EPA Issues Clean Power Plan to Reduce Power Plant Carbon Emissions Promotion of Clean Energy Generation The emission guidelines are designed to shift generation from higher-emission steam-generating units to lower-emitting generation and zero-emission renewable generation. States will be permitted to set aside a percentage of their allowance caps to be issued to qualifying renewable energy or energy efficiency projects. Early action wind and solar projects and energy efficiency projects in low-income communities also will be encouraged in states that implement the Clean Energy Incentive Program, included in the final CPP. The guidelines also explain the issuance and use of “Emission Rate Credits” (ERCs), an important compliance mechanism for states that target compliance with the achievement of subcategory or statewide emission rates. As long as all requirements are met, ERCs created by renewable energy or other projects located in one state could be traded to affected EGUs in a second state. Potential Implications for Developers and Utilities There is a great deal of uncertainty surrounding the implementation of the CPP.

The rule itself provides the states with the initial authority and flexibility to determine how they will implement the emission guidelines, subject to the targets set by EPA and other limitations and requirements that are part of the CPP. Although promotion of renewable energy is inherent in the structure of the CPP and the final rule is designed to encourage the states to use flexible, market-based mechanisms that will provide incentives for renewable energy, the final regulations applicable to affected EGUs will not be known until the process of developing and approving state plans (or finalizing federal plans in states that do not choose to submit their own plans) has been completed. And finally, the CPP is a controversial regulation that already has been and will continue to be subject to multiparty litigation involving the federal government, energy regulators, the states, the power generation sector, other industrial sectors (including coal mining) and environmental groups.

There are a number of potential outcomes to this litigation, including the possibility that the use of the “outside the fenceline” approach to setting emissions targets for existing fossil fuel electric-generating units is not authorized by Section 111(d) of the Clean Air Act. Once the dust settles, the CPP could benefit developers of clean energy generation and traditional rate-regulated utilities. Because the owners and operators of affected EGUs are likely to rely upon clean energy projects to achieve compliance with the state plans developed pursuant to the CPP, this may make it easier for clean energy project developers to obtain the power purchase agreements necessary for project financing. Regulated utilities that make investments to upgrade their plants, develop lower-emitting replacement generation, or expand transmission and distribution capacity in order to comply with the regulation also could benefit. 2  Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates .