Introduction

In 2019, the U.S. Environmental Protection Agency (EPA) finalized its repeal of the Clean Power Plan (CPP) rulemaking and promulgated new Clean Air Act Section 111(d) emissions guidelines for carbon dioxide (CO₂) emissions from existing coal-fired electric utility generating units (EGUs), more commonly referred to as power plants,¹ in the Affordable Clean Energy (ACE) rule.² EPA also finalized new general regulations to implement the ACE rule and any future emission guidelines issued under CAA Section 111.³

EPA promulgated the CPP in 2015 to limit greenhouse gas (GHG) emissions—specifically, carbon dioxide (CO₂)⁴—resulting from the combustion of fossil fuels at existing fossil-fuel-fired EGUs. The CPP was the subject of ongoing litigation and was never implemented due to a stay from the Supreme Court.⁵

In 2017, EPA reviewed the CPP under Executive Order (E.O.) 13783, which directed federal agencies to "review existing regulations and policies that potentially burden the development or use of domestically produced energy resources."⁶ EPA's review concluded that the CPP exceeded EPA's statutory authority by using measures that applied to the power sector as a whole rather than measures carried out within an individual facility. The agency therefore proposed repeal of the CPP in 2017 and proposed the ACE rule to replace the CPP in 2018.⁷

Debate surrounding CO₂ performance standards and EPA's interpretation of its CAA authority continues with the repeal of the CPP and issuance of the ACE rule. Stakeholders have expressed divergent views regarding EPA's interpretation of its CAA authority and its "best system of emission reduction" (BSER) determination under Section 111(d). Twenty-three states, the District of Columbia, seven municipalities, and various stakeholders are challenging the CPP repeal and ACE rule in the U.S. Court of Appeals in the District of Columbia Circuit.⁸ Various stakeholders and twenty-one states have intervened in the litigation in support of the CPP repeal and ACE rule.⁹

This report is an abridged version of CRS Report R46482, EPA's Affordable Clean Energy Rule and Related Issues: Frequently Asked Questions, and it provides a brief analysis of the CPP repeal and ACE rule. It begins with background on electricity sector GHG emissions and the Clean Air Act; discusses the legal basis for the repeal of the CPP; the structure of the ACE rule and related issues; and concludes with issues for congressional consideration. This report does not discuss EPA's 2018 proposal to modify the applicability determination under New Source Review (NSR)¹⁰ nor does it discuss the new general regulations to implement the ACE rule and any future emission guidelines issued under CAA Section 111(d).¹¹ For more information about these topics as well as the CPP repeal, the ACE rule, and associated litigation, see CRS Report R46482, EPA's Affordable Clean Energy Rule and Related Issues: Frequently Asked Questions.

Electricity Sector GHG Emissions

Since 1990, GHG emissions from fossil fuel combustion—coal, natural gas, and petroleum—have accounted for 74%-78% of total U.S. GHG emissions, according to EPA.¹² The electricity sector historically accounted for the largest percentage of U.S. GHG emissions from fossil fuel combustion, but was surpassed by the transportation sector in 2016, as CO₂ emissions from fossil fuel combustion in the electricity sector declined by 25% between 2008 and 2018.¹³

Multiple factors have played a role in this decline. One key factor is the U.S. electricity generation portfolio of fuels and energy sources, the contributions of which have changed in recent years. The changes have altered emission levels in the electricity sector, since some fuels and sources—nuclear, hydropower, and some renewables—directly produce no CO₂ emissions with their electricity generation. For fossil fuels, on the other hand, the amount of CO₂ emitted during fossil-fuel-fired electricity generation is dependent upon the carbon content of the fuel and the efficiency of the generating unit in which it is combusted, among other variables. For example, natural-gas-fired electricity from a combined cycle unit typically yields approximately 43% of the CO₂ emissions of coal-fired electricity from a steam unit per kilowatt-hour of electricity.¹⁴

Several factors likely played a role in recent changes to the electricity generation portfolio, including technological advances in energy production (e.g., hydraulic fracturing), federal tax policies, and states' renewable portfolio standards. These factors have influenced the deployment of these technologies and resources and affected the relative price differences between energy sources, particularly coal, natural gas, and renewable sources.

Clean Air Act

Since the 1970s, EPA has promulgated rulemakings under CAA Section 111 and other authorities of the CAA to limit non-GHG emissions, such as sulfur dioxide (SO₂), nitrogen oxides (NO_x), and mercury, from fossil-fuel-fired power plants. In the past decade, EPA has used CAA Section 111 authority to address GHG emissions from these sources. CAA Section 111 requires EPA to establish nationally uniform, technology-based standards for categories of industrial facilities, also referred to as stationary sources of air pollution.¹⁵ These standards were intended to help prevent new pollution problems and to "level the playing field for states competing for industrial growth," for example, by removing incentives for states or communities to weaken air pollution standards in order to attract industry.¹⁶

CAA Section 111(b) directs EPA to establish maximum emission levels (called New Source Performance Standards, or NSPS) for new and modified major stationary sources—power plants, steel mills, and smelters, for example. To set the emission levels, EPA determines the BSER that has been "adequately demonstrated," taking costs and any non-air-quality health and environmental impacts and energy requirements impacts into account.¹⁷

Section 111 also addresses existing stationary sources of pollution. Section 111(d) requires EPA to promulgate regulations, which EPA has historically referred to as "emission guidelines."¹⁸ States must establish performance standards reflecting the BSER for existing sources,¹⁹ which are determined by EPA. States, in their plans, provide for implementation and enforcement of the standards.²⁰

The Clean Power Plan

EPA promulgated the CPP in 2015 to limit CO₂ emissions from existing fossil-fuel-fired power plants.²¹ EPA set national performance standards for CO₂ emissions from existing fossil-fuel-fired power plants under the authority of CAA Section 111(d). One national performance standard would have applied to existing electric steam generating units (which are mostly coal), and the other applied to existing stationary combustion turbines—for example, natural gas combined cycle (NGCC) units. EPA based these standards on the BSER. EPA determined the BSER for the CPP based on a collection of measures that it referred to as three "building blocks": (1) improving the heat rate at coal-fired units, (2) shifting generation from coal-fired units to lower-emitting natural gas units, and (3) shifting generation from fossil fuel units to renewable energy generation. The CPP also set individual state targets for average emissions from existing power plants based on the CO₂ performance standards. Although EPA set state-specific targets, states were to determine how to reach these goals.

As previously noted, the CPP was the subject of ongoing litigation and was never implemented.²²

Repeal of the Clean Power Plan

EPA repealed the CPP in 2019.²³ EPA based the CPP repeal on a change in its legal interpretation of its authority under CAA Section 111 from its interpretation in the CPP. EPA concluded that the CPP exceeded CAA statutory authority in setting the BSER as a combination of on- and off-site emission reduction measures that applied to the entire existing source category.²⁴ Because the CPP BSER was based, in part, on "beyond-the-source" measures (i.e., measures that apply to the source category as a whole or to entities entirely outside the regulated source category), EPA, after reconsidering the relevant statutory text, structure, and purpose of CAA Section 111, asserts that the CPP "significantly exceeded" its authority.²⁵ Based on this revised interpretation, EPA repealed the CPP and limited the BSER in the ACE rule to emission reduction measures that owners and operators can apply directly on site at individual existing EGUs.

EPA's interpretation of its CAA Section 111 authority in the CPP repeal and in the ACE rule was narrower than its previous interpretation in the CPP. CAA Section 111(a) requires standards of performance to reflect the emissions reductions achievable through "application" of the BSER. In the CPP, EPA reasoned that the "system" in the BSER reflected the "overall source category," taking into account the "unique characteristics of CO₂ pollution and the unique, interconnected and interdependent manner in which affected EGUs and other generating sources operate within the electricity sector."²⁶

In the CPP repeal, EPA presented a different view of its authority to determine the BSER under Section 111. EPA asserted that the "application" of the BSER referenced in CAA Section 111(a) "unambiguously limits the BSER to those systems" that can be "applied" or "put into operation at a building, structure, facility, or installation."²⁷ EPA stated that the CPP "beyond-the-source" approach "ignored or misinterpreted" the plain text of the CAA that "clearly precluded the unsupportable reading" of Section 111 used in the CPP to choose emission reduction measures that are not directly applied to the regulated EGU.²⁸

For more discussion about the legal basis for the CPP Repeal and litigation related to the repeal and the ACE rule, see CRS Legal Sidebar LSB10325, EPA Replaces the Clean Power Plan with the Affordable Clean Energy Rule and CRS Report R46482, EPA's Affordable Clean Energy Rule and Related Issues: Frequently Asked Questions.

Affordable Clean Energy Rule

EPA finalized new emissions guidelines for existing coal-fired EGUs in the 2019 ACE rule.²⁹ Specifically, the final ACE rule establishes emission guidelines for states to use when they develop and submit a state plan to EPA that establish standards to reduce CO₂ emissions³⁰ from existing coal-fired units. States will also provide for the implementation and enforcement of the performance standards in the state plans.³¹ State plans are due to EPA by July 8, 2022.³²

The ACE rule defines BSER for existing, coal-fired power plant CO₂ emissions as "heat rate improvement" measures, also known as efficiency improvements.³³ The ACE rule does not establish a binding, numeric performance standard for CO₂ emissions from existing coal-fired units. Rather, EPA identified six candidate technologies along with operating and maintenance practices that states must evaluate in establishing a standard of performance for each source in their state plans under CAA Section 111(d).

No BSER Determined for Other Fossil-Fuel-Fired EGUs

EPA did not establish the BSER for integrated gasification combined cycle (IGCC) units, oil- or natural-gas-fired utility boilers, or stationary combustion turbines.³⁴ (Natural-gas-fired power plants, such as natural gas combined cycle units, are also referred to as stationary combustion turbines.³⁵) EPA determined that it lacks "adequate information" to establish a BSER for these types of existing fossil-fuel-fired units.³⁶ EPA reported that it "is still evaluating the data for EGUs not covered by the ACE rule," noting that "only a handful" of IGCC units are in operation.³⁷ EPA stated that it "may issue emission guidelines" for stationary combustion turbines at a later date.³⁸ Comment letters revealed support for and opposition to EPA's decision not to identify a BSER for stationary combustion turbines in the ACE rule.³⁹

States to Establish Rate-Based CO₂ Performance Standards

The final ACE rule does not establish a binding, numeric performance standard for CO₂ emissions from existing coal-fired units. Rather, states are to establish a rate-based standard for each covered unit in their state plan.

States are to consider a list of candidate technologies when they establish the unit-specific CO₂ performance standards. EPA established the candidate technologies list, which comprises six heat rate improvement (HRI) measures and improved operation and maintenance practices.⁴⁰

According to EPA, the estimated potential HRI for the six candidate technologies at existing coal-fired EGUs ranges from 0.1% to 2.9%⁴¹ States have the option to establish performance standards reflecting an HRI "that falls outside of these ranges."⁴² In addition, states may consider technologies not on the list provided that they meet EPA's compliance criteria.⁴³ EPA determined that certain measures, such as biomass co-firing which EPA concluded did not meet compliance measure criteria, cannot be used for compliance with state plans.⁴⁴

EPA discussed several reasons why it did not establish a numeric CO₂ performance standard or specify a standard that, while not required, would meet the requirements for EPA approval (i.e., "presumptively approvable").⁴⁵ First, EPA asserted that "CAA Section 111(d)(1) squarely places the responsibility of establishing a standard of performance for an existing designated facility on the state as part of developing a state plan."⁴⁶ Second, EPA determined that it could not establish national performance standards due to variation among existing coal-fired units.⁴⁷ Factors that may affect HRI potential for a particular unit include, but are not limited to, the EGU's "past and projected utilization rate, maintenance history, and remaining useful life."⁴⁸ Third, EPA concluded that states are best positioned to account for site-specific considerations that influence HRI potential.⁴⁹

Stakeholders expressed varying opinion on the "unit-specific, state-led" approach for establishing performance standards, ranging from agreement to disagreement.⁵⁰ Stakeholders that favored the unit-specific, state-led approach commented that it is not possible to establish uniform, nationally applicable performance standards "because each individual unit is subject to a unique combination of factors that can affect the unit's heat rate and HRI potential, many of which are geographically driven and outside the control of a source."⁵¹ Stakeholders that disagreed viewed the approach as inconsistent with the CAA legislative history as well as past practice to determine BSER based on a specific emission reduction technology. These commenters concluded that the unit-specific, state-led approach would not result in significant emission reductions.⁵² In addition, some commenters maintained that EPA has a statutory responsibility to establish the level of stringency for the performance standards.⁵³

EPA Projects "Modest" Emission Reductions under ACE

EPA's power sector modeling projected "modest" CO₂ reductions (less than 1% by 2030) under the final ACE rule compared to a baseline, which excludes the CPP. EPA also projected modest changes in SO₂, NO_x, and hazardous air pollutants, including mercury, under the ACE rule.⁵⁴ While these non-CO₂ pollutants have implications for air quality and public health,⁵⁵ they are not directly targeted by the ACE rule. For more information about EPA's analysis of projected emissions and the associated benefits and costs, including stakeholder views regarding the way that EPA estimated the climate and human health co-benefits, see CRS Report R46482, EPA's Affordable Clean Energy Rule and Related Issues: Frequently Asked Questions.

Heat Rate Improvement and Potential Rebound Considerations

EPA determined that HRI is the BSER to reduce CO₂ emissions from existing coal-fired EGUs.⁵⁶ The "heat rate" measures the amount of energy that a power plant uses to generate one kilowatt-hour of electricity.⁵⁷ HRI is affected by a number of factors, such as the age and type of EGU, and may therefore vary across power plants.⁵⁸ A power plant with a lower, more efficient heat rate uses less fuel to generate the same amount of electricity as a power plant with a higher heat rate. Using less fuel per kilowatt-hour may result in lower emissions of CO₂ per hour of operation as well as lower levels of SO₂ and NO_x.⁵⁹

HRI is affected by a number of factors, such as the fuel source and the age and type of EGU. For more information, see CRS Report R43343, Increasing the Efficiency of Existing Coal-Fired Power Plants.

HRI can lead to greater use of the more efficient fossil-fuel-fired power plants, which may contribute to a "rebound effect." That is, efficiency gains may lead to increased electricity generation by fossil-fuel-fired plants instead of relying on other electricity generation technologies, thereby increasing absolute emissions and, to some extent, offsetting the emission reductions from the HRI.

The extent to which a rebound effect, if any, would occur under the ACE rule depends on a variety of factors, such as the size of the efficiency gains achieved at coal plants and the market forces that influence the sector-wide mix of fuel sources used to generate electricity. EPA considered the potential for rebound in its modeling and analysis of the final ACE rule. The agency concluded that a projected decrease in power sector CO₂ emissions nationwide under the ACE rule would outweigh "any potential CO₂ increases related to increased generation by certain units."⁶⁰ Some stakeholders agreed with EPA's conclusion, noting, among other things, that "any rebound effect from more efficient units is most likely to come at [the] expense of lower-efficiency coal units, negating the effect."⁶¹ Other stakeholders disagreed with EPA's conclusion, commenting that EPA's assumptions did not "reflect real world considerations" and that EPA "understated the amount of coal capacity that will likely retire in its analysis, and, thus, the remaining coal fleet will consist of more efficient and competitive units that may end up emitting more than the EPA's analysis shows."⁶²

Although EPA estimated that in 2030 nationwide power sector CO₂ emissions would decrease under the ACE rule, EPA estimated some state-level increases in emissions. EPA projected that CO₂ emissions would increase in 15 states (and the District of Columbia) in 2030 compared with the agency's reference case.⁶³ On a state-by-state basis, EPA's CO₂ emissions projections for 2030 ranged from a decrease of 11.0% (Tennessee) to an increase of 1.6% (Minnesota).⁶⁴ Similarly, EPA projected that under the ACE rule scenario, SO₂ and NO_x emissions would decrease nationally while increasing in some states.

ACE Does Not Address New Power Plants

The ACE rule does not repeal or otherwise change CO₂ performance standards for new and modified power plants,⁶⁵ sometimes referred to as the "111(b) standards." Once EPA lists a source category, such as fossil-fuel-fired EGUs, Section 111(b) requires EPA to establish NSPS for new and modified sources within a listed source category.⁶⁶ Once EPA promulgates NSPS under Section 111(b) for new or modified sources in that category, Section 111(d) then directs EPA to establish procedures for the states to submit plans establishing standards of performance for existing sources that would be subject to NSPS if they were new, unless they are subject to an exclusion under Section 111(d).⁶⁷

The GHG performance standards for new and modified power plants remain in effect, though EPA proposed to revise them on December 6, 2018.⁶⁸ The December 2018 proposal is a separate rulemaking from the CPP repeal and ACE rulemakings.

The semiannual regulatory agenda estimated a final decision by December 2020.⁶⁹ As of October 2020, EPA has not yet finalized this proposal. According to EPA's status report in the paused litigation challenging the 2015 GHG performance standards for new and modified power plants, the agency continues to review the comments submitted on the proposed rule and plans to send the final rule package to the Office of Management and Budget (OMB) for interagency review in the early summer of 2020.⁷⁰

ACE Does Not Reconsider the Endangerment Finding

In 2009, EPA issued two findings under CAA Section 202, referred to collectively as the "GHG endangerment finding." EPA found (1) that GHGs currently in the atmosphere potentially endanger public health and welfare and (2) that new motor vehicle emissions cause or contribute to that pollution.⁷¹ EPA subsequently promulgated regulations under CAA authority to limit GHG emissions from motor vehicles, the power sector, the oil and gas industry, and other sources.

Neither the CPP repeal nor the promulgation of the ACE rule reconsiders EPA's 2009 GHG endangerment finding.⁷² Without reconsidering the GHG endangerment finding, EPA appears to have a continuing obligation to limit GHG emissions under the CAA.⁷³ Separate from the CPP repeal and ACE rulemaking, EPA has proposed specific changes to other GHG regulations, including those for motor vehicles and for the oil and gas sector. For a brief overview of these proposed changes, see CRS Report R45451, Clean Air Act Issues in the 116th Congress.

Issues for Congressional Consideration

The CPP and the ACE rule present different legal interpretations of CAA Section 111 authority. EPA's 2017 review concluded that the CPP exceeded EPA's statutory authority by using measures that applied to the power sector as a whole rather than measures carried out within an individual facility. The final ACE rule applies a narrower interpretation than the CPP of the BSER, defining it as on-site HRIs for existing coal-fired units. These interpretations are being challenged in court and arguably raise broader questions about CAA regulation of GHG emissions. The ACE rulemaking may also raise questions about state and federal roles under the CAA.

CAA Regulation of GHG Emissions

EPA and stakeholders continue to debate the scope of EPA's authority and its methods for regulating GHG emissions under the CAA. EPA's varying legal interpretations and regulatory approaches to regulating GHG emissions from existing power plants has raised novel issues that policymakers and the courts have not addressed previously. Because of the interconnected nature of the power sector, EPA's legal interpretation and regulatory approach in the CPP are distinct from previous Section 111(d) guidelines for other industries.⁷⁴

Although the Supreme Court clarified EPA's authority to regulate GHGs under specific CAA programs in Massachusetts v. EPA and subsequent cases,⁷⁵ regulatory developments and judicial decisions raise questions concerning the breadth of EPA's authority under CAA Section 111 to consider various emission reduction measures for existing industrial sources of pollution.⁷⁶ Stakeholders critical of the ACE rule have argued that EPA has authority to expand the scope of the BSER to achieve greater emissions reductions by including other systems of emission reduction and other types of EGUs. Other stakeholders view EPA's authority under CAA Section 111 as limited to measures implemented directly at the designated facility regardless of GHG reduction policy goals. Stakeholders and EPA may continue to litigate and debate the scope of EPA's authority to regulate GHG emissions under CAA Section 111.

Many in Congress have taken an active interest in EPA's interpretation of its authority to determine the BSER under CAA Section 111 for power plants. Some Members of Congress filed amici curiae briefs in the litigation challenging the CPP repeal and ACE rule.⁷⁷ In 2016, several Members of Congress also filed amici curiae briefs on both sides of the CPP litigation.⁷⁸

Progress toward more ambitious GHG targets supported by some Members⁷⁹ would likely require reductions throughout the economy, not just the power sector. The electricity sector has historically accounted for the largest percentage of anthropogenic U.S. CO₂ emissions, though transportation activities have more recently accounted for a slightly larger share. Congress may consider current and future GHG emissions targets and whether and how regulatory tools under the CAA could support cost-effective economy-wide strategies to meet GHG emissions goals from the power sector as well as the transportation, industrial, commercial, and residential sectors.

Federal and State Roles to Implement the ACE Rule

Congress may consider how the final ACE rule may affect federal and state roles to implement CAA Section 111(d), in particular with respect to establishing performance standards for existing sources. The ACE rule allows states to establish CAA Section 111(d) performance standards that, based on site-specific considerations, are less stringent than the standard expected to result from a direct application of the BSER identified by the EPA. EPA characterized this approach as consistent with the "cooperative federalism structure of CAA section 111."⁸⁰ Some stakeholders agree with this unit-specific, state-led approach, while others disagree.⁸¹ Those who disagree maintain that it is "inconsistent with the EPA's role under the CAA: to establish a minimum level of environmental protection and to allow states the flexibility to be more protective."⁸²

In addition, there are concerns about implementing the ACE rule at the state level. For example, the National Association of Clean Air Agencies reported that establishing unique performance standards for each unit in a state's jurisdiction would draw on limited agency resources and staff hours and possibly trigger a public review process.⁸³ Further, some have identified that the lack of uniform, national emission standards in the ACE rule could increase the litigation risks for states as stakeholders may challenge the standards the state sets for each EGU.

Congress may consider the interaction of the ACE rule and state and local GHG reduction programs and the resulting implications for state planning efforts.⁸⁴ For example, it may be more efficient for states to rely on existing, nonfederal programs to fulfill the ACE rule requirements rather than implementing separate state and federal standards for the same emission sources. While the ACE rule does not prohibit states from implementing GHG programs under state authority, it may be unclear whether state plans that incorporate nonfederal GHG emission reduction programs would meet the ACE rule requirements. This may raise questions about how these states would demonstrate compliance with the ACE rule in addition to continuing their participation in nonfederal programs that reduce GHGs.