By Valerie Volcovici
WASHINGTON, May 20 (Reuters) - President Barack Obama's landmark rules to cut power plant emissions will likely give a fresh push to regional U.S. carbon cap-and-trade systems by allowing for a holistic, state-wide view of new pollution targets, sources familiar with the process said.
The Environmental Protection Agency is poised to allow states including California and Maryland to use existing emission-cutting schemes to reach their goals, according to the sources, instead of adopting a narrower method that would have limited states to tackling emissions at individual plants.
As a result, existing trading schemes that many states are already using to reduce greenhouse gas output may now expand and flourish, experts and officials say. That would be a welcome if ironic outcome four years after Obama's initial effort to foster a federal cap-and-trade plan failed to get through Congress.
Cap-and-trade systems, which are essentially mass-based methods to limit emissions by allowing polluters to trade emission allowances, have been slowly gaining traction in certain parts of the United States, but the uncertainty over EPA rules has threatened to stunt their growth.
The EPA has said for some time that it would pursue a flexible approach with the rules, which will be the first to establish mandatory carbon limits on existing power plants.
But the question of whether it would pursue a systemic approach - or stick with its usual method of setting standards "inside the fence line" of specific plants or units - has been one of the biggest unknowns for foes and proponents alike.
According to a summary document prepared in advance of the release of the new regulations, states will be given the "option to convert" the target emission rate to a mass-based goal, which means they can measure compliance in terms of the total tonnage of greenhouse gases that they emit, including initiatives such as reducing power use or encouraging more renewable sources.
The exact calculations for the conversion were not immediately clear. The rules, currently under review by the White House, are expected to be released on June 2.
"A mass-based regional approach is simple, transparent and able to accommodate many carbon emission reductions including energy efficiency and renewable power," said Kelly Speakes-Backman, Commissioner of the Maryland Public Service Commission and chair of the board of directors of the Regional Greenhouse Gas Initiative, a trading scheme of nine Northeast states.
The alternative would have been using an "inside the fence line" approach focused on use of cleaner fuels and improved efficiency at specific power plants.
The narrower approach - advocated by states such as heavily coal-dependent West Virginia - might have limited the EPA's ability to set more ambitious targets, and given some states an excuse for failing to meet them, according to experts. Power plants account for 40 percent of U.S. carbon dioxide emissions.
The EPA declined to comment on the specifics of its proposal until it was released.
CAP AND TRADE IT
The initiative is the centerpiece of Obama's climate action plan, a strategy based on executive actions that would help the United States meet a target of reducing its greenhouse gas emissions by 17 percent by the year 2020, compared with 2005 levels.
By setting state-specific standards that take into account their different power plant fuel mixes, the EPA would be rewarding states that have already put in place measures to cut carbon emissions from power plants, such as cap-and-trade systems and renewable energy mandates.
"The EPA has been signaling that whether or not to adopt cap and trade programs is for individual states to decide," said David Doniger, policy director for the climate and clean air program at the Natural Resources Defense Council, which has been closely involved with the EPA effort.
"This is important to the Northeastern states and California that already have established those programs, and could encourage other states to join their efforts."
The EPA standard would be set as targets of pounds of carbon dioxide emitted per megawatt hour, according to a source familiar with the proposal.
California has had an economy-wide cap-and-trade system in place since 2012, part of a suite of programs to help cut its greenhouse gas emissions by 2020 down to levels achieved in 1990.
The nine states that are part of the Regional Greenhouse Gas Initiative scheme, which applies to the power sector only, saw their carbon emissions fall by more than 40 percent from 2005 to 2012.
TARGETS STILL UNCLEAR
The basis for the emission targets is one of many key details that will determine the impact of Obama's signature climate reforms, which are already being fiercely fought by groups such as the U.S. Chamber of Commerce and the coal industry.
It is unclear what overall emissions reduction target the EPA plans to set, another vital detail. Some industry sources said they anticipate an overall target cut in carbon dioxide of 25 percent but are unsure about what baseline year the EPA will choose to measure the reduction against.
The advantage for early-mover states could be diminished if the EPA were to set the baseline at 2013, an option one industry source says is under consideration. Energy-related carbon emissions last year were slightly more than 10 percent below 2005 levels, according to the Energy Information Administration.
"This would make any reduction target more of a challenge to meet, and it would seem to penalize states that have taken early action to reduce emissions," said one industry representative. (Editing by Jonathan Leff and Matthew Lewis)