Clean power play

The EPA’s Clean Power Plan could either make or break the state’s economy.

From the pages of In Business magazine.

When it comes to reducing carbon emissions, the Environmental Protection Agency is demanding that states like Wisconsin clean up their act, but will the agency’s controversial Clean Power Plan put the state’s economy in a straightjacket?

As is the case with many environmental policies, the CPP will impact the state’s economy because Wisconsin generates about 62% of its electricity from the very coal-fired power plants that CPP would phase out. The plan and its related rules are designed to reduce emissions for existing fossil fuel power plants with options such as increasing coal power plant efficiency, eventually replacing coal-fired plants with natural gas-fired plants, and increasing renewable forms of energy such as wind and solar.

Environmentalists hailed the rule as a necessary step to arrest climate change caused by CO₂ emissions, but Wisconsin and other states and energy industry groups have sued to block the plan from moving forward. Although EPA Administrator Gina McCarthy insists Rule 111(b) of the federal Clean Air Act gives the EPA the authority to regulate carbon emissions, opponents question the EPA’s authority to proceed without Congressional approval. Last month, opponents got a reprieve when the U.S. Supreme Court, on a divided 5–4 vote, halted implementation of the plan until all legal challenges could be resolved. Following the Feb. 13 death of Justice Antonin Scalia, Gov. Scott Walker issued an executive order prohibiting state agencies from developing a state plan to comply with the 111(b) Rule until expiration of the stay issued by the Supreme Court.

By 2030, the CPP requires Wisconsin to reduce carbon emissions by anywhere from 34% to 41%, depending on the approach the state adopts, from a 2012 baseline. Under the plan, individual states can collaborate with other states or take part in multi-state approaches, including emissions trading. Initial state plans were to be submitted to the EPA by September of this year, with a more detailed plan due in September 2017, and a final plan due in September 2018. If a state fails to submit a plan or puts forth a plan that does not comply, the EPA is authorized to come up with a federal implementation plan for that state.

With the plan being challenged in the courts, we spoke to Clean Power Plan opponent Lucas Vebber, director of environmental and energy policy for Wisconsin Manufacturers and Commerce, and to CPP advocate Keith Reopelle, senior policy director for Clean Wisconsin.

Energy economics

Opponents claim the plan will increase electricity rates to the point where companies in their respective states have a distinct competitive disadvantage against international competitors. Wisconsin’s Public Service Commission estimates the CPP will cost the state $13 billion and 20,000 jobs, and Vebber says WMC views the plan as nothing short of an “economic and jobs disaster” for Wisconsin. He asserts it will cause energy costs to significantly rise — up to 20%, according to an estimate from NERA Economic Consulting in a study prepared for the American Coalition for Clean Coal Electricity. As electric bills rise, Vebber says Wisconsin manufacturers, whose average electricity bill already is about $31,000 per month, will be less competitive against national and international competition.

“In Wisconsin, manufacturers account for about .15% of all utility customers but they use one-third of the total electricity,” Vebber notes. “Manufacturing is heavily electricity-intensive, and it’s our number one industry. It’s what we do.”

Vebber notes that since the EPA’s emission goals are based on a 2012 baseline, they will be even harder to meet because that year featured low natural gas prices and therefore lower carbon emissions compared to other years. “That’s one of the reasons it’s going to be even harder to comply with than it looks on paper,” he states.

Both Vebber and Reopelle acknowledge that with or without the CPP, state utilities plan to decommission coal-fired plants over the next decade and beyond, but they disagree about who should make these decisions. “As they find other sources that are more reliable or more cost effective for them, those are decisions that should be made at the state level by state regulators, not from Washington,” Vebber opines.

Perhaps it’s no surprise that an organization called Clean Wisconsin would support a plan called Clean Power, but the organization believes it represents an opportunity for economic transformation here. Based on the EPA’s modeling, Reopelle says there would be a small decrease, on the order of 7% to 8%, in electric bills by the year 2030. That assumes a certain amount of compliance through the energy-efficiency piece, “and that’s really key,” Reopelle says.

Even before the governor’s executive order (see below), the Walker administration’s approach to crafting a plan was a mystery. Wisconsin is one of the states suing to block the plan and a legal resolution is unlikely before the September 2016 deadline. A Clean Wisconsin analysis urges the state to address efficiency through doubling the current $96 million annual allocation for the Focus on Energy program because every $1 invested in the program yields $3 in savings on electric bills.

The Clean Wisconsin approach also incorporates emission reductions from the planned retirement of coal plants and a modest 5% increase in renewables by 2030, but the Focus on Energy piece represents the largest chunk of the required carbon emission reduction — 6.6 million tons. Increasing renewable generation by 5% accounts for another 5 million tons, and boosting the efficiency at coal-fired plants by 1.5% provides the smallest sliver.

With this approach, Clean Wisconsin estimates the EPA target is met by 2030 with a $55 million reduction on the energy bills of homes and businesses. “The point of our analysis is basically that if we rely on energy efficiency, we can do this not only at a low cost but at a negative cost,” he says. “We can actually save money.”

According to Reopelle, economic development potential exists in expanding markets for the roughly 500 Wisconsin companies that operate in the renewable supply chain, “but only to the extent that we comply through renewable energy.” Instead of sending an estimated $12 billion for our energy needs out of state, meeting some portion of Wisconsin’s energy demand with renewables would shift a portion of that to companies like Tower Tech in Manitowoc, to reimburse more farmers for devoting land for wind turbines, and supporting energy-efficiency companies such as Johnson Controls in Milwaukee and Franklin Energy Services in Port Washington.

“The Clean Power Plan presents an opportunity that should be a no-brainer in terms of what it can do for Wisconsin businesses and what it can do for Wisconsin’s economy,” Reopelle says. “As long as we keep the price down by relying on energy efficiency, we can see a lot of our businesses grow as a result of this shift.”

Vebber argues that renewable energy is “not a great power source” because if the wind stops blowing and the sun stops shining, you don’t have electricity. “We do have solar and wind and as the wind dies down and as the sun doesn’t shine, coal plants can ramp up their electricity generation to ensure that we have that base-load power,” he notes. “As we get rid of coal plants, as they come off line, our electrical grid is going to become less reliable and it’s going to mean that manufacturers need to take additional steps to ensure they have enough energy, and they will need to plan further on that. That’s all very expensive.

“Those are things that are not only going to harm manufacturing within our state, but it’s also going to make us a less attractive place for anybody to come and start a new business, so it will impact new job creation and impact businesses that are looking to expand.”

(Continued)

Questioning authority

Opponents question whether the EPA has the authority to issue the rule, in effect bypassing Congress, but the agency claims it has the authority to regulate carbon under a provision of the Clean Air Act. Congress was unable to nullify the rules because of a presidential veto, and prior to the Supreme Court’s decision to put the plan on hold the U.S. Court of Appeals-District of Columbia Circuit denied an initial request for a stay sought by states involved in the lawsuit. The Supreme Court granted the stay just prior to Scalia’s death, and it’s an open question as to when he will be replaced. Many expect the underlying case to be appealed all the way to the Supreme Court, and it might not be decided until 2017.

The charge of executive branch overreach is the crux of the state and coal industry lawsuits. Vebber notes there is a long history of states controlling their own electricity infrastructure, so in his view the EPA is essentially trying to use environmental regulations to set state energy policy. “The EPA’s argument hinges on their reinterpretation of the term ‘regulated,’” he suggests. “It’s contrary to 20 years of what the EPA has done. It’s an inaccurate reading of the law and it’s one of the primary reasons why Wisconsin and others are saying the rule was illegally promulgated.”

Reopelle says the Supreme Court already has found that the EPA not only has the authority to act but also is required under the Clean Air Act to regulate carbon pollution emissions. “It’s been in the courts for about 10 years and that’s what the Supreme Court has said about it — specifically from large stationary sources and power plants, which are the place to start,” he says. “That makes the most sense because they are the largest sources.”

The EPA claims its rules include enough flexibility for the states to design and implement plans while maintaining electrical reliability. Reopelle says that flexibility is illustrated by the trading of carbon credits that states can engage in, especially the enhancement that was contained in the final rule. “We thought it was pretty clear in the proposed rule that the EPA approved of trading, but in the final rule they went way beyond encouraging it,” Reopelle says. “They basically defined how states could make their plans ‘trading ready.’”

In the proposed rule, the EPA said states could band together and submit a joint compliance plan. In the final rule, the agency said states don’t even have to coordinate with neighboring states, with the caveat that states that take a rate-based approach trade with states that take the same approach. Similarly, states that take a mass-based approach should trade only with states that take that approach.

Vebber doubts that Wisconsin has such flexibility under existing state law, saying the state would have to pass enabling legislation. “The EPA is trying to force Wisconsin to take action that state government doesn’t have the ability to do right now,” he states, specifically citing the cap-and-trade piece of the federal plan. “Wisconsin regulators certainly don’t have the ability to enforce that plan right now, so I think it’s disingenuous to say we have the flexibility to act on this.”

Another zero emission option is greater reliance on nuclear power, but building more nuclear plants is the most expensive alternative. While progress has been made in the State Assembly to lift the existing moratorium on more nuclear plants, the State Senate is still deliberating the matter.

Getting no credit

Vebber acknowledges resentment over the Clean Power Plan because Wisconsin has a strong record of compliance with the Clean Air Act. He says Wisconsin utilities built coal-fired power plants because that’s what state regulators told them they had to build and now they have another set of regulators punishing them for building coal plants. “We don’t get any credit for the things we’ve done over the past decade to reduce our carbon use,” he states. “Our air is the cleanest it’s been in decades.”

Reopelle credits the EPA for following the law in promulgating the current pollution limits as part of the Clean Power Plan, but he adds that more will need to be done. “It’s not going to be enough to get us where we need to be in terms of reducing our CO₂ in the atmosphere,” he states, “but it’s a critical step — an early step.”

Walker weighs in

In issuing his Feb. 15 executive order prohibiting state agencies from developing a plan to comply with EPA’s Clean Power Plan, Gov. Scott Walker reiterated his view that the rule exceeds President Obama’s authority and would place an undue burden on Wisconsin ratepayers and manufacturers. “The stay granted by the Supreme Court validates our concerns about this rule. The Executive Order we issued today [Feb. 15] protects our taxpayers from an unnecessary cost of up to $13 billion as we continue to act in the best interests of Wisconsin citizens.”

Click here to sign up for the free IB ezine – your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.