Earlier today, the U.S. Environmental Protection Agency (EPA) released draft rules for reducing carbon emissions from existing power plants. The proposed regulations call for carbon emissions cuts from the power sector of 30% below 2005 levels by 2030, at the latest. The program is to be administered under EPA’s authority under Section 111 (d) of the Clean Air Act.

Power plants will meet this target through regulatory mandates implemented by individual states. States will develop plans to meet their state-specific goals to reduce carbon emissions, using flexible guidelines drafted by the EPA. States can develop individual plans or can work together with other states to develop multi-state plans.

One option available to states is to meet their emission reduction targets, in part, through participation in state or regional cap-and-trade programs. California and the states participating in the Regional Greenhouse Gas Initiative (RGGI) in the Northeast may be able to utilize their programs to help achieve compliance. States not participating in California or RGGI also have the option to join these programs – or form their own state and regional cap-and-trade schemes.

Implementation of EPA’s draft regulations is far off, however. The EPA must go through a regulatory review process, which will include a public comment period for the next 120 days. The EPA program is also likely to face legal challenges. EPA has set a goal for states to submit their carbon reduction plans by June 30, 2016, and they would have up to 15 years to meet their targets.

We will continue to track the development of EPA's carbon rules, and their impact on the development of regional carbon trading programs in the U.S. If you have questions regarding these rules, please reach out to our U.S. Carbon Markets team at: +1 415.963.9137 or +1 914.323.0265.