On June 30, 2016, the Environmental Protection Agency (EPA) published a proposed rule on the design details for the Clean Energy Incentive Program (CEIP). 81 Fed. Reg. 42940. The CEIP is an optional component of the Clean Power Plan (CPP), the Obama Administration’s initiative to use EPA’s authority under the Clean Air Act (CAA) to address a major cause of climate change by reducing carbon dioxide (CO2) emissions from electric generating units (EGUs) that burn fossil fuels. The CEIP will provide incentives for investments in renewable energy (RE) and demand-side energy efficiency (EE) prior to 2022, the year when the regulatory requirements of the CPP are scheduled to take effect. Although the CEIP is a short-term program to support investments in RE and EE, while it is in effect, it will be a major source of financial assistance. The final design of the CEIP is important because it will determine whether or not tribes will be able to fully benefit from these opportunities. The deadline for filing comments has been extended to September 2, 2016.
Initial Comments from Tribes. In the preamble of the proposed rule, EPA notes that many tribes have expressed interest in participating in the CEIP, and EPA requests comments on possible approaches to enable RE and EE projects in Indian Country to participate in the CEIP. EPA also acknowledges that “several tribes have expressed concern” that EPA’s proposed approach to tribal participation in the CEIP by requiring tribes to apply through state programs “would infringe upon their sovereign rights.” 81 Fed. Reg. 42967. EPA responded that it “does not agree” that there would be “an infringement on tribal sovereignty” because the CEIP does not “impose any legal obligations on tribes … or authorize the states to impose such obligations.” Notwithstanding the lack of legal obligations, EPA’s proposed approach does make tribes subordinate to the states in making some of the basic policy decisions about the CEIP. One such policy decision (as discussed below) is whether the CEIP will be available at all. Arguably, this can be seen as an infringement on the right of tribal self-government.
Overview of the Clean Power Plan. The CPP is a complex regulatory program which is intended to accelerate the transition in our national electric power grid toward renewable energy and away from fossil fuels, especially coal. As such, the CPP differs from typical pollution control regulatory programs in that it not only seeks to reduce pollution from regulated sources, it is also intended to help drive investments in alternatives to those regulated sources. EPA established the CPP through a final rule captioned “Carbon Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units.” 80 Fed. Reg. 64661 (October 23, 2015). See our General Memorandum 16-007 (January 14, 2016). Like other Clean Air Act regulatory programs, the CPP is designed to be implemented through “cooperative federalism,” with the basic framework set out in EPA regulations and the details in plans to be adopted by the states.
In developing the CPP, EPA set goals for CO2 emission reductions for each of the states in which there are affected EGUs. While each of these states is supposed to adopt a plan to achieve its emission reduction goal by 2030, EPA provides a great deal of flexibility in developing plans: the owners and operators of EGUs will have legal obligations to achieve compliance with the applicable emission reduction goals, which can be done by some combination of operating their EGUs less and buying credits from RE projects. The CPP anticipates the development of a market for trading credits. If a state decides not to adopt a plan, or adopts a plan that does not meet with EPA’s approval, EPA will promulgate a federal plan for that state. In conjunction with promulgating the Emission Guidelines, EPA also published a proposed rule to set out requirements for federal plans. 80 Fed. Reg. 64965 (Oct. 23, 2015). The proposed rule for federal plans also included proposed model rules for trading credits.
Clean Energy Incentive Program. The regulatory requirements of the CPP are scheduled to take effect in 2022. The objective of the CEIP is to provide incentives for early investments – the two years prior to 2022 – in renewable energy (RE) projects (wind, solar, geothermal, and hydropower) and in projects that serve low-income communities (demand-side EE and solar electric). Projects that are determined eligible (and which deliver measurable electric power or savings) will be awarded credits by the state, and will also be awarded matching credits by EPA. The EPA will award these matching credits on a one-for-one basis for RE projects and on a two-for-one basis for low-income community projects. The CEIP project sponsor can then sell the credits to an affected EGU, which can use them for compliance with the CPP.
CEIP as an Optional Program. States are not required to include the CEIP in their state plans. In the CEIP proposed rule, EPA says that, if it promulgates a full federal plan for a state, it will include the CEIP component. However, if a state does adopt a plan that meets with EPA approval but the state decides not to include the optional CEIP component, EPA would not promulgate a partial federal plan to make the CEIP available in such a state. Rather, there would be no CEIP in that state. Thus, the basic policy decision of whether to have the CEIP at all would be up to the state; tribes in such a state would have no right to decide for themselves.
The CEIP is optional as well for the three tribes that have affected EGUs within their reservations. We note that the EPA Fact Sheet on the proposed CEIP rule (available at https://www.epa.gov/cleanpowerplan/fact-sheet-clean-energy-incentive-program) mentions tribes at many points, which might create the impression that the CEIP is also an option for tribes whose reservations do not have EGUs. However, all of the references in the Fact Sheet are to the three tribes with affected EGUs. In the proposed rule, the discussion of participation by tribes without affected EGUs is limited to two columns of text. 81 Fed. Reg. 42967-68.
Definition of “Low-Income Community”. There are other points at which EPA’s proposed rule for the CEIP subordinates tribes to states in the implementation of the program. One such point is the definition of “low-income community.” As proposed, the CEIP would provide incentives for demand-side EE and solar electric projects serving low-income communities, and these projects would receive matching credits on a two-for-one basis. The matter of how to define “low-income community” is left to the states, which can use existing definitions from local, state, or federal law. 81 Fed. Reg. 42961. Many reservation communities are “low-income” by most definitions, but tribes may want input into the definition used for the CEIP, since it is a key term in qualifying for the two-for-one match.
Eligibility of Demand-Side Energy Efficiency Projects. Another point at which tribal interests are subordinated to the states is that EPA proposes to let the states determine the kinds of demand-side EE projects that will be eligible for the CEIP. Some suggestions mentioned by EPA include “projects for residences and non-profit commercial buildings, or transmission and distribution projects that reduce electricity use on the customer side of the meter.” 81 Fed. Reg. 42949. A state’s priorities may differ from those that would be set by tribes, but to be eligible, projects in Indian Country would have to fit the state’s priorities. Moreover, under the CPP, demand-side EE projects that are eligible under state plans are included in the term “state measures,” a term that is defined as “measures that are adopted, implemented, and enforced as a matter of State law.” 80 Fed. Reg. at 64961 (40 C.F.R. § 60.5880). In submitting its plan to EPA, each state must demonstrate that it has legal authority to implement and enforce each component of the state plan, including any state measures. 80 Fed. Reg. at 64949 (40 C.F.R. § 60.5745). Requiring demand-side EE projects in Indian Country to be implemented and enforced through the state’s authority subordinates tribal authority to that of the states and, as such, can be seen as an infringement on the right of tribal self-government.
A Federal Plan for Indian Country? As noted earlier, EPA has requested comments on possible approaches to enable RE and EE projects in Indian Country to participate in the CEIP. The CAA authorizes EPA to treat Indian tribes like states and, where such treatment is “inappropriate or administratively infeasible,” also authorizes EPA to implement the CAA in Indian Country directly. One approach to ensure that the CEIP is available in Indian Country would be for EPA to promulgate a federal plan for Indian Country. Presumably, such a federal plan could preserve the option for CEIP-eligible projects to participate in state plans where that would be advantageous.
Alaska and Hawaii. Tribes in Alaska may also want to comment on this proposed rule. In the CPP, EPA did not set emission guidelines for Alaska or Hawaii, because those states are not connected to the national grid. EPA has invited comments on how to make the CEIP available in those states, if they choose to participate. 81 Fed. Reg. 42968. The specific point on which EPA seeks comments is how to allocate a share of credits for those states.
• The proposed rule is available at: https://www.gpo.gov/fdsys/pkg/FR-2016-06-30/pdf/2016-15000.pdf.
• Further information is available at: https://www.epa.gov/cleanpowerplan/clean-energy-incentive-program.
Please let us know if we may provide additional information or assistance regarding the Clean Energy Incentive Program or would like assistance in preparing comments.