On August 3, the EPA released the final rule for the “Clean Power Plan.” Considerably different in many material ways from the proposed rule – especially for the three Indian tribes most directly affected by the rule – the Clean Power Plan seeks to reduce carbon dioxide emissions from existing electric generation units (EGUs) by 32% from 2005 levels.

In addition to the Final Rule, the EPA also released a Proposed Federal Implementation Plan and Model Rules for Emission Trading to support meeting the Clean Power Plan Emission Goals.  The final rule, proposed federal implementation plan and emissions trading rules reveal several key areas that could positively impact Indian Country and support tribal renewable energy and energy efficiency efforts

Final Rule

Issued under the authority of the Clean Air Act, Sec. 111(d),  the Final Rule establishes emission rate standards (rate-based standard) for coal-fired power plants and natural gas combined cycle power plants.  In addition, the Rule establishes overall compliance goals for total emissions, at the state level, for all affected EGUs within the state (mass-based standard).  The Final Rule retains the three “building blocks” for the best system for emissions reduction (BSER) to achieve these emission goals: 1) increasing the “heat rate” – efficiency – of coal-fired power plants; 2) increase the capacity/output of natural gas combined-cycle power plants; and 3) increase the amount of power generated from non-carbon emitting sources, such as wind, solar, hydropower or geothermal power.   The compliance period starts in 2020, with interim goals established over the following 10 years, and the final emissions goals must be reached by 2030.

States will have until September 2016 to submit state implementation plans (SIPs), with the ability to request a 2 year extension to 2018.  Tribes in, or near, states that have to achieve high reductions in their emissions rates, such as Arizona (32% reduction), Michigan (32% reduction), Minnesota (20% reduction), Montana (37% reduction), New Mexico (28% reduction), North Dakota (37% reduction), and Wisconsin (34% reduction),   are presented with a prime opportunity to work with theses state and the renewable energy industry to determine how tribal clean energy resources – wind, solar, biomass, hydro – can be brought to bear on the helping those states meet their emission reduction requirements.  

The Final Rule also requires states to conduct outreach to key stakeholders, including low income, vulnerable, and indigenous communities.  The state must document these outreach efforts, and identify how the state’s implementation plan will affect or impact these communities.  Tribes have a key opportunity to engage their state officials responsible for developing the implementation plans to determine how tribal lands can/should be included in the state’s plans, and thus positioning tribes to take advantage of promoting renewable energy projects on tribal lands and promoting energy efficiency efforts on tribal buildings and facilities.   

Furthermore, the Final Rule includes a program called the “Clean Energy Incentive Program.”  Designed to kick start the deployment of renewable energy and energy efficiency projects to meet the states’ emission goals, the CEIP provides early “emission reduction credits” for renewable energy projects deployed in 2018 – 2020.   And, to promote benefits in low-income communities, the CEIP allocates double ERCs for energy efficiency projects deployed in low-income communities, which would include tribal communities.

Proposed Emissions Trading Programs

In addition to adopting any of the three building blocks for the BSER  – reduce heat rate, Increase NGCC capacity, and deploy renewable energy – the states can adopt emissions trading programs to achieve compliance.  The emissions trading programs are designed to be a market-based mechanism for achieving compliance goals.  Several states, such as California and states in the Northeast are already engaged in carbon trading programs.  For the Clean Power Plan, the EPA has proposed model rules for two basic trading programs: rate-based program and mass-based programs.  While states are able to develop their own trading program, the EPA strongly encourages the states to adopt one of the EPA designed programs.  

The Federal Rate Based Trading Program is based on the uniform EGU emission rate standard.  Emission Reduction Credits (ERCs) are used as the compliance “currency” in this program, and one ERC is equal to 1 MWh of electric generation with zero CO2 emissions, or 1 MWh of avoided generation through energy efficiency projects.   Under the model rules, the EPA will issue ERCs to:

• EGUs that have emissions rates below the uniform standard or emission goals;

• NGCC and nuclear power plants;

• Renewable Energy (metered) projects; and

• Energy Efficiency projects and programs

In short, at the end of each compliance period, if an EGU has an emission rate that is less than the uniform standard, then the EGU will receive ERCs.  However, if an EGU has an emission rate that is higher than the uniform standard, then the EGU must acquire ERCs to meet its compliance goals.  ERCs are tradable, in that they can be bought, sold, transferred and banked.  So, as an example, if an EGU needs 10 ERCs to be in compliance, then it can buy 10 ERCs from another EGU, a natural gas power plant, nuclear power plant or a renewable energy power plant.  There can be interstate trading of ERCs between states that have set up and linked rate-based programs, but ERCs cannot be used in mass-based trading programs.

The Federal Mass Based Trading Program is based on an emissions cap – total emissions rate allowed from all affected EGUs within a particular jurisdiction or region.  Instead of ERCs, the mass-based program issues allowances.  Total allowances available are equal to the total emissions budget (cap) – by compliance period.  Under the model rules, allowances are allocated to EGUs based on historical generation.  An allowance is equal to one short ton of CO2.  Not all allowances will be allocated.  There will be three types of set-asides:  output adjustment (NGCC increased generation); CEIP; and renewable energy and energy efficiency projects.  The set-asides ensure that there will be allowances for other forms of low or no carbon generation.  As with ERCs, allowances can be bought, sold, transfer, or banked, and allowances can be traded on interstate trading plans.  But, allowances cannot be used in rate-based trading programs

For tribes, these emission trading schemes represent another key opportunity to benefit financially from the new Clean Power Plan.  Renewable energy and energy efficiency projects on tribal lands and buildings can seek to obtain ERCs or Allowances from either the state or the EPA (depending on who is running the emissions trading program).  Once obtained, these ERCs or Allowances can then be sold to EGUs that need ERCs or Allowances to meet their emission compliance requirements.  While it is unclear how these compliance “currencies” will be valued – and it is equally unclear whether the projects will have to pay for them – the ultimate value of these currencies will depend on how much the EGUs are willing to pay to meet their compliance goals.

Proposed Federal Implementation Plan

The EPA has proposed a model federal implementation plan (FIP) that will apply to states that do not submit an implementation plan, or submit a plan that can’t be approved by the EPA.  The EPA also proposes that the federal implementation plan will apply to the three tribes that have affected EGUs – Navajo Nation, Fort Mojave Tribe, and Ute Tribe (Utah).

The FIP will follow the same requirements as the state implementation plans: the FIP will include the CEIP; stakeholder outreach to low-income, vulnerable, and indigenous communities; and, based on the state, either a rate-based or mass-based emission reduction goal.  The FIP will also include an emissions trading program, again either rate or mass based.

What Should Tribes be Doing Now?

Despite the fact that 13 states have brought a lawsuit against the EPA in opposition to the new CPP rule, several states have already begun their required stakeholder outreach – including California, Minnesota, and North Carolina.  If the state hasn’t reached out yet to the Tribes in the state, then the Tribes should consider immediately reaching out to the state.  The states only have until September of 2016 to develop a plan, and make an initial submission to the EPA.  This leave little time for engaging the state to ensure the Tribes understand the impacts of the state’s plan on tribal communities, and work to ensure inclusion of tribal renewable energy projects in the state’s efforts to meet its emission reduction goals.  

The EPA expects to publish the Proposed Federal Implementation Plan and Model Emission Trading Rules in the federal register soon.  Once published in the federal register, there will be a 90 day comment period.  This will be an opportunity for tribes to submit comments on the proposed FIP and trading schemes.  Some key questions tribes might comment on include:

• How will EPA ensure that NGCC or renewable energy projects on tribal lands will be included in state emission trading schemes?

• How will EPA treat other renewable energy sources, such as biomass, waste to energy, biogas, and storage in the emission trading schemes?

• Will EPA allow tribes to sell their ERCs or Allowances to third party project owners of projects on tribal lands (rather than EPA simply allocating them as proposed)?

• If states do not include tribal lands in their implementation plans, should the EPA develop a nationwide federal implementation plan for Indian Country that allows tribes to link to other state emission trading systems?

The EPA has committed to continuing outreach to tribes about the final rule.  The agency will also conduct several webinars, and engage in consultation with tribal governments.  EPA also intends to develop training, guidance, and other technical assistance efforts tailored to the needs of tribes.  For example, the EPA is conducting a training session on October 20 – 22 on the Clean Power Plan.  

In addition, tribes might consider reaching out to their electric service utility provider to identify potential partnership models that bring renewable energy and energy efficiency project to tribal lands, while helping the utility meets its potential compliance requirements under the CPP and SIP.

The EPA Clean Power Plan can be a substantial opportunity for tribes to develop low-carbon, no-carbon energy projects on tribal lands.  These projects can be community or commercial scale, to serve the community or as economic development and revenue generation opportunities.  With the proposed emission trading schemes, tribes can also benefit from the financial value of the compliance currencies generated by these trading schemes. Tribes should engage their states, the EPA, and their electric service utilities to ensure Indian Country gets its fair shot to take advantage of these opportunities.