Midwest states puzzle over regional CO2 rule plan

OREANDA-NEWS. Midwest states are in talks about creating a regional plan for meeting power sector CO2 reduction targets proposed by the Environmental Protection Agency (EPA) but some worry the effort could be frustrated if states adopt divergent compliance approaches.

Indiana and Illinois are among the midwest states exploring states within the midcontinent's primary grid writing a multi-state compliance plan for the proposed Clean Power Plan. Regional approaches are expected to have significant cost and administrative savings compared with individual state compliance plans.

But many questions remain unresolved. It is not clear how states that rely on a "rate-based" emissions target, measured in pounds of CO2 per megawatt hour, would trade carbon allowances with neighboring states that instead choose to work toward a "mass-based" cap measured in total pounds of power sector CO2. EPA has said either type of emission target would be acceptable in complying with the rule.

"As of yesterday afternoon, we could not figure out a viable way that you could trade between a rate-based state and a mass-based state," Indiana's top environmental regulator Thomas Easterly said this week in reference to a meeting he had with other midwest states. His state is also considering writing its own compliance plan or not filing a plan at all.

One way states could avoid carbon trading problems is if they agree to use the same type of CO2 emissions target. But states might have legitimate reasons for choosing one form over another. A rate-based target would help a growing state because it could allow total power consumption to rise so long as carbon intensity dropped. By contrast, a mass-based target would help states wanting to create regional cap-and-trade programs.

"Some are more advantaged by the rate-based answer and some are more advantaged by the mass-based [approach]," Easterly said this week at a technical conference the Federal Energy Regulatory Commission held about the rule in St. Louis.

A group of midwestern state air and utility regulators last year asked EPA to consider ways to accommodate multi-state collaboration that might not take the form of a formal regional compliance plan but would still offer some of its benefits.

The Midwest States Environmental and Energy Regulators asked the agency to recognize that states might write their own compliance plans that were connected only through the mutual acceptance of other states' emission reductions. The group last November included officials from Michigan, Missouri, Arkansas, Wisconsin, Illinois and Minnesota.