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Seven things to know about the coming EPA power-plant rule

The Environmental Protection Agency is expected to announce Monday the first-ever carbon emissions limits on the nation's 1,600 power plants. (Thinkstock Image)

The Environmental Protection Agency is expected to announce Monday the first-ever carbon emissions limits on the nation's 1,600 power plants.

The proposed rule is the centerpiece of President Obama's strategy to cut back on climate change and builds on an earlier regulation that would set carbon emission standards for power plants that have yet to be built.

Obama has come to increasingly view climate change as a legacy issue for his presidency. It's one of the few policy arenas where Obama has been able to act without Congress, as court decisions have cleared the way for the EPA to regulate through the Clean Air Act — though such moves often face legal challenges.

This one will as well. Here are the seven things you need to know about the upcoming proposed rule:

1. How big a deal is this?

The biggest, so far as climate policy goes.

The electric power sector accounts for 40 percent of the nation's carbon emissions, which are a key driver of climate change. Climate advocates have said that no meaningful action on the issue can be taken without tackling electricity delivery — and Obama looks poised to take action.

Not least, Obama is clamping down because he wants other nations to take note -- he's made frequent comments about the need for the U.S. to lead, especially heading into United Nations climate talks next year in Paris. The confab is viewed as a make-or-break event on climate policy as nations look to strike an international commitment to slash carbon emissions enough by 2020 to avoid a 3.6-degree Fahrenheit temperature rise by the end of the century.

The EPA has kept the proposed rule closely guarded, so few have any concrete idea of what it's going to look like. What is known is that Obama wants it to be a model, and for it to put the U.S. in a position to wrangle significant commitments from big polluters like China and India.

2. The fence: Outside or inside — or both?

The scope of the EPA's proposed rule promises to be one of the major elements contested in court.

The agency is reportedly prepared to use an "outside the fenceline" approach that would give states a menu of options to comply with the proposed rule. States might be able to use renewable electricity mandates, "smart" grid upgrades, transmission line improvements and energy-efficiency programs as credits for meeting the standard. Environmental groups say that is the only way to achieve meaningful emissions cuts, and the EPA has said it plans to be flexible -- states must get the agency's stamp on their implementation plans 13 months after the rule is finalized on June 30, 2015.

"My understanding is that really meaningful greenhouse gas reductions are going to have to involve exploiting the market, which goes hand-in-hand with an outside-the-fence approach," said Brendan Collins, a partner in the environment and natural resources practice at Philadelphia-based law firm Ballard Spahr.

But some in the electric utility industry says that approach is illegal -- they contend the rule can require improvements only at the individual smokestack, or "inside the fenceline." That would include more firing of natural gas than coal, as it is half as carbon-dense, with other efficiency improvements. Doing so likely would only knock emissions down between 3 and 5 percent.

Another route is a two-tiered approach. Some insiders have suggested the EPA will set a near-term carbon emissions target — say, for 2020 — that could be easily met with inside-the-fenceline maneuvers. Beyond that, the agency would set a more ambitious goal that would require system-wide changes.

3. The baseline: Why does it matter?

The year the EPA chooses to benchmark its emissions-cutting goal will have a tremendous effect in how stringent the rule is. The further in the past the benchmark is, the more improvements states have already made — such as renewable electricity mandates, "smart" thermostats or energy-efficiency programs — can be used to meet the standard.

"They're looking to respect the early actors," Tim Profeta, director of the Nicholas Institute for Environmental Policy Solutions at Duke University, said of the EPA.

The electric utility industry wants that year to be 2005, which has become the de facto benchmark year internationally and for the administration. Obama, at the 2009 U.N. climate talks in Copenhagen, committed the U.S. to slashing carbon emissions 17 percent below 2005 levels by 2020.

Using a more recent year, however, would yield more drastic cuts in carbon emissions. It also likely would be costlier for utilities to implement. Some in the industry had assumed 2005 was the plan, but in recent months, rumblings have grown that the EPA was considering going as recent as 2013.

4. How much would the rule affect coal?

The rule certainly would hurt the coal industry, but regulation is only part of the reason for its recent woes.

Coal's problems, for the most part, rest with low natural gas prices that have chipped away its dominance in the electric utility sector. The forthcoming rule would only accelerate that trend, as the EPA is said to be seeking a 25 percent reduction in carbon emissions. Older, dirtier coal-fired generators are already closing across the country because they can't meet a mercury and air toxics standard that goes into effect in 2016, and the coal industry has shifted toward emphasizing exports.

Still, anyone professing to know exactly how the proposed rule would hit the coal industry is selling snake oil, as the proposed rule's details are not yet known. Several groups -- the U.S. Chamber of Commerce, for one, which said the twin power plant rules would cost the economy $51 billion annually while raising electricity prices, and the Natural Resources Defense Council, which estimated net benefits from lower electricity prices, improved health, averted extreme weather damage and renewable energy jobs to hit as high as $53 billion in 2020 -- claim they've got the numbers, but they're making more a political point with their predictions than offering cold, hard facts.

5. Which states would be most affected?

States that get a bulk of their electricity from coal-fired power, have limited renewable energy sources, and host sizable manufacturing bases would see the biggest changes. Many of those states are in the Southeast, the Midwest and Appalachia. EPA all along has said it would respect the different electricity mixes of each state, so West Virginia's target for reducing emissions would differ from that of California.

"Every state is going to be a different story because every state has a different energy mix, a different policy environment by which they make energy decisions," said Lisa Jacobson, president of the Business Council for Sustainable Energy, which represents energy efficiency, natural gas and renewable energy.

That being said, "affected" is in the eye of the beholder. The NRDC sees those regions as having the most to gain when accounting for health benefits and the economic activity rewiring those state's power delivery would unleash. The Chamber, however, sees those states as the biggest losers -- it predicted half of the $17 billion annual electricity price increases through 2030 would be felt in those states.

The truth is somewhere in between. But it stands to reason that the states with the biggest industrial consumers and those most reliant on coal-fired power could have the highest immediate costs, but perhaps the biggest benefits.

6. Will it require cap-and-trade, or a carbon tax?

The rule isn't expected to prescribe any policy option — it would set a carbon emissions reduction goal, and states can figure out how to get there. But a cap-and-trade program, or a carbon tax, could be one way states choose to do that.

Many already have cap-and-trade systems in place. Nine Northeastern states have banded together to ratchet down power-sector emissions, which have fallen 40 percent in the region between 2005 and 2012. Pennsylvania Democratic gubernatorial candidate Tom Wolf has planned to join that group. California also has an economy-wide cap-and-trade system. State officials in Washington, Oregon and California, along with the Canadian province of British Columbia, are discussing options to collaborate on climate issues.

For Congress, the idea of cap-and-trade and a carbon tax are nonstarters, especially in the wake of sweeping cap-and-trade legislation that cleared the House but then fizzled in the Senate in 2010. But the states have shown a greater willingness to experiment, and the forthcoming EPA proposed rule might send even more to the lab.

7. How will it affect you?

The jury is out on whether electricity prices would increase. State utility regulators, environmental agencies and electric utilities that operate in each state will put their heads together to figure out what is the lowest-cost way to meet the standard. Once that's agreed upon, regulators will approve an electricity rate that accounts for the spending utilities need to make those investments.

Again, anyone who claims to have this answer is either clairvoyant or pulling your leg. The rule hasn't been proposed, implementation plans aren't due for two years and compliance wouldn't begin until closer to the end of the decade. On top of that, legal challenges could well hamstring the pace at which some states pursue changes. Sorting all this out will take time.

"There will be different answers in different parts of the country. It is going to be very difficult to know because there are a number of different ways," Collins said. "All sorts of results are possible, and we won't even know Monday when we read the proposal."