State and Regional Comprehensive Carbon Pricing and Greenhouse Gas Regulation in the Power Sector under EPA’s Clean Power Plan

On November 21, 2014, the University of California–Davis (UC Davis) Policy Institute, Resources for the Future (RFF), and Next 10 hosted a workshop in Davis, California, to identify interactions between the US Environmental Protection Agency’s (EPA’s) proposed rule to reduce carbon emissions in the electricity sector and comprehensive (economy-wide) carbon pricing among the three Pacific coast states and British Columbia, as envisioned by the Pacific Coast Climate Alliance (PCCA).

High-levels of coordination among states as well as regulatory clarity from the US Environmental Protection Agency (EPA) will be necessary for the short-term goal of state compliance with the EPA’s upcoming Clean Power Plan (CPP) for reducing greenhouse gas emissions. The same goals also will be important to state and regional efforts with respect to comprehensive carbon pricing.

Those are among the highlights released today in a new report released today, State and Regional Comprehensive Carbon Pricing and Greenhouse Gas Regulation in the Power Sector under EPA’s Clean Power Plan. The report grew out of a major workshop convened last November by Next 10 along with the University of California-Davis Policy Institute and Resources for the Future. The 38 participants included regulators from Washington, Oregon, California, and Nevada, regional EPA officials, nongovernmental organizations, and academics. Experts worked to identify how the CPP might affect efforts to reduce and price carbon presently underway by jurisdictions included in Pacific Coast Climate Alliance (PCCA) – California, Washington, Oregon and British Columbia, and others.

The CPP is expected to go into effect later this later summer.

Among the recommendations in the report on multi-state collaboration is the need for federal and interested parties to provide state support for economic and legal analyses as well as for several other issues identified.

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The report highlights three main observations that were evident in the workshop:

  • First, the forthcoming CPP will likely facilitate and complicate the prospect of comprehensive carbon pricing, with the net effect depending on future decisions by EPA and the states. Facilitation may result by introducing requirements on electricity generators throughout the entire western region of 2 the United States to reduce carbon emissions.
    • Because the Pacific Coast jurisdictions are closely linked to other western states in the power grid and are net importers of power from other western states, the Pacific Coast jurisdictions cannot pursue environmental policies without considering the interaction of those policies with their neighbors.
    • The CPP introduces obligations and invites coordination on a multistate basis, which could help the Pacific jurisdictions achieve greater emissions reductions.
    • However, the policy choices that might be made to comply with the CPP may introduce regulatory frameworks that would detract from the use of pricing mechanisms.
  • Second, the degree and type of collaboration that jurisdictions pursue in response to the CPP may determine the likelihood of a future comprehensive carbon price in the West.
    • The ideal form of collaboration for compliance with the CPP that facilitates a comprehensive carbon price is not initially obvious. In this setting, a potential path forward may be for states to align their policies incrementally over time.
  • Third, additional analytical and legal questions were identified that could usefully inform the decisions of the states and the intent of the workshop participants that collaborative strategies would be available for ensuring that the CPP facilitates the prospect of a comprehensive carbon price. We identify many of those questions in this workshop summary.