Despite Their Carbon Rebellion, States Prepare for the Worst

While more than a dozen states are fighting the new federal rules to reduce carbon emissions, many officials fear that ignoring them would be far worse.
by | October 2014
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Outcries against federal overreach and job-killing regulation. Lawsuits aimed at preventing a bold domestic initiative from ever taking shape. Bills in legislatures asserting state supremacy over federal law. Refusal by some to participate altogether.

It sounds like the campaign against the Affordable Care Act. But it’s a different Obama policy -- the one demanding substantial nationwide reductions in the level of carbon dioxide (CO2) emissions -- that has elicited this reaction. In June, the Environmental Protection Agency (EPA) announced new rules mandating that CO2 levels fall below 2005 amounts by the year 2030. This would force states into major regulatory overhauls, spur large-scale shifts toward cleaner natural gas and potentially lead to the outright closure of some coal plants. The result in some states could be a significant economic disruption.

That’s why states are airing grievances privately and publicly as the EPA takes comments on the proposed rules and the individual state reduction targets it establishes. It’s why legislatures are passing bills and resolutions announcing their opposition to the rules. It’s why some states are setting guidelines that undermine reduction targets in an effort to mitigate economic pain. And it’s why states are suing the EPA even before the rules become final next summer.

For many state regulators, the amount of work needed to meet reduction proposals means they’ll have to start planning immediately, even before the rules are final. CO2 reduction targets range from 72 percent in Washington state to 11 percent in North Dakota, depending on what the EPA thinks states can reasonably achieve through fuel-switching, improved efficiency and reduced demand among consumers. In some cases, state environmental regulators will be crafting these plans while the state’s attorney general sues to stop the provisions.

As with the Affordable Care Act, the legal arguments bubbling up from conservative circles stress philosophical opposition to expanded federal control and charge violation of statutory power. But die-hard opposition is a riskier enterprise on this issue than on Obamacare. If the challenge falls short, and courts uphold the new rules, defiance will trigger an even more burdensome federal plan, the details of which EPA officials have left unclear. Would a substantial number of states ignore this threat and refuse to cooperate even if they lose in court? The answer is likely no. Some states will want to back down rather than set in motion the tougher brand of federal mandates. Other factors will also come into play, from the economic boon many states will receive from increased reliance on natural gas over coal, to political pressure from utilities to avoid unpredictability. There may be a strong ideological resistance to the rules, but the chances of a unified political front are less likely than in the health-care battle.

Still, that doesn’t reduce the noise level very much. If anything, the volume will continue to rise before the contentious issue is finally settled.

Arizona has become a front line in the debate. Currently, it’s the state that stands in staunchest opposition to the proposed EPA rules. Back in 2010, conservative state lawmakers, sensing new emissions regulations were in the offing, passed a law forbidding state environmental officials from adopting any plan to regulate greenhouse gas emissions. Rep. Debbie Lesko, a Republican, typifies the anti-regulation stance of many Arizona legislators. Any new emissions rules, she believes, would send utility rates skyrocketing. In fact Lesko, who is the state chair of  the American Legislative Exchange Council, the national limited-government coalition of lawmakers and lobbyists, says more states should follow Arizona’s lead in banning CO2 regulations. “A bunch of states should band together,” Lesko says, “and do the same type of legislation to forbid their agencies from getting involved with a state implementation plan, because my reaction, again, is that if enough states join together there will be so much momentum that either Congress will have to stop this or it will just be impossible for the federal government to implement a plan.”

Others in the state disagree. Rep. Frank Pratt, a Republican who chairs the natural resources committee in the state House, says he wants to rework the 2010 law next year, but he acknowledges there are vocal contingents in the state, both conservative and liberal, that will push in different directions. “We’ve got the extreme far right, we think there may be some opposition there,” he says. “We’ve got a Democratic side that’s kind of in sympathy with the Sierra Club. It’s going to have to be a stakeholder process, and we just have to start somewhere on it. But we certainly have to respond [to the EPA].”

Today the general feeling in Arizona seems to be that federal regulations would be bad -- but barring the state from preparing for them would be worse. At a legislative hearing in June, officials from the Arizona Department of Environmental Quality complained about the EPA’s 52 percent reduction target, but also said lawmakers would need to change state law during the upcoming 2015 session or risk missing the federal deadlines.

There’s also a grudging acceptance of the rules by many Arizona utilities, which fear being hamstrung by lawmakers refusing to comply with the feds. Not all utilities have responded the same way, of course; those that are more heavily dependent on coal can be expected to fight harder against the new power plant rules. But by and large, there’s a recognition that ignoring Washington altogether could be problematic. Tucson Electric Power, for example, has coal-fired generators but also has staked a place as a leader in renewable sources, such as solar energy. The company may not love the new regulations, but its lobbyist, Larry Lucero, urged the legislature to change the state law so his company has the flexibility to comply with the EPA in the most cost-effective way. The state, he says, “needs to have its handcuffs removed.”

What exactly would a federal implementation plan look like? The EPA hasn’t said, but one attorney who has extensive experience with the agency says “the logic just screams cap and trade.” The reason: Cap and trade -- a system that would limit emissions to a certain overall rate, but would allow utilities and other energy producers to exchange emission permits up to that point -- is far simpler to administer after initial setup than a system of individual quotas. It is also more easily enforceable from a legal standpoint. “You want a plan [for a system] that will basically run itself but take you where you want to go,” says Bill Pedersen, a lawyer noted for his mastery of the Clean Air Act, which gives the EPA authority to regulate emissions. “Cap and trade fits that description to a T.”    

At the moment, 12 states are challenging the preliminary EPA rules. The roster includes a few surprises. Texas, for example, a major coal producer and frequent litigator against a variety of federal rules, might have been expected to join the protests, but hasn’t officially done so. Texas’ railroad commissioner has said the state will ultimately mount a legal challenge, but Texas, a state that prides itself on how often it sues the EPA, didn’t join others in the suit filed in August, and didn’t file a brief of support for another suit filed in June by an Ohio-based coal company. Unlike many other states, Texas also didn’t pass a resolution or bill addressing the new rules either before or directly after they were announced. Bill Cobb, a former senior counsel to the state’s attorney general who has litigated against other federal environmental initiatives, says that while he “appreciates the sentiment” of lawmakers who want to fight, that kind of defiance “would be wholly ineffectual,” leading instead to a forced federal plan.

Part of Cobb’s skepticism about legislative defiance stems from a stand against the EPA that Texas recently walked back. When the EPA started requiring permits for new sources of greenhouse gas emissions in 2010 (the recent proposed rules apply to existing sources), the agency deferred to state and local authorities to carry the policy out. Texas refused, which led the EPA to take over. Bottlenecks ensued, businesses complained and last year Texas lawmakers quietly assumed authority over permitting. “They said, ‘If it’s going to be regulated, we want it here,’” Cobb says. “There’s a question then of how well the strategy worked if they’re doing what EPA wanted them to do in the first instance.”

But there is another possible reason why Texas has been lukewarm when it comes to fighting the EPA on carbon dioxide. The state is far and away the country’s largest producer of natural gas, which is expected to edge out coal as the nation’s most common source of fuel for power plants by 2030. States will have to accelerate their switch to gas and other sources if they want to meet the EPA reduction targets, because coal generates so much more carbon dioxide. That means many will be buying their fuel from Texas, which produces two and a half times the amount of natural gas a year as the next highest state, Louisiana. A report from the Center for Strategic and International Studies found that the southwestern region of the U.S. as a whole stands to gain $16.7 billion in annual coal and gas production revenue under the new EPA rules, even after accounting for any increases in household and business energy costs. That is not counting a boost to renewable sources of energy, where Texas is also a leader in wind and solar generation.

Source: Energy Information Administration

The dynamics are a bit more complicated in Pennsylvania, which is the third largest producer of natural gas but also ranks fourth in coal production. State Rep. Pam Snyder, who hails from the coal-producing southwestern part of the state, introduced a bill requiring state regulators to get the legislature’s approval before submitting any plan to the EPA. But her bill met opposition from environmentalists, some utilities, nuclear energy companies and others who feared that leaving too much authority with a fractious legislature was a recipe for inaction, virtually assuring a federal implementation plan.

The bill allows the legislature to shut down a plan if it doesn’t adequately protect coal. But Snyder added an amendment that offers a little wiggle room: If legislators fail to act on a resubmitted plan, regulators could move ahead on their own. She says she agreed to a compromise because a federal plan would likely take broad strokes without minimizing the damage to coal producers.

A similar attitude of caution prevails in influential quarters of West Virginia, another major coal producer that strongly disputes the feasibility of the EPA’s reduction targets. Unlike Pennsylvania, West Virginia is already suing. But that suit didn’t come at the direction of Gov. Earl Ray Tomblin, who, in the words of a spokeswoman, “continues to work with the West Virginia Department of Environmental Protection to explore other opportunities to urge the EPA to develop reasonable standards that balance the environment and economic opportunity.”

State environmental officials aim to at least amend the EPA’s 20 percent reduction target for West Virginia because they believe the EPA overestimated the state’s capacity to switch to other forms of energy and improve existing efficiency. Litigation doesn’t change the job of state regulators, but it casts uncertainty over their task, given the timetable to put together a plan, says Tom Clarke, the top aide to the state’s environmental secretary. “We’ll have to determine how our state legislation affects our ability to comply with the federal rule,” he says, “and we’ll be doing that in an environment in which the uncertainty of litigation -- I don’t know if it prohibits us from implementing anything, but it certainly impacts the whole picture.”

Like at least eight other states, West Virginia has passed legislation directing state regulators to develop a plan with careful consideration paid to economic impacts. And as in many of those states, the bill that ultimately made it into law was softened in tone, adding language ordering state regulators to adopt additional measures designed to meet the EPA’s new guidelines. The only major coal-producing state that has maintained a hard line is Kentucky, which is forbidding state regulators from requiring power plants to switch fuels to lower emissions.

This virtually assures that state regulators won’t be able to meet the state’s target, environmentalists argue. “Because these bills could have potentially increased the costs of complying, in all of the states except for Kentucky they were significantly weakened to make it look like states were rejecting EPA’s standards without actually rejecting them,” says Aliya Haq of the Natural Resources Defense Council’s climate and clean air program.

In some cases, the attitude of defiance is softening after complaints from utilities, environmentalists and other lawmakers. A Senate bill in Virginia filed six months before the EPA made its announcement would have prevented environmental regulators from requiring utilities to switch fuels, a particularly prohibitive measure mirroring the one in Kentucky. Fifteen days later a new version of the bill dropped that language and tilted future analysis a bit more toward new sources of energy. The bill’s sponsor, Sen. Bill Carrico, who represents Virginia’s southwestern coal country, says the state’s largest utility, Dominion Virginia Power, opposed the initial bill. Shortly after the EPA announced its proposed rules, the utility was touting its “diverse fuel mix.”

Dominion’s opposition was certainly a factor in the change, Carrico says, but so was the state’s political balance and input from others. Carrico said he could abide making concessions, but couldn’t accept a federal plan that he fears would sink a meat cleaver into the coal industry instead of a scalpel.

“We stand a better chance of putting together our own plan,” he says. “[The EPA] may not like our plan, but if we can get together a legitimate plan that meets the criteria they’re putting forward, then I feel we have a good shot.”