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1 Attn: From: Environmental Protection Agency, EPA Docket Center (EPA/DC) Docket ID No. OAR Environmental Protection Agency Mail Code 28221T 1200 Pennsylvania Avenue, NW Washington, DC CACI Energy & Environment Council Date: December 1, 2014 Re: Docket ID: EPA-HQ-OAR ; Proposed Rule - Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units This memorandum summarizes the Colorado Association of Commerce & Industry s (CACI) comments on the President s proposed Clean Power Plan (CPP) to be administered by the Environmental Protection Agency (EPA). Background: As the voice of business and as Colorado s Chamber of Commerce, we believe the EPA lacks the legal authority to implement the Clean Power Plan (CPP) under Section 111(d) of the Clean Air Act (CAA). The proposed rule inappropriately and greatly expands regulatory burdens and costs to both our electricity producers and the consumers, with no demonstrable benefit in the United States or abroad. Not only will consumer budgets be hurt by this proposed rule, businesses and manufacturers, producers, employers and the innovators of our communities will be hit even harder with considerably higher compliance costs, higher business costs and we believe this rule will force some of our greatest job creators out of state or overseas. Coloradans value their business spirit, stewardship of the land and their ability to turn ideas into benefits for the economy and their state. Given this understanding and pro-business environment, CACI believes this rule creates unnecessary costs and burdens for electricity providers and those businesses who rely on affordable energy. Although this rule is aimed at coal-fired plants, it will negatively affect virtually all sectors of the nation s economy and not just Colorado. Concerns: The U.S. truly needs an all-of-the-above energy strategy to ensure we are responsibly developing energy sources while meeting consumer demands, protecting the environment and modernizing extraction and refining processes through market-led efficiencies. This means adopting policies that encourage development of all energy source options, without favoring one specific source over another. By allowing businesses and consumers to self-select, 1

2 we encourage energy-efficiency by allowing consumers, not the EPA or the federal government, to choose preferred sources. Allowing consumer choice prevents the inefficiencies that inevitably come with government-led, command and control regulation. The Clean Power Plan (CPP) will increase energy costs across the board. By the EPA s own admission, the CPP will increase energy prices by an average of 6-7% in 2020, and as much as 12% in some locations. EPA suggests annual compliance costs of between $5.4 billion and $7.4 billion in 2020, rising up to $8.8 billion in We note that these figures are power sector compliance costs only, and fail to reflect or capture the subsequent adverse spillover impacts of higher electricity rates on our nation s overall economic activity and perhaps most importantly, the higher rates that will be forced upon those already choosing between heating their homes and feeding their families. While the EPA acknowledges high expected costs will be realized should the proposed rule be implemented, independent analyses have shown energy prices could be substantially higher than EPA s estimates. An analysis by NERA Economic Consulting indicated that average U.S. electricity prices would increase by 12% per year and the total costs of the rule could be between $366 billion and $479 billion over a 15-year timeframe. 1 Many of these costs will have to be absorbed by residential, commercial and industrial energy consumers who will not only pay more for energy, but could also be forced to purchase equipment for compliance. Moreover, higher energy prices disproportionately harm low-income and middle-income families, whether it s the increased cost of home heating or as reflected in higher food prices. In comments submitted to the EPA by the Teamsters union and unions representing the iron workers, boilermakers, electric workers, miners and truckers, they found the Proposed Rule would result in a direct loss of 52,000 jobs in the electric utility, mining and rail sectors due to plant closures from this rule. They see an additional 100,000 indirect jobs at risk for loss in communities affected by the closures. Job losses would be concentrated in, relatively poor, rural areas that are least able to afford the loss of high-wage skilled jobs. Since 2001, energy costs for middle-income and lower-income families have increased by 27 percent, while their incomes have declined by 22 percent. 2 The EPA s proposed rule will further widen this gap. Regulatory costs will not ensure meaningful reductions in global GHGs. EPA s regulations will impose billions of dollars in costs on the U.S. economy but fail to meaningfully reduce CO 2 emissions on a global scale. For example, the projected CO 2 emission reduction from EPA s proposed rule is, at most, 555 million metric tons (mmt) in 2030, which represents only 1.3 percent of projected global CO 2 emissions in that year. 3 This reduction in 2030 would offset the equivalent of just 13.5 days of CO 2 emissions from China. 4 1 NERA Economic Consulting, Potential Energy Impacts of the EPA Proposed Clean Power Plan, October Available at: EPA, Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for Modified and Reconstructed Power Plants, June 2014; EIA, International Energy Outlook 2013 (projecting global emissions of 41, 464 mmt in 2030). 4 The Energy Information Administration projects that China will emit more than 14 billion tonnes of CO in Source: 2

3 Meanwhile, the U.S. has led the world in reducing CO 2 emissions. Since 2005, U.S. emissions have fallen by 13 percent while China s have grown by 69 percent and India s have increased by 53 percent. 5 International emissions will only continue to grow rapidly between 2011 and 2030, CO 2 emissions from non-oecd nations are projected to grow by nine billion tons per year. 6 In other words, for every ton of CO 2 reduced in 2030 as a result of EPA s proposed rule, the rest of the world will have increased emissions by more than 16 tons. Energy Reliability Will Be Undermined: Despite EPA Administrator McCarthy s adamance that the CPP will not and cannot harm energy reliability 7, experts and stakeholders have serious concerns that the CPP will do exactly that: harm energy reliability through increased stress to the electricity infrastructure and by regulations creating uncertainty in the market. The North American Electricity Reliability Corporation (NERC) reviewed EPA s rule and concluded that the agency s proposed regulatory deadlines would increase the use of controlled load shedding and potential for wide-scale, uncontrolled outages". 8 At CACI, we believe it is imperative that such reliability concerns be addressed by the EPA before proceeding with this proposed rule. This analysis will ensure we know the burdens this proposed rule may place on reliability and address those prior to implementation of the CPP. It is also worth noting that with an increased focus on decreasing emissions federal regulations like the Utility Mercury and Air Toxics Standard (MATS), closures have been hastened for a significant number of coal-fired plants. This in turn has increased the use of natural gas, particularly during recent polar vortex storms. Demand during the 2014 storm not only strained natural gas resources, but it outpaced supply and consumers saw their average per/megawatt hour cost jump from $42 to $1,000. This order of magnitude price increase occurred despite the fact coal-fired power plants were supplementing power and heat sources. Since then, several of these coal-fired power plants have closed due to regulatory burdens, leaving an already stressed power grid even more vulnerable to major temperature swings. For example, 89% of mid-atlantic coal-fired power plants relied upon last winter are scheduled to shut down in This is a clear-cut example of the direct, negative impact EPA regulations already had on the electricity grid; and this has occurred, before the most sweeping EPA air regulation ever the CPP is even implemented. Put simply, EPA s passive reassurances that the CPP will not materially affect electricity prices or grid reliability ring hollow. A much more robust analysis of the impacts the CPP will have on this country s energy consumption and infrastructure must occur before this rule is adopted. The CPP will drive manufacturing and jobs out of state and overseas. Despite U.S. businesses being some of the most efficient generators and consumers of energy, businesses who EIA, International Energy Outlook osed_cpp_final.pdf 3

4 once thrived in the U.S. market will inevitably seek out less hostile and more cost-effective operating environments. CACI believes the proposed rule will impose costs on U.S. businesses in numerous ways without meaningfully reducing global GHG emissions the stated goal of the EPA s proposed rule. CACI proposes instead that the EPA look to promote jobs and production in the less-carbon-intensive U.S. economy, while giving more consideration to the efficiencies businesses and industries have already voluntarily undertaken. EPA lacks authority to issue 111(d) regulations, because existing coal-fired power plants are already regulated by Section 112 of the Clean Air Act. Based upon the plain language of the Clean Air Act, the EPA does not have legal authority to regulate GHG emissions from existing power plants which are already regulated under Section 112 National Emissions Standard for Hazardous Air Pollutants (NESHAP) of the Clean Air Act. Plain Language of Clean Air Act: The EPA seeks to regulate GHG emissions from existing power plants under Section 111(d) of the Clean Air Act (Existing Source Performance Standards or ESPS ). Those same power plants are already regulated as existing sources under Section 112 of the Clean Air Act (NESHAP). Under the plain language of Section 111(d), the EPA cannot establish ESPS for existing sources for any air pollutant emitted from any source category that is regulated under a Section 112 NESHAP. U.S. Supreme Court Precedent: U.S. Supreme Court case law unequivocally affirms the prohibition on regulating pollutants under Section 111(d) if they are already regulated under Section 112. In American Electric Power Co. v. Connecticut, 131 S. Ct (2011), the U.S. Supreme Court noted that EPA may not employ [ESPS under Section 111(d)] if existing stationary sources of the pollutant in question are regulated under the [NAAQS] program or the [NESHAP] program [under Section 112]. AEP, 131 S. Ct. at 2537 & n.7. EPA s Own Words: In its proposed Clean Air Mercury Rule, the EPA recognized that a literal interpretation of Section 111(d) would prevent the agency from regulating pollutants from sources regulated under Section 112. See 69 Fed. Reg. 4651, 4685 (Jan. 30, 2004). EPA lacks authority to set binding state emission rate targets because such authority lies with the states. Under the Clean Air Act states, EPA s authority under 111(d) is clearly limited to establishing procedures by which states submit plans establishing standards of performance. The CPP is unlawful because EPA has misinterpreted the unambiguous language in section 111(d) and hijacked the duty to establish standards of performance from the states. To remedy this, the final rule must allow states the flexibility to establish their own performance standards based on the unique circumstances of their state, and including efforts already made to increase energy efficiencies. EPA exceeds its CAA authority by applying performance standards on sources and sectors outside the fence line of the regulated unit. Under section 111(d) of the CAA, EPA s authority is limited to regulating emissions from existing sources within a specific source category (in this 4

5 instance, fossil fuel-fired electric generating units or EGUs). Despite this clear statutory limitation, the CPP reaches well beyond emission reductions at existing fossil-fueled EGUs and requires reductions from virtually the entire energy sector. The CPP goes so far as to mandate changes in consumer behavior. Through its four building blocks in the Proposed Rule, EPA defines the Best System of Emission Reduction (BSER) for fossil fuel-fired EGUs as a combination of emission reductions from efficiency upgrades at coal-fired power units, increased utilization of natural gas units, extending the life of nuclear plants, installing more renewable power and significant gains in demand-side energy efficiency. Such a sweeping effort under the guise an integrated electricity system 9 has never been attempted before, under BSER or any other EPA program. This approach for defining BSER stretches so far beyond the fence-line of a regulated facility that literally every consumer of electricity in the United States could be implicated as a potential compliance option. In essence, EPA is dictating climate change and energy policy for the states via the Proposed Rule. This new role of EPA has proposed for itself is certainly not authorized by the Clean Air Act and is well beyond EPA s regulatory expertise. Moreover, the reduction targets set for Colorado do not give it credit for already promoting fuel switching via legislation and dual-track rulemaking by its Air Quality Control Commission and Public Utilities Commission pursuant to the Clean Air, Clean Jobs Act. This puts Colorado at a competitive disadvantage, effectively punishing it for doing lawfully at the state level what EPA improperly seeks to do unilaterally at the federal level. As the voice of business in Colorado, we say strongly that this approach is not only unprecedented, it is unlawful. We request that EPA reevaluate its proposed method for establishing BSER and limit any guidance in setting performance standards to actions that can reasonably take place within the fence-line of a regulated facility. EPA further lacks authority to implement CPP, because it cannot set standards in states where the agency itself lacks authority to implement those standards specifically building blocks two, three and four of the CPP. #2: The EPA cannot and does not have the authority to make energy dispatching decisions. Only states have the authority to regulate power within their borders, as granted by the Federal Powers Act. #3: The National Regulatory Commission (NRC) has authority over permitting of nuclear, not the EPA. Yet this is one of the relied-upon building blocks for EPA s implementation of the CPP proposal. Likewise, states too have the singular authority, as is specifically designated by the Clean Air Act, to implement renewable portfolio standards (RPS) and not the EPA Fed. Reg. at 34,836 5

6 #4: EPA s proposal exceeds authority of the Clean Air Act. The EPA does not have the authority to mandate demand-side energy efficiency programs. As noted above, the EPA lacks authority to implement building blocks two, three, and four. Below are the reasons why those same building are heretofore, unsupported on the administrative record, result from invalid or unsupported assumptions, and likely violate the Administrative procedure Act. #1: From the business perspective, this proposal wrongly assumes businesses have not and are not taking opportunities to be more efficient, more cost-effective and therefore more competitive. #2: The Proposed Rule disregards how states have licensed combined cycle units and disregards whether those facilities are even permitted to operate, or capable of operating, at the higher capacities suggested by the EPA. This building block would exacerbate strains on an already limited natural gas pipeline and in the proposal, there is no accounting for infrastructure needed to make this switch to a greater reliance on natural gas, let alone to ensure uninterrupted electricity for consumers or businesses. Similar concerns exist under the plan s treatment of renewable power. #3: The EPA imprudently relies on all at risk nuclear infrastructure to remain online to reach emission goals; making the assumption that all 6% of at risk plants will remain online and therefore reduce emissions. We believe this is an unrealistic and flawed model for the EPA to be relying upon for fully one quarter of its proposal. EPA should not expand greenhouse gas regulations to other source categories. Not only does the CPP extend the EPA s reach unnecessarily and without authority in one sector, we believe there is no legal obligation for EPA to address other source categories. Other sourcespecific regulations would and should require a much broader, more complex consideration by the EPA and potential stakeholders. Rolling other source categories into the existing power plant rule fails to consider the complexity these multiple source categories present. Should the EPA implement regulations on other source categories, it will hit our manufacturers and producers the hardest, not only making everyday consumer goods more expensive, it will make our businesses and manufacturers less competitive at home and in overseas markets - before the product has even arrived on shelves. If businesses can t compete globally or are too burdened by regulation at home, it will result in job losses and a domino-effect of reduced economic activity all potentially without meaningfully reducing GHG emissions. Furthermore, the proposed other source provision is not necessary because it fails to recognize the efforts of business and industry to voluntarily reduce emissions, ignores their participation in extensive energy initiatives and disregards entirely an inherent motivation for businesses to be more energy efficient to be successful. Should the EPA insist on moving forward with this 6

7 provision, CACI suggests a state compliance plan should allow for exemption under any potential future Section 111 regulations. EPA s regulatory impact analysis of the proposed rules cost is both deficient and unreliable. First of all, CACI believes the EPA s economic analysis grossly overstates and overestimates the benefits of the proposed rules, while at the same time underestimating the real world burdens and translated costs on businesses and those they serve. A proper analysis of the CPP would show significant short- and long-term costs and not the benefits EPA has touted. The RIA is fundamentally flawed, and CACI believes, renders the CPP unlawful as currently proposed. It is especially distressing to CACI and the business community that the EPA has failed to convene a Small Business Advocacy Review panel and failed to conduct a regulatory flexibility analysis to evaluate the proposed rule s impact on small businesses, as required by the Regulatory Flexibility Act and Small Business Regulatory Enforcement Fairness Act 10. Instead of conducting this analysis, EPA claims the proposed rule will not have a significant economic impact on a substantial number of small entities because States, not EPA, are ultimately responsible for implementing Section 111(d). 11 This claim is grossly inaccurate because the impact on electricity prices and the potential regulation of entities beyond the fence line will undoubtedly impact small businesses. We want to reiterate that electricity costs are a significant concern for many small businesses and energy costs are a top-three business expense for 35% of all small businesses. 12 For these reasons, EPA must withdraw the current proposal, convene a Small Business Advocacy Review panel, and prepare a regulatory flexibility analysis before proceeding with a new proposal under Section 111(d). Next, the term social cost of carbon is one that deserves more consideration. This is not because CACI believes the term has validity in this debate, but because this theory is not recognized as a legitimate economic metric or methodology and has not received general acceptance or even legitimate scrutiny necessary for a transparent rule-making. In addition, EPA s calculations failed to use full-employment modeling, skewing numbers and projections for the proposed rule. Specifically, EPA fails to consider or account for the existing power plant rules negative impact on employment within the industry or by industries which support and/or rely on coal-produced energy among the greater business community. Without such consideration, the EPA s analysis misses the impact its proposed rule will have on whole communities and end-users that need affordable electricity. Businesses, manufacturers, coal-producers and utilities will be affected by the rule, but individual families will feel the financial pain and burden of this rule the most. This significant gap is all the more remarkable given that the CPP will reach virtually every corner of the American energy sector and economy. Lastly, the EPA is drawing questionable conclusions about where it will or has been able to simultaneously reduce other pollutants, aside from GHGs. These reductions are inappropriately 10 The Small Business Regulatory Enforcement Fairness Act (SBREFA), 5 U.S. Code 601 (1996) Fed. Reg. 34, National Federation of Independent Business, Energy, available at 7

8 reflected in the anticipated benefits the Proposed Rule. Such co-benefits have not been confirmed attributable to this rule and should not be considered as sufficient evidence to support the EPA s rule effectiveness. In Conclusion: As the voice of business and as Colorado s Chamber of Commerce, CACI believes the EPA lacks the legal authority under the CAA to go forward with the CPP as proposed. Moreover, the rule will greatly expand already significant regulatory burdens, and often unreliable, methods in support of the CPP. Most notably, the Proposed Rule fails to meaningfully or accurately consider the wide swath of likely costs and other burdens the rule will impose on citizens, business, and the American economy all while also failing to impact global levels of GHGs. CACI believes the United States needs an all-of-the-above energy strategy to ensure energy has a reliable energy infrastructure. An all-of-the above strategy allows consumer and manufacturer choice in energy source and to keep electricity prices affordable. CACI appreciates the opportunity to provide comments to this very important proposed rule. Unfortunately, as proposed, the CPP lacks authority under the CAA and other federal laws, and is not sufficiently supported by robust analysis in the administrative record. At a minimum, CACI would like to see the EPA clearly demonstrate its legal authority to regulate under Section 111(d), as well as provide a proper economic impact study corroborated by independent experts. Unless these steps are taken, EPA should withdraw the current proposal, convene a Small Business Advocacy Review panel, and prepare a regulatory flexibility analysis before proceeding with a new proposal. We urge the EPA to consider each of the concerns raised by CACI and our individual business members. If you should have any questions/concerns regarding this matter, please do not hesitate to contact Dan O Connell, CACI Government Relations, at or DOcconnell@COChamber.com or Leah Curtsinger, CACI Federal Affairs at (303) or LCurtsinger@COChamber.com. Thank you. 8