On March 3rd in an editorial in the Lexington Herald-Leader, Sen. Mitch McConnell (R-Ky.) began what has become known as his “just say no” campaign against the Environmental Protection Agency’s Clean Power Plan. Since then, the senator has been loudly calling on Republican-run states to refuse to implement the new landmark climate rule, just like they did with the Affordable Care Act. So far, Louisiana, Kentucky, Indiana, Oklahoma, Texas and Wisconsin have already said—or at least strongly implied—that they will “just say no.”
The EPA’s ingenious response — which hasn’t yet been reported in the media — is buried in the middle of the 755-page proposed federal plan that the agency released in August. Through a series of complicated formulas, the EPA says it’s planning to force all “just say no” states to spend billions of dollars more on renewable energy projects and energy efficiency programs, beyond what they would otherwise be required to fund to comply. In other words, the EPA has structured its federal plan so that if states “just say no,” the EPA gets more of what it wants: green energy.
Take my home state of Wisconsin as an example. If Gov. Scott Walker (R) refuses to craft a state plan implementing the rule, then the EPA will step in and do it for him. And the EPA’s federal plan will include about $600 million dollars of additional renewable energy and energy-efficiency incentives to be used in Wisconsin, above and beyond what’s otherwise needed to comply with the rule’s emission standards. In short, my fellow Wisconsinites and I would end up with a lot more wind turbines and solar arrays if Gov. Walker refuses to submit a state plan.
The EPA’s Clean Power Plan effectively caps the total amount of carbon dioxide that existing power plants in this country can emit and then allocates credits (called emission allowances) to each plant to cover its emissions. Each allowance equals a ton of CO2 emissions. The allowances are generally divvied out to the power plants at the beginning of each year, and at the end of the year the power plant has to have enough allowances to cover its emissions in that year. So if I own a coal-fired power plant that emits a million tons of CO2 per year, the EPA might give me about half a million allowances at the beginning of each year. I would then have to make up the rest throughout the year by either reducing emissions at my plant or buying allowances from someone else.
Each state has its own emissions cap under the Plan, and for most states there aren’t anywhere near enough allowances to go around (which is what forces plants to reduce emissions). In Kentucky, for example, the cap in 2030 is 63.1 million allowances, but Kentucky’s emissions in 2012 were 91.3 million tons.
Usually with these types of rules, the EPA gives out all of the allowances to utilities for free to help offset the cost of compliance. With the federal plan, however, the EPA has said it will include two allowance “set asides” for renewable and energy-efficiency projects that amount to about 12 percent of the total allowance cap. Rather than giving these allowances to utilities to help them comply, the EPA is planning to give them to renewable and energy-efficiency projects instead. And there’s also a requirement that most of these “set-aside” allowances be used only on in-state renewables.
By contrast, if a state submits its own plan, the EPA has said that the state can determine itself how to allocate allowances. The state can allocate these “set-aside” allowances directly to utilities instead of to the renewable energy industry to help offset the utilities’ cost of compliance. But to do so, the Republican-run states would have to submit their own plans.
Assuming each allowance is worth $30 (which is a conservative assumption), Kentucky’s refusal to participate will lead to an additional $1.3 billion in financial incentives between 2022 and 2030 to help build wind turbines and solar arrays in Kentucky. The value of these green “set aside” allowances is even higher for other states, such as Indiana and Texas at $1.5 billion and $3.4 billion, respectively.
And yet, Indiana, Texas, Kentucky and Wisconsin are among the states strongly considering the “just say no” approach. That approach may be good Republican politics, but it will also be a huge boon to the renewable energy industry. The climate wins if states just say no.
Brian H. Potts is a partner at Foley & Lardner LLP. He has published articles on the Clean Air Act in law journals published by Yale, Harvard, N.Y.U. and Berkeley.