Pareto Policy Solutions, LLC

advancing innovation through smart regulation

Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

Timing Is Everything: EPA's Clean Power Plan

In June, the Obama Administration released its 650-page proposal to limit greenhouse gas (GHG) emissions from existing power plants.  Known as the Clean Power Plan, it is one of the most significant regulations issued by President Obama, and clearly the most important to EPA leadership. 

The proposal would require each state to meet a 2030 pollution target equivalent to a 30% reduction in power plant emissions from 2005 levels and, according to EPA, would give states considerable flexibility in how to meet the target.  As EPA Administrator Gina McCarthy said in July, “States have a compliance path that allows them to design plans sensitive to their needs—fifteen years until compliance with the final target—to consider and make the right investments.” 

Well, not quite.

The proposal contains an interim target for each state over the 2020-2029 time period that, according to EPA’s own calculations, would likely require the majority of emission reductions to occur as early as 2020, giving states limited flexibility.  This interim target has enforcement teeth, so states cannot ignore it.

How would states react to meet the interim target?  The most viable compliance strategy would be to switch from coal to natural gas, increasing natural gas demand and putting upward pressure on the price of natural gas in the near-term.  Portions of the manufacturing sector, which relies heavily on natural gas, would be competitively disadvantaged, lowering its US emissions but increasing that of its overseas competition.

For those wishing to advance renewable energy, nuclear energy, or energy efficiency, the Clean Power Plan provides less of an incentive because more time is typically needed to advance these alternatives, as EPA admits in its proposal.

So why the rush to reduce emissions quickly when Administration officials have made a point to talk about the 2030 target and the lengthy timeframe states have to plan for implementation?

The answer may be found in President Obama’s promise to reduce GHG emissions 17% by 2020.  Keeping his promise, which requires new regulation, would strengthen the President’s position in the next round of international talks on climate change, to be held in Paris in 2015.  By aggressively regulating GHG emissions now, the USA can best convince other major emitting countries to pony up.

The Administration faces a choice with this proposed regulation:  provide more flexibility to meet the 2030 target and give a bigger push to non-fossil energy, or maintain fidelity to its “17% reduction by 2020” pledge and impose greater costs on US consumers and manufacturers by driving up demand for natural gas. 

When it comes to the Clean Power Plan, it is all about the timing.


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