Policy & Regulation

21 Nov 2019

States Versus the Union: How Could the ACE Rule Impact US Energy?

21 Nov 2019  by JP Casey   
22 US states have sued the Trump administration for its attempts to replace an Obama-era law with a new bill that would give states greater power over their own greenhouse gas emissions. While the government claims the new law will have its benefits, the numbers don’t add up, and risk further fracturing an already tense political relationship between the federal government, states, and private companies.

The US has been a significant contributor to global greenhouse gas emissions for years, with the International Energy Agency reporting that the country accounted for the second-most carbon dioxide emissions in 2016, behind only China, and the third-highest per-capita emissions behind Saudi Arabia and Australia in the same year. The group concluded that the US was responsible for 16% of the world’s total carbon dioxide emissions, equal to Japan, Russia and India combined, and almost as much as the entire “rest of the world”, which the agency defines as countries outside of the top 20 carbon dioxide-producing states.

As a result, US energy performance has a profound impact on global emissions, with US policy predicted to make or break the Paris climate agreements. While the Obama administration was able to tackle some of these historically high emissions, with the US Environmental Protection Agency (EPA) reporting a 12.1% decline in greenhouse gas emissions between 2007 and 2017, the Trump administration, and its hostility towards environmental protection, is threatening to reverse this improvement.

The government is trying to replace the Obama-era Clean Power Plan (CPP), which gave the federal government the authority to implement programmes to cut harmful emissions in individual states, with a new policy, known as the Affordable Clean Energy (ACE) rule. The new rule will shift power for determining energy policy back to individual states, although many fear that states will shun methods of reducing emissions that have been shown to be effective, such as limits on coal production, and rely on improvements to efficiency in the coal-burning process, which is less effective in curbing overall emissions.

A coalition of states has sued the central government, arguing against empowering themselves in order to ensure a level of federal oversight in emissions targets. The lawsuit has raised questions surrounding environmental policy and monitoring in the US, and created tension between the federal government, state leadership and private companies, all of whom are responsible for balancing industrial production and environmental concerns.

Implementing the ACE rule

The lawsuit, led by lawyers from California and encompassing representatives from 22 states and seven cities, aims to persuade the District of Columbia appeals court that the EPA’s repeal of the CPP is “unlawful and must be vacated.” Their argument is based on the prediction that implementing the ACE rule will encourage an intensification of industrial production, leading to increases in carbon dioxide emissions, and stressful working environments for industry employees.

A report published in Environmental Research Letters and authored by a number of academics based in Washington, DC, predicted the potential impacts of replacing the CPP with the ACE rule, and found that emissions would be likely to increase at 28% of the country’s coal plants by 2030, leading to increases in carbon dioxide emissions in 19 US states.

“The rebound effect can undermine pollutant emissions decreases at the national level and lead to increased emissions at individual coal plants and in a number of states,” wrote the academics in their conclusion. “[This] is substantiated by similar findings based on independent power sector modelling.”

While the EPA claims that the move will see annual carbon dioxide production fall by seven million tonnes, the academics reported that, by 2030, national emissions will fall by just 0.8%, a marginal difference that does not compensate for the significant threat posed to public health and economic performance by the changes.

Implementing the ACE rule could result in up to 1,400 premature deaths by 2030, and would cost around $1.4bn more annually than it saved. Critically, these are figures from the EPA itself, with the agency seemingly happy to back a policy that would work against its supposed interests, and wreak significant damage on the US. These are also some of the most conservative estimates put forward by the EPA, which has also predicted, in a document dated at the end of August, that the proposed changes could cost power plant operators in particular up to $75bn in increased healthcare costs.

An obvious conclusion to draw would be that the policy is intended to benefit coal producers, the impact of an EPA that is under the influence of a pro-fossil fuels administration. However, the EPA’s own figures suggest that coal producers could stand to suffer some of the greatest losses should the policies be switched, with the agency estimating that coal production for the power sector will increase by 9.5% by 2035, should the CPP be repealed. This would be a relatively small compensation for an industry that could be set to lose billions.

The EPA policy is muddled further by the fact that the coal industry is unlikely to see a sudden resurgence, with the price of domestically-produced coal in near-constant decline over the last decade. The US Energy Information Administration reported that the price of coal has fallen from $41.01 per short ton in 2011 to $33.72 per short ton in 2017 with the country’s total production capacity declining from 1.3 billion short tons to 1 billion short tons over the same period.

Political confusion and personal risks

The ongoing lawsuit has raised a number of questions about the role of the EPA and the relationship between the central government and state leadership, the most pressing of which is the authority of the agency itself. In its documentation explaining the proposed policy, the EPA claims that it has “inherent authority” to tinker with regulations, as long as it “provides a reasoned explanation,” a vague phrase that permits the agency to categorise a $75bn loss as “reasonable”.

The EPA has further confused its message elsewhere in the document. “Because of the rapid pace of these power sector changes, it is difficult for sector analysts to fully account for these changing trends in near-term and long-term sector-wide projections,” wrote the agency.

“This means that regulatory decisions made today could be based on information that may very well be outdated within the next several years. If that is the case, work put in by federal and state regulatory agencies … could quickly be overtaken by external market forces which could make those efforts redundant or, even worse, put them in conflict with industry trends that are already reducing CO2 emissions.”

However, the government is facing a separate lawsuit from nine utility companies, known as the Power Companies Climate Coalition (PCCC), which is accusing the EPA of falling short of exactly this consideration. The PCCC claims that its members, which operate in 49 states, have already invested in renewable projects in line with PCC regulations, and that suddenly changing to state-driven regulations as part of the ACE rule would invalidate many of the “industry trends” the EPA claims to be taking into consideration.

Exelon, for instance, which owns a number of PCCC companies, is on track to reduce its greenhouse gas emissions by 15% by 2022, and was awarded an A- grade for its environmental policies and disclosure by non-profit watchdog CDP Global in 2018, two positive steps for the US power industry that could be derailed by a shifting regulatory backdrop.

While the three-way conflict between state governments, federal power and private companies is messy, many of the disputes fall along the partisan lines that characterise US politics. The initial lawsuit put forward against the ACE rule is a mirror image of a similar case launched against the CPP in 2015 by 24 conservative-leaning states. Only three states backed both campaigns, suggesting that these legal manoeuvres are as much about ensuring environmental protection as conventional politicking, with potentially damaging consequences for companies and individuals alike.

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