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

Many states are concerned about job losses and higher energy prices resulting from EPA’s regulation of carbon dioxide emissions from power plants—what EPA calls the “Clean Power Plan.” EPA, environmental pressure groups, and utilities have called on states to submit compliance plans. Some are explicit about submitting a state plan to avoid an allegedly more harmful federal plan. At the same time, 27 states have sued EPA, and the rule’s future is in legal limbo.

EPA’s proponents have implied that a federal plan would be more painful so as to pressure states into submitting their own plans. One reason for this is so that states take the blame for higher energy prices—not EPA.

There’s also been no shortage of utilities echoing support for the regulation. The utilities appear to want to lock in the march toward implementation before the political or legal processes interfere—much like what happened with the mercury rule (explained here). But is a federal plan really the bogeyman it is made it out to be? To put it another way, how are state plans and federal plans different? Should there be a race by states to submit a detailed plan to the EPA?

If you cut through the rhetoric, it’s clear there isn’t much difference between a state plan and a federal plan. EPA wrote these regulations with one goal in mind: a federal takeover of America’s electricity system, just as President Obama tried in 2009 with his failed cap-and-trade legislation. As the nearby chart shows, EPA’s “state plan” is really little different from a federal plan. This is an important point for states who are feeling a rush to develop a detailed plan in 2016.

Click here to download a static image of this graphic.

Here are some key similarities between the federal plan and state plans:

• Compliance begins in 2022, and verification begins in 2025, regardless of whether states are subject to a state or federal plan.[1]

• EPA is dangling the “Clean Energy Incentive Program” as a carrot to entice states to submit plans. The CEIP is designed to “reward early investments in wind and solar generation, as well as demand-side energy efficiency programs implemented in low-income communities.” While, according to sources, at least one utility has claimed the CEIP is only available under a state plan, EPA has made clear that this program is still available under a federal plan.[2]

• Both federal and state plans will likely push states into an interstate, mass-based cap-and-trade program (see why here). California and the Northeast Regional Greenhouse Gas Initiative (RGGI) are frequently touted as models for states to follow.[3]

• Both plans are enforceable under federal law. While EPA claims a state plan gives states the “flexibility” to avoid federal control, this isn’t the whole story. All state plans must include a federally enforceable “backstop” in the event a state fails to achieve EPA’s mandated emission cuts.[4] It’s also not clear that special interest environmental groups won’t sue to enforce state measures enacted under a state plan.

• On a related note, both plans are still ultimately subject to federal penalties under the Clean Air Act. A compliant state plan relying on state laws would arguably allow the state to avoid federal penalties, if the state actually meets its emission targets. However, if the state plan falls short of meeting EPA’s mandates, federal “backstop” measures kick in, and electricity providers could quickly find themselves subject to federal penalties if they fail to meet the requirements of the “backstop” measures.[5]

• Both state and federal plans will increase electricity rates and shut down reliable energy production. According to NERA Economic Consulting, under a mass-based cap-and-trade system (like the one EPA proposed for the federal plan), residents of 40 states would see their electric rates hiked by double-digit percentages. It doesn’t matter whether the cap-and-trade program is administered by the states with a federal “backup” or simply by the feds to begin with—the end result is the same.

While there are many similarities, there is at least one crucial difference. Any laws enacted under a state plan to comply with the rule will remain in place even if the courts invalidate the rule later. By contrast, if the rule is struck down, the federal plan goes away. This means states that go with a federal plan will not be stuck with new state laws that hike electricity prices and shut down reliable power sources.

Twenty seven states have sued EPA contesting this rule. This is the most states to ever contest a Clean Air Act regulation in court. EPA recognizes that the carbon dioxide regulations are on shaky legal footing. That is why proponents of the regulation are pressuring states to submit detailed, legally-binding plans as soon as possible. Some states are playing into EPA’s hand by accelerating implementation before the courts weigh in. For example, Michigan Governor Rick Snyder announced his state would submit a plan to “seize the opportunity to make Michigan’s energy decisions in Lansing, not leave them in the hands of bureaucrats in Washington, D.C.”

But states have no reason to implement the rule before the basic legal questions are resolved. In fact, their right to submit a state plan exists even after a federal plan has been imposed.[6] Alternatively, once state plans are submitted, there could be irreversible damage done. It will send the wrong signals to utilities and force higher energy prices on families and businesses. States should know their options and avoid making decisions before absolutely necessary.

[1] Environmental Protection Agency, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units; Final Rule, 80 Fed. Reg. 205 at 64,673 (Oct. 23, 2015).

[2] Environmental Protection Agency, Federal Plan Requirements for Greenhouse Gas Emissions From Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules;

Amendments to Framework Regulations, 80 Fed. Reg. 205 64,966 at 65,025 (Oct. 23, 2015).

[3] Id. at 64,970.

[4] Id. at 64,975–64,976.

[5] Id. at 64,976.

[6] Id. at 64,975.