CPP Loses Its Steam

By / 2.11.2016

The Supreme Court, in a 5-4 decision, has slammed the brakes on President Obama’s Clean Power Plan (CPP). It’s a major setback for the administration, which held up the CPP at last December’s Paris climate summit as proof of America’s commitment to sharply reduce greenhouse gas emissions by 2030. The White House believes the plan helped to persuade China and India to promise large reductions of their own.

The ruling bars the Environmental Protection Agency from putting into effect regulations that would cut greenhouse gas emissions from power plants. That’s to give the U.S. Court of Appeals for the DC Circuit time to consider challenges to the CPP from 26 states and energy companies that have opposed the regulations on several grounds, including whether the EPA has the legal authority to impose such comprehensive regulatory requirements on existing power plants under the Clean Air Act.

After Congress failed to pass carbon cap and trade legislation in 2010, President Obama decided to use his executive powers to direct EPA to regulate carbon as a pollutant. It now appears that the White House erred in putting all of its carbon reduction eggs in the basket of an executive order. Top-down rulemaking by the EPA was always the fallback or second-best choice, after a carbon tax or cap and trade system. Now, depending on what happens in the courts, Obama may leave office without having a clear proposal for curbing U.S. emissions.

PPI supported the CPP on the basis that something is better than nothing. But we have always believed that a market-based solution that puts a price on carbon is more efficient and more comprehensive than command and control regulation from Washington.

In fact, the EPA has a history of making rules that trail behind market developments. It imposed Acid Rain rules after electric utilities had begun to comply with air quality controls. Similarly, the CPP rules come amidst a dramatic transformation of the electricity sector brought about mainly by cheap natural gas and distribution wind and solar generation. These factors already are cutting greenhouse gas emissions and are likely to go on doing so.

The Clean Power Plan was envisioned as a “worst case” scenario that the electric utility sector could avoid by pressing Congress instead to pass cap and trade or a carbon tax. But the utilities recognized that, because the CPP wasn’t sanctioned by Congress, it would always be vulnerable to legal challenge. And that’s where we are today.

Even if the CPP survives in the courts, it will not enable the United States to meet its Paris commitments because it only covers emissions in the utility sector, as the CPP alone is only expected to account for a quarter of the carbon reductions outlined in those commitments. In the end, there’s really no substitute for putting a price on carbon, which will both discourage the use of fossil fuels across the entire economy and drive investment to renewable energy and clean tech.