EPA Issues Draft Rules for Design Details for Clean Energy Incentive Plan; Tribal Projects are Eligible

On June 30, the EPA issued its proposed rules for the design details of the Clean Energy Incentive Plan (CEIP), a component of the (now stayed) Clean Power Plan (CPP). Comments are due by August 29, 2016. Further information about the CEIP can be found on the EPA Clean Power Plan website and the National Tribal Air Association Policy Kit.

The CEIP was originally proposed as a feature of the CPP– the final rule promulgated by the EPA in October 2015 to reduce carbon dioxide emissions from certain electricity generating units (EGUs). As designed, the CPP seeks to reduce carbon emissions by almost 35 percent across the country, although the emission reduction guidelines are defined at a state level (and for three Indian Tribes with EGUs located on tribal lands). The CPP also contemplates an emission trading scheme to help achieve the compliance goals (emissions guidelines) set forth in the CPP.

The CEIP is generally designed to leverage the CPP’s proposed emission trading schemes to promote the early deployment of zero-carbon emission electrical generation (from renewable energy resources) and reduction in electricity use through demand side energy efficiency measures. To incentivize this early deployment, the EPA proposes to create a state-based allocation of “early action” emission reduction credits (ERC) or allowances (equal to 300 million short tons of carbon emissions) that will match an equal number of allocations at the state level. With an additional goal to promote benefits to low-income communities – traditionally over-burdened with pollution, carbon emissions, and climate change impacts – the EPA proposes a double match for demand side energy efficiency projects in low-income communities. Renewable energy projects have to be in operation on or after January 1, 2020, while energy efficiency projects must be implemented after September 6, 2018. Early action ERCs or allowances will only be awarded for a two-period – 2020 and 2021.

The CEIP is a voluntary program for the States to adopt as part of their state implementation plans (SIP) for the Clean Power Plan. If a state does include a CEIP in its SIP, then the CEIP must comply with the proposed regulations. Furthermore, the EPA expects to include a CEIP in any federal implementation plan that may be applied to a state or the three Indian tribes subject to the Clean Power Plan.

The newly proposed design details for the CEIP include several aspects that are most relevant to Indian Tribes: the incorporation of Indian Lands in State CEIP plan, the definition of Low-Income Community, project definitions, and eligible renewable energy technologies.

1. Inclusion of Indian Country in State CEIP.

The EPA has proposed specific language that prohibits states from disallowing or excluding projects located on tribal lands from receiving early action ERCs or allowances. This requirement is definitely welcome language to ensure that projects on tribal lands are treated equally with off-reservation projects. Tribal lands contain almost 6 percent of the technically feasible renewable energy resources in the United States – at least 27 billion MWh of potential renewable energy generation.[1] This potential generation includes over 14 billion MWh of utility-scale solar, 1 billion MWh of wind, 5 million MWh of conventional geothermal, 7 million MWh of hydroelectric, and 5 million MWh of biomass and biogas. At least 335 federally recognized tribes[2] – not including the three tribes subject to the CPP – have an opportunity to participate in state CEIP. This provisions reflects that the EPA seeks to promote tribal participation in both the CEIP and emission trading mechanisms so that Indian Tribes can directly benefit from their abundant renewable energy resources while contributing to the reduction of carbon emissions.

The CEIP requirements also allow for projects that are located outside of state with CEIP to be eligible for early ERCs or allowances, as long as the project “benefits” the state. This appears to also cover projects on tribal lands that are outside a CEIP state. To illustrate how this might apply to Indian Tribes, consider the following:

Tribe A is located in State 1, but State 1 does not implement a CEIP. However, State 2 – which is contiguous to State 1 – does have a CEIP. If Tribe A does a project on its lands and sells the power to a utility located in State 2, then State 2 can award early action ERCs or allowances to the project on Tribe A.

Furthermore, the EPA requires states to conduct “meaningful outreach” to stakeholders, which presumably includes Indian Tribes located within the state. It is unclear how EPA will gauge whether outreach was meaningful, but states should be required to conduct consultation with Indian Tribes and to document that consultation with its CEIP submission. Consultation with Indian Tribes should be required because (1) many, if not most, Indian Tribes are considered “low income communities” under federal program definitions, (2) Indian Tribes may have a strong interest in developing energy efficiency programs to obtain early ERCs or allowances, and, (3) because the EPA leaves final program design up to the states, there is no other feasible or practicable way to ensure the states have appropriately considered Indian Tribes and tribal communities in the CEIP development process.

2. Definition of “Low-Income Community.

EPA proposes to allow states the flexibility to define “low income communities” within the state. States can use definitions from current federal programs, such as the New Market Tax Credits, LIHEAP, DOE Weatherization Assistance Program, or HubZones. States may also be able to use definitions under existing state programs. This flexibility, while laudable for off-reservation communities, may inadvertently exclude tribal communities. It is not entirely clear that state programs would include the tribal low income communities, as states do not typically support tribal low income communities in state programs. To ensure tribal communities are not excluded from the definition of “low income community,” federal programs should be used for tribal lands.

3. Project Definition.

An eligible project includes “a program that aggregates multiple projects.” Under this definition, an Indian Tribe can develop an energy efficiency program that will include several individual projects that deploy energy efficiency or distributed solar energy projects across the whole community. The Indian Tribe could then submit an application to the state for early action ERCs or allowances for the whole program that is an aggregation of multiple individual projects and receive one allocation for all the projects. While the focus of the energy efficiency project is on low income households, the EPA is seeking comment on whether it should include government buildings, community buildings, or non-profits.

4. Expanded Inclusion of renewable energy technologies.

EPA has proposed to expand the types of renewable energy technologies eligible for the renewable energy portion of the CEIP to include geothermal and hydroelectric, but not biomass, resources. This expansion of eligible resources is a positive move. However, most tribes do not have geothermal and hydroelectric resources. And, for those Indian Tribes that do have these resources available on their lands, the lead time for development of these resources is well beyond the ability to quickly and efficiently deploy projects within the timing of the CEIP. However, many Indian Tribes do have substantial biomass resources.[3] The proposed design rules lack any rationale for not including biomass. While it is clear the EPA wants to promote zero carbon emission technologies, certain biomass resources as well as biomass technologies can have negligible emissions. Furthermore, certain biomass resources can produce biofuels for use in electricity generation, such as landfill gas and biodigester gas, which also have negligible emissions. Several tribes have already developed and implemented projects using landfill gas and biogas, and several more are in development stages.

EPA has also proposed to include distributed solar energy technologies within the energy efficiency projects. This is also a very positive change, as virtually every Indian Tribe has an opportunity to deploy distributed solar projects as part of an energy efficiency program. However, wind and storage technologies should also be considered. Indian Tribes have over 375,000 MW of potential wind resources (1 billion MWh of generation potential), and many Indian Tribes have deployed distributed wind, using their robust and favorable wind resources within their tribal community. Distributed wind should be eligible for inclusion in energy efficiency projects so that low income tribal communities with substantial wind resources can also potentially benefit from the CEIP.

Overall, the proposed design rules for the CEIP are positive for Indian Tribes. However, because the EPA defers in very many ways to the states to develop and implement the CEIP – including defining “low income community,” defining eligible projects, and even determining whether to do a CEIP – Indian tribes remain unacceptably subject to state decision-making on benefiting from their abundant renewable energy resources or energy efficiency efforts.

[1] E. Doris et al., National Renewable Energy Lab., Geospatial Analysis of Renewable Energy Technical Potential on Tribal Lands (2013) (available at www.osti.gov/bridge).

[2] Alaska is not included in the CPP. Consequently, the 229 federally recognized tribes would also not be covered by this program.

[3] See E. Doris et al., supra note 1, at 19 – 22.

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