Governors who refuse to comply with the Environmental Protection Agency's carbon emissions rule for power plants might get something they like even less — a cap-and-trade system imposed on their electric utilities.
The half-dozen governors, several of whom have presidential ambitions and who have threatened not to comply with the rule, face a choice: Acquiesce to the EPA or risk allowing the more politically toxic cap-and-trade scheme to take root.
The EPA can enforce a "federal implementation plan" if recalcitrant states don't submit a plan by September 2018 to meet state emissions targets outlined in the regulation finalized Monday. The default federal plan could involve cap-and-trade, which has become a political non-starter on Capitol Hill and among conservatives following the 2010 collapse of a sweeping federal bill to create such a plan.
In the rule, the EPA proposes two options for states that don't submit a plan or file one that isn't approved: Capping total emissions for states and allowing their utilities to trade credits, or setting a "rate-based standard" for states — basically, a certain level of carbon dioxide emissions per megawatt-hour of electricity — in which utilities would trade emissions credits.
Several governors, mostly Republicans, have suggested they might sign onto Senate Majority Leader Mitch McConnell's, R-Ky., call to not comply with the rule.
The governors who have said they won't comply — Oklahoma Gov. Mary Fallin — or signaled they might not — Mike Pence of Indiana, Scott Walker of Wisconsin, Bobby Jindal of Louisiana, Phil Bryant of Mississippi and Democratic West Virginia Gov. Earl Ray Tomblin — believe the Supreme Court will strike down the rule.
Representatives for Pence, Walker, Jindal, Bryant and Tomblin told the Washington Examiner that they haven't decided what they will do. Jindal spokesman Mike Reed, though, noted, "Ultimately, this will be the decision of the next governor's administration." Initial state plans are due as early as September 2016, when term limits will put Jindal out of office. Fallin's office did not return a request for comment.
It's not exactly a question of choosing between cap-and-trade or a state-designed plan. The governors think transforming their power sectors, which they say will increase electricity bills, will be unnecessary once the courts decide. So they would rather avoid the higher costs they think the rule would bring.
"Does it really matter whether they end up with a [cap-and-trade] scheme imposed by the feds rather than some other self-designed scheme that will raise electric rates just as much? If you are a conservative governor or legislator opposed to regulating greenhouse gas emissions, then wouldn't it make sense to put all the responsibility and therefore the blame on the EPA?," said Myron Ebell, director of the Center for Energy and Environment with the conservative Competitive Enterprise Institute.
If enough states refuse to file a plan, there's also a question of how many resources the EPA has to design and monitor numerous cap-and-trade plans, said Sarah Hunt, general counsel at the free-market Niskanen Center.
But Dan Kish, senior vice president for policy with the conservative Institute for Energy Research, which opposes the EPA rule and cap-and-trade, noted that states are familiar with state-level trading programs to reduce sulfur dioxide emissions — a less egregious form of cap-and-trade for conservatives than the national, economy-wide approach proposed in the failed 2010 federal legislation.
"States have a pretty good familiarity with that as a regulatory option for them for close to 25 years," Kish said.
Ebell added that utilities might prod governors into compliance. He noted the Edison Electric Institute, the industry group that represents large investor-owned utilities, spoke positively about the rule and changes that the EPA made between the draft and final version.
Most of the states that have objected to the rule have Republicans in the governor's mansion and state legislature, which means "the political messaging could get ahead of the utility-level capital planning for a little while," said Kevin Book, managing director with consulting firm ClearView Energy Partners. Book said it's likely most of those states will submit plans.
"If they gamble on a court victory and lose, EPA gets to call the shots," he said.
That's why some argue it's better for states to submit a plan even if they think the rule will fail in court because a cap-and-trade system could end up being worse.
"The model [federal implementation plan] underscores the need for states to take matters into their own hands. Even states expecting the rule to fail in litigation should partially comply to make sure they have grounds to sue based on actual harm," said Catrina Rorke, director of energy policy and senior fellow with the free-market R Street Institute, which opposes cap-and-trade.