With finalization of the EPA’s section 111(d) guidelines, states will make decisions about how to reduce carbon dioxide emissions. These decisions could fundamentally affect the U.S. power sector and will be made in an environment of uncertainty about the timing, stringency, and compliance costs of future air quality regulations. In light of this uncertainty, states may wish to look beyond carbon dioxide when developing section 111(d) plans. The Clean Air Act allows them the flexibility to reduce carbon emissions in a way that hedges the risk of anticipated air regulations and that potentially lowers long-term compliance costs. This paper discusses these benefits, summarizes air quality regulations that could affect the power sector in the future, and describes how states can use the flexibility afforded them by section 111(d) to manage this regulatory risk. In addition, it identifies elements of state 111(d) plans that may lead to reductions in criteria pollutants.
Nicholas Institute for Environmental Policy Solutions