On Aug. 3, the U.S. Environmental Protection Agency (EPA) released its long-awaited Clean Power Plan, the most sweeping U.S. regulation to control emissions of carbon dioxide — the gas with the greatest contribution to climate change. Much has been written about the plan, the politics, and its implications, but, how will it impact the HVACR industry and its products? The products we manufacture and install are already greatly shaped by federal energy-efficiency and refrigerant regulations; will the Clean Power Plan be good for energy-efficient equipment?
HOW THE PLAN WORKS
As background, Congress has tried for years to put reigns on CO2 emissions through proposed cap-and-trade programs, but no such legislation has yet to make it through the two chambers. In his 2014 state of the union message, President Barack Obama emphasized the importance and urgency of reducing emissions, saying his administration would carry out what Congress could not. As a result, in June 2014, the EPA proposed a plan to limit power plant CO2 emissions. (The EPA already regulates other pollutants emanating from power plants, such as particulates and sulfur dioxide.)
The proposed rule provided broad guidelines that would allow each state to decide how it would reduce its emissions and meet a state-specific target set by the EPA. Specifically, the agency outlined four “building blocks” for reducing emissions:
• States could improve the heat rate (efficiency) of power plants;
• States could retire coal-burning plants in favor of cleaner, natural gas, electric-generating plants;
• States could add more renewable generation into their mix; or
• States could develop energy-efficiency programs to reduce the need for power.
Practically speaking, states would need to undertake a combination of the four building blocks to meet the target power plant emission reduction of 32 percent per state by 2030, compared to 2005 levels.
In the year since the proposed rule was issued, coal-rich states promised to block the plan through the courts, Senate Majority Leader Mitch McConnell, R-Kentucky, wrote an op-ed piece encouraging states not to comply, and interest groups met with the EPA to try to influence the final rule.
The final rule does have some notable revisions. Most of the changes were aimed at removing any arguments that might make a legal challenge to the rule successful. The effective date was also moved back from 2020 to 2022, which will push out the benefits of most, but not all, of the Clean Power Plan by two years.
Another change — perhaps the most noteworthy for our industry — was the removal of the fourth building block: energy-efficiency programs. At first reading, it might appear as though energy efficiency is no longer an avenue to meeting the regulation’s objectives; however, that is not the case. The removal of the energy-efficiency building block only means energy-efficiency programs were not considered when the EPA calculated and set each state’s emissions reduction target. Regardless, energy-efficiency programs can still be included as part of each state’s plan for achieving its target. And, let’s not forget, the cheapest kWh is still the kWh that does not have to be generated.
So, all of that goes to say that states will be encouraged to strengthen their energy-efficiency programs in order to reduce power plant emissions. What does that mean for the HVACR industry? It could mean a boon for high-efficiency equipment, but, probably, not right away. First, the states have a year to submit their initial plans to the EPA and then two more years to submit final plans. (Any state choosing to not submit a plan will have one written for them by the EPA.) That will bring us to 2018. At that point, states will have to meet interim goals as well as the final 2030 goal. Most state initiatives won’t begin to be recognized by the EPA until 2022; however, the EPA has proposed the early recognition of renewable energy programs in 2020 and also early recognition of energy-efficiency programs, but only in low-income areas. But, that begs the question: Why only early recognition of energy efficiency in low-income areas when the benefit of cutting back on electricity use provides benefits for all consumers?
Nonetheless, energy-efficiency measures put in place as early as 2018 that will still be providing savings in 2022 will be credited beginning in that year, including high-efficiency HVACR systems. Of course, high-efficiency HVACR will be competing for a role in the states’ plans against other energy-efficiency measures, such as fuel switching and renewables. Still, with so much in the balance, all practical measures will have to be considered and tried.
How can the HVACR industry make sure its technologies, systems, and capabilities are recognized in Clean Power Plan measures nationwide? Now that the final rule has been issued by the EPA, the spotlight is shifting to the states to develop plans. The states, under pressure to produce a plan within the next year, will look to a variety of experts. The national associations for state energy officers and for state clean air regulators are developing model plans for the states to use or adapt. This is a great opportunity for the industry to suggest its own ideas for states’ plans and educate decision-makers about the opportunities of high-efficiency technologies. Incentive programs, such as tax credits, grants, and financing, and state purchases of high-efficiency HVAC equipment, are just some of the ideas that could be considered. These already have been adopted in some states and could become more widespread as states take action. And, the EPA will undoubtedly be clarifying its rules as necessary. The industry should be there to advocate for wider efficiency credits.
The Clean Power Plan will change the way the U.S. generates and uses electricity. Since more than one-third of electricity consumed in the residential and commercial sectors in the U.S. is used to power HVACR, improving the efficiency of the equipment in the field will play an important role if the plan is to meet its objectives. No time could be more opportune than now to begin working on the national level and with the states to help them develop their plans.
Publication date: 9/14/2015