EPA CO2 rule backs emissions trading

President Barack Obama today will issue final CO2 regulations for existing power plants that seek to encourage use of emissions trading.

Obama said the rules, known as the Clean Power Plan, represent "the biggest most important step we have ever taken" to address climate change.

Obama is scheduled to speak at a White House event on the rule at 2:15pm ET.

The Clean Power plan will require each state to meet a CO2 emissions rate target by 2030, which the US Environmental Protection Agency (EPA) says will lead to about 32pc reduction in power plant emissions from 2005 levels, up from 30pc in the version proposed last year. EPA says states will be free to use a wide range of measures to meet the targets, including emissions trading and increased use of renewable energy.

With the final rule, EPA is putting significant emphasis on emissions trading by issuing state-specific CO2 rate targets, as well as mass-based targets measured in short tons. Emissions trading programs such as the Regional Greenhouse Gas Initiative use tonnage targets for compliance, as they tend to be easier to measure and track than rate-based targets.

The rule includes "trading ready" provisions to allow for interstate trading without formal agreements between states.

"EPA is committed to supporting states in the tracking of emissions, as well as tracking allowances and credits, to help implement multi-state trading or other approaches," the agency said.

The rule gives states until 2022 to meet interim CO2 targets, originally proposed to take effect in 2020, and it will give states until 2018 to submit their final compliance plans to EPA, according to a summary released this morning by the agency. But initial plans would be due to EPA by September 2016.

The final rule will offer incentives for states to act early in the form of allowances or emissions rate credits for new renewables and energy efficiency programs that "deliver results" in 2020-21, EPA said.

The final rule seeks to address concerns about grid reliability by including a "safety valve" that would allow a regulated power plant to provide needed generation in response to an "unanticipated event or other extraordinary circumstances," EPA said. States must also demonstrate that their compliance plans consider possible effects on grid reliability.

While many of the changes will be welcome by utilities and states, the overall rule will run into strong resistance.

"It still presents significant intrusions into state affairs, endangering consumers, manufacturers, hospitals, schools, and the very reliability of the system," said Scott Segal, an electric industry lobbyist at Bracewell & Giuliani.

The Edison Electric Institute, the main trade group for the country's investor-owned utilities, said it is withholding final judgment until it can review the final regulations. "Ultimately, it is imperative that the final guidelines respect how the electric system works and provide enough time and flexibility to make the necessary changes to achieve carbon emission reduction," EEI president Tom Kuhn said.

Environmental groups cheered the rule ahead of its release. "The Clean Power Plan is a visionary policy that sets our nation on the path to cleaner, renewable energy for the future," said former Obama adviser and one-time EPA administrator Carol Browner, chair of the League of Conservation Voters board.

EPA is also eliminating the energy efficiency "building block," one of four it used to calculate each state's emissions target in the original proposal. The final rule retains the other three building blocks, which include heat rate improvements at power plants, increased dispatch of existing natural gas-fired generation and greater use of renewable energy.

mb/di

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