Before August 2015, the US Environmental Protection Agency (EPA) had not broadly regulated carbon emissions from power plants. No longer.

The EPA earlier this month introduced the so-called Clean Power Plan – President Barack Obama’s landmark climate change initiative – that sets carbon emissions goals for each state. If all states comply, carbon emission levels in 2030 would be 32% lower than 2005 levels, according to the EPA.

The actual scope, and speed, of the plan’s impact rests on how states choose to comply. Some states may choose to increase dependence on renewables or nuclear energy, while others may encourage the construction of new gas-fired projects. States also can delay compliance. They face a 6 September 2016 deadline to submit compliance plans, but can opt to extend that deadline to 2018.

Regardless of states’ plans, many coal-fired power plants are expected to see revenues decrease. Affected companies could include Longview Power, Illinois Generating, GenOn and Chief Power (an ArcLight subsidiary).

Renewables and nuclear will benefit from coal’s loss. The effect on gas-fired plants is less certain, but probably neutral.

But the plan, while final, will encounter heavy legal challenges from the coal industry, and could be overhauled after Obama leaves office in early 2017. On 13 August 2015, just 10 days after the EPA issued the rule, 15 states – led by coal-dependent West Virginia – filed a petition to suspend all related deadlines.

Effects

Pace Global Energy estimates that the Clean Power Plan will cause coal generation to decrease 8% more in 2030 than a baseline scenario without the plan. Renewables (2%), nuclear (2%) and energy efficiency (4%) will make up for the difference.

Natural gas generation will replace some of the retiring coal capacity. But because the rule also limits emissions from new gas-fired facilities, such growth will be tempered. This is in contrast to the June 2014 draft version of the plan.

“The draft plan was fairly silent on regulating new gas-fired plants that may have replaced coal-fired generation, but the final rule covers them explicitly,” said Pat Augustine, executive director at Pace Global in Washington, DC. This requirement, coupled with ambitious emission goals, will also require far greater national dependence on renewables.

Besides emissions standards, the rule also introduces an optional incentive programme to encourage states to make early investments in wind, solar and energy efficiency. This may benefit renewable energy sponsors, including yieldcos TerraForm Power and NRG Yield, according to an August 2015 report by Moody’s Investors Service.

Nuclear sponsors, including Exelon Generation and PSEG Power, could also be beneficiaries of the rule, because states are incentivised to use zero-emission power sources. But new nuclear power projects are unlikely, given the cost overruns that have plagued ongoing projects, including the Vogtle nuclear project in Georgia, Moody’s notes. In the first half of 2015, for instance, Georgia Power increased the estimate for its share of the construction cost to $5.04 billion from $4.4 billion.

States

Parts of the country that rely heavily on coal generation, especially newer coal-fired generation, are expected to make the most changes, according to Pace Global Energy. These areas include states in the Midwest (including Wisconsin and Indiana) and the Mountain West (Colorado and Wyoming). That’s because those newer coal-fired plants, though more efficient than older facilities, have longer lifespans, Augustine notes. This stands in contrast to states heavily reliant on older coal-fired plants; those states already have plans to shut down existing coal capacity for economic reasons or in compliance with another regulatory standard.

Even states with low coal dependence may need to alter their existing power plans. States like New Jersey and Maryland have relatively low reliance on coal, but expect lots of new gas-fired plants. To comply with rules, those states may have to replace some of that new planned gas-fired capacity with renewables or energy efficiency.

States that have already retired much of their older coal-fired capacity and have met much of their renewable portfolio standards – including California, Massachusetts and Oregon – won’t need to make significant changes to their power fleet.

These effects, however, will depend on whether the rule survives beyond Obama’s tenure.

The US in November 2016 will elect a new president. A Republican administration would almost surely slow, overhaul or nix the plan.