from others, and it's one they're increasingly voicing. Failing to address it could discourage states from pursuing energy efficiency programs, which the EPA is banking on to realize its projected savings in customers' electricity bills by the time the rule is fully implemented in 2030.

"This is absolutely a big deal," said Kyle Aarons, a senior fellow with the Center for Climate and Energy Solutions, who has looked closely at interstate electricity flows and how the EPA rule would apply to such states.

Jeff Holmstead, a former EPA air and radiation administrator under President George W. Bush, said states have cited the cross-border issue as an example of the proposed rule being unworkable.

"There are a lot of states that are unhappy about this. EPA is struggling with a number of issues, and that's one of them," said Holmstead, whose clients at lobbying firm Bracewell & Giuliani include several energy industry companies fighting the proposed rule.

Some states import a good deal of their power from elsewhere — Maryland, for example, gets 43 percent of its electricity from out of state. But the EPA proposed rule sets emission-cutting targets for individual states, even though electricity delivery doesn't respect those borders.

The EPA has generally figured out how it would track transfers of renewable power across state lines, experts said, as they would tally up existing contracts and renewable energy certificates used in states that have renewable power mandates.

But calculating the carbon reductions from energy efficiency programs in one state that result in emissions reductions in another is proving trickier.

The energy efficiency portion to the proposed rule is key. The EPA is assuming a 1.5-percent annual reduction in electricity use due to energy efficiency programs, a projection many experts call ambitious. If the agency can't figure out how to resolve the crediting issues, it could jeopardize meeting those marks.

"I think EPA is receptive to comments on every issue. But this one specifically I think they're looking for some input here, and they're looking for some suggestions since energy efficiency is such an important part of the Clean Power Plan," said Aarons, referring to the name of the proposed rule that aims to cut power-sector carbon emissions 30 percent below 2005 levels by 2030.

In remarks to the Washington Examiner, the EPA stressed several times that it's taking comments from states and others to address the shortcoming. For an agency that's vigorously defended its proposed rule in the public sphere from critics on the Right and in industry, it's a rare admission that more work is ahead.

The EPA did highlight some options for states that would allow them to count emission reductions across their borders that result from energy efficiency programs implemented within their states.

States could engage in multi-state or regional programs, agency spokeswoman Liz Purchia said. A potential middle ground may exist in which states coordinate with each other on limited agreements but don't commit to a broader, multi-state program.

"EPA has proposed allowing states to adopt multi-state plans to meet a joint emissions performance goal," Purchia said in an email. "States in a contiguous electricity grid region that choose this option would not have to attribute the effects of renewable energy and end-use energy efficiency programs among states in the region."

The EPA has maintained that a broader, regional program would be the easiest way to comply with the proposed rule, and many analysts agree. The interstate electricity issue brings that to the foreground.

But banding together for regional programs recalls memories of cap-and-trade legislation that passed the House in 2009 but failed in the Senate. Conservatives on Capitol Hill and in state legislatures across the country have resisted efforts carrying even the faintest hint of the scheme.

That means, as far as EPA is concerned, finding that middle ground is key for the viability of the proposed rule, said Jeremy Tarr, a climate and energy policy associate with the Duke University Nicholas Institute for Environmental Policy Solutions.

"Some states want the benefits that would come from multi-state planning but will not be able to have the political will or administrative interest to join in a regional plan," Tarr told the Examiner. "So they're looking for that middle ground."

The solution could well be a matter of accounting methods, Aarons said.

In its proposed rule, the EPA noted that a state could account for "only those [carbon dioxide] emission reductions occurring ... in the state that result from demand-side energy efficiency measures implemented in the state." Aarons said it might not be possible for the state that hosts the power plant to take credit for reductions because it didn't do anything, but the state that instituted the energy efficiency program might be able to prove the reductions were a direct result of its actions.

But even then, the agency could have a hard time determining where emissions reductions come from as a result of energy efficiency programs. That's because power markets are fluid, as utilities draw electricity from all over the grid to plug supply gaps.

"There's really no way to know in advance where the emission reductions are going to occur. There will be a fair amount of controversy over how you credit those things," Holmstead said.

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