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Earlier this week, the EPA adopted rules under the Clean Air Act intended to ensure that by 2030, carbon dioxide (CO2) emissions from existing power plants will be 32 percent below 2005 levels. The rule establishes emission performance rates for fossil-fuel-fired electric steam-generating units and natural-gas-fired combined-cycle generating units and sets state-specific CO2 goals based on the emission performance rates. States are then required to adopt plans to ensure either that the plants within its borders will individually meet the emission performance rates or that the plants will collectively meet the state-specific CO2 goals. State plans are due September 6, 2016.

At the same time that the EPA adopted this final rule, it issued proposed rules for “federal plans” that will be implemented in states that do not adopt approvable plans. The EPA will implement either a mass-based emissions trading program or a rate-based emissions trading program for states that do not adopt plans. Under a rate-based approach, a facility that cannot meet the emission performance rates, measured in pounds of CO2 per megawatt-hour, can purchase “emission rate credits” to bring its rate of emissions into compliance. Emission rate credits are generated by electric generating units that supply zero- or low-emitting electricity resources to the grid. Under a mass-based approach, the EPA would create an emissions budget equal to the tons of CO2 allowed to be emitted by the plants in the state. The EPA would then distribute “allowances” to the plants within the state based on historical generation. Allowances could then be bought and sold on the open market, and each plant would be responsible for obtaining allowances sufficient to cover its emissions during a given period. Comments on the proposed rules will be due in early November.

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