The U.S. Environmental Protection Agency ("EPA") issued the Affordable Clean Energy ("ACE") rule on July 8 to repeal the Clean Power Plan ("CPP") because EPA determined that the Clean Air Act does not authorize generation shifting to be required as part of the Best System of Emission Reduction ("BSER") for existing electric generating units under Section 111(d). This determination is independent of the rest of ACE, meaning that the repeal will stand or fall on its own, even if a court decides that the rest of ACE has to be remanded or vacated.

In ACE, EPA dealt with some of the other key arguments that were made in the CPP case. For example, ACE is evidently based on a conclusion that EPA's authority to issue a Section 111(d) standard is not foreclosed by the Mercury and Air Toxics Standard for electric generating units issued under Section 112 of the Clean Air Act, and that a new endangerment finding was not required to proceed under Section 111. However, EPA supported the determination that Section 111(d) allows them to apply controls to a particular covered source only, rather than looking to the operation of the grid as a whole by adopting positions on the clear statement doctrine and Federal Power Act jurisdiction conflicts that were asserted in challenges to the CPP.

ACE adopts BSER for coal-fired electric generating units only. It does not adopt any standards for other fossil fuel-fired units such as gas-fired steam turbines, combustion turbines, integrated gas combined cycle ("IGCC"), various low-capacity generators, and various combined heat and power and cogeneration units. Coal-fired units will have to undergo a process where the state will consider the heat rate improvement measures listed on the menu provided by EPA (and perhaps additional measures) to adopt a source-specific emission standard. States have three years to conduct this review and submit the results to EPA in the form of a state implementation plan with compliance schedules that may vary according to the particular requirements for each electric generating unit.

There is a lurking question whether certain states will be able to use this authority to require deeper emission reductions than EPA contemplated. EPA tried to address this issue by providing a presumptive range of reductions (and associated cost effectiveness) that should be achieved with heat rate improvement measures.

The CPP petitioners are seeking dismissal of the CPP case in the DC Circuit with support from EPA. If the CPP case is dismissed, it is possible that at least some industry parties will file new petitions for review of ACE as a way to preserve arguments about EPA's authority to issue any rule.

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