State Plan vs. Federal Plan: What Difference Does it Make?

Recently, Alabama announced it would delay steps to develop a state plan under President Obama’s “Clean Power Plan” until the D.C. Circuit Court either approves or denies a stay. While some warn that such an approach could risk the imposition of a federal plan, Alabama’s caution is prudent. Rushing to develop a state plan before the courts weigh in risks higher electricity rates and diminished living standards for American families.

Moreover, a state plan would not be better than a federal one. Since a state plan could place a state on an irreversible path toward compliance, states should wait for legal resolution before making any binding commitments.

Shortly after the U.S. Environmental Protection Agency (EPA) published the final carbon rule in the Federal Register, 27 states sued the agency. Although the rule’s legal status remains questionable, a number of voices, including EPA, environmental organizations, and utilities, are clamoring for states to submit implementation plans by the September 2016 initial filing deadline.

In contrast to Alabama’s cautious approach, Michigan—led by Governor Rick Snyder—is rushing ahead and already crafting a state plan for later this year. The governor explained that he wanted “to make Michigan’s energy decisions in Lansing” and not leave those choices to federal bureaucrats. However, Gov. Snyder is mistaken: Submitting a state plan will actually ensure federal control over a state’s energy policy.

Despite Gov. Snyder’s presentation of the facts, a state plan would be quite similar to a federal plan. For example, under both state and federal plans, compliance would begin in 2022 and verification would commence in 2025. Furthermore, EPA must approve each state plan and back it up with federal measures. According to the rule, incorporating “a backstop of federally enforceable emission standards … is legally necessary for a state plan.”

In other words, states are not afforded more flexibility under a state plan. Any state that fails to meet the emission targets and commitments established by its plan could be subject to federal penalties.

Beyond the “stick” of federal enforcement, EPA is also dangling a carrot to encourage states to submit a plan. The Clean Energy Incentive Plan (CEIP) is designed “to reward early investments” in renewable energy generation and energy efficiency programs for low-income communities. However, even states that opt for a federal plan can participate in CEIP and receive credit for eligible actions.

Most significantly, both state and federal plans would raise electricity prices and shut down reliable power plants. The biggest determinant of a plan’s impact is the compliance approach that is selected, and mass-based carbon trading is being pitched as the preferred option. Environmentalists and utilities have encouraged states to adopt cap-and-trade, and EPA’s final rule outright advocates for it.

Nevertheless, an analysis by NERA Economic Consulting modeled the impacts of a mass-based carbon-trading scheme comparable to EPA’s proposed federal plan and found that electric rates would rise by double-digit percentages in 40 states. Correspondingly, a report on the rule’s economic impacts conducted by Energy Ventures Analysis estimated that “41 gigawatts (GW) of power plant capacity” would close prematurely—enough to power more than 30 million homes.

Despite the conspicuous similarities, there is one key difference between a state and a federal plan: By not submitting a state plan before legal resolution, a state can avoid binding commitments and is not locked in to compliance if the courts strike down the carbon rule.

States that take the bait and send a plan to EPA before a legal outcome will affix themselves to federal enforcement of the final rule and saddle families and businesses with higher energy costs. In recognition of the legal uncertainty surrounding the carbon rule, states should seek to “do no harm” and avoid steps that place them on an irreversible path toward implementation.

Thomas J. Pyle is President of the American Energy Alliance.

Morning Consult