The U.S. Environmental Protection Agency (EPA) established the Clean Energy Incentive Program (CEIP) as a voluntary complement to its regulatory program known as the Clean Power Plan (CPP). The CEIP is intended to promote early reductions of carbon dioxide (CO 2 ) emissions before the CPP is scheduled to take effect in 2022. The goal of the CPP is to reduce CO 2 emissions from existing fossil-fuel-fired electric power plants, which produced 30% of all U.S. greenhouse gas emissions in 2014. Economic modeling indicates that the CPP would significantly reduce future CO 2 emission levels from U.S. electricity generation. The CEIP would support this objective by supporting renewable energy electricity generation and energy efficiency activities through early action incentives. The CPP has generated considerable controversy and garnered interest from Congress and a wide range of stakeholders. After EPA proposed the CPP in 2014, the agency received more than 4.2 million public comments. Some Members in the 114 th Congress have made several attempts to hinder the implementation of the CPP. In particular, after EPA published its CPP final rule in October 2015, both the Senate and the House passed a resolution of disapproval pursuant to the Congressional Review Act. President Obama vetoed the resolution in December 2015. If enacted, the resolution would have prohibited the CPP rulemaking from taking effect. More recently, the House passed H.R. 5538 (Department of the Interior, Environment, and Related Agencies Appropriations Act, 2017) on July 14, 2016. Section 495 of this bill would prohibit EPA from using appropriations to "finalize, implement, administer, or enforce" the CEIP proposed rule. Various state and industry parties applied to the Supreme Court in late January 2016 for an immediate stay of the CPP final rule. In a move that surprised many observers, the Supreme Court issued a stay of the final rule until the legal challenges have been resolved. The first section of this report discusses the details of the CEIP proposed rule. The second section discusses the legal status of the CPP and how the Supreme Court stay may or may not affect the CEIP rulemaking developments. EPA established the framework of the CEIP in its CPP final rule in 2015 and published a proposed rule for the CEIP in the Federal Register on June 30, 2016. The proposed rule seeks to provide additional detail, clarify certain elements that were previously outlined, and alter some of the program eligibility requirements. The CEIP, as described in the proposed rule, is a voluntary program that would encourage states to support energy efficiency measures and renewable energy projects before the first CPP compliance obligations are scheduled to take effect in 2022. Under the CPP, states would submit plans to EPA detailing how they would comply with state-specific interim and final targets. The CPP allows states to use either emission rate targets (measured in pounds of CO 2 emissions per megawatt-hour [MWh] of electricity generation) or mass-based targets (measured in tons of CO 2 emissions). In addition, states would need to include particular design elements in their plans in order to participate in the CEIP. The CEIP would establish a system to award either emission rate credits or emission allowances for two categories of activities: 1. Energy efficiency and solar renewable energy projects in low-income communities, and 2. Renewable energy projects in participating states. The proposed rule altered these two categories from the CEIP introduced in 2015 by adding solar power projects to the low-income community category and expanding the scope of renewable energy project types to include not only wind and solar but also geothermal and hydropower. Electricity generated from nuclear power or biomass would not qualify. Regarding the definition of a "low-income community," EPA decided to let states choose the scope of this term and include the details in their respective state plans. The proposed rule states EPA proposes to provide states with the flexibility to use existing local, state or federal definitions that best suit their specific economic and demographic conditions while ensuring that eligible projects and programs receiving incentives are benefitting low-income communities. The proposed rule modified the eligibility start date for projects. Eligible energy efficiency projects in low-income communities would include those that commence operation on or after September 6, 2018. EPA defines "commence operation" as "the date that a CEIP-eligible low-income community demand-side [energy efficiency] project is delivering quantifiable and verifiable electricity savings." Eligible renewable energy projects, including solar power projects in low-income communities, would include those that commence commercial operation on or after January 1, 2020. Renewable energy projects would receive one credit/allowance from the state and one credit from EPA for every two MWh of renewable energy generation in 2020 and 2021. Projects in low-income communities would receive double credits: For every two MWh of generation from solar power or avoided electricity generation through energy efficiency, these projects would receive two credits/allowances from the state and two from EPA. The CEIP credits take the form of emission rate credits or emission allowances, depending on whether a state plan chooses an emission rate or mass-based target. The credits/allowances could be sold to or used by an affected emission source to comply with the state-specific emission or emission rate reduction requirements. In a CO 2 -constrained regime, these credits/allowances would have monetary value. For example, in the Regional Greenhouse Gas Initiative , a CO 2 cap-and-trade program involving nine Northeast states, emission allowances have sold at auction at prices between $2 per ton and $7.50 per ton. EPA requires state plans to ensure that state-issued credits/allowances for the CEIP will maintain the stringency of the emission or emission rate targets. For example, for mass-based plans, EPA proposes that states allocate CEIP allowances from the state's CPP emission allowance budget in its first compliance period (2022-2024). For states using a rate-based approach, EPA proposes that states apply an adjustment factor to any credits issued in the CPP's first compliance period to account for credits issued pursuant to the CEIP. In contrast to state-issued credits/allowances, states do not need to account for the matching credits/allowances provided by EPA. The proposed rule does not provide details as to the source of the EPA's matching pool. For mass-based programs, EPA would match up to the equivalent of 300 million emission allowances nationally during the CEIP program life. Half of the EPA's pool of matching credits would support renewable energy projects, and half would support energy efficiency and solar energy projects in low-income communities. The amount of EPA credits/allowances potentially available to each state participating in the CEIP depends on the relative amount of emission reduction each state is required to achieve. States with greater reduction requirements would have access to a greater share of the EPA credits. Figure 1 illustrates the allowances available to each state, assuming the state were to adopt a mass-based approach in its compliance plan. Table 1 presents the same information, in list form, alphabetically by state. In its proposed rule, EPA seeks comments from stakeholders on multiple issues. In particular, EPA seeks comments regarding the intersection of the CEIP and the recently renewed tax credits for renewable energy. On December 18, 2015, the President signed into law the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), which, among other provisions, extended and modified the production tax credit and the investment tax credit for specific renewable energy technologies. Prior to the December 2015 development, the PTC had expired and the ITC was scheduled to expire at the end of 2016. Some groups have raised concern about the CEIP rewarding projects that would have been constructed anyway, especially in the context of the extended tax incentives. EPA is seeking comments on how to design a mechanism in the CEIP that would address this possibility. Parties began filing petitions for review in the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) challenging the CPP final rule starting on the day the rule was published in the Federal Register , October 23, 2015. By the December 22, 2015, petition deadline, more than a hundred parties, including 27 states, filed dozens of petitions challenging the CPP. Eighteen states, the District of Columbia, five cities, one county, over a dozen nonprofit organizations, and other parties intervened to support the CPP. On February 9, 2016, the Supreme Court issued an order staying the legal effect of the rule for the duration of the litigation. A stay is generally defined as the "postponement or halting of a proceeding, judgement, or the like." Therefore, EPA cannot implement or enforce the CPP during the stay. If the rule is ultimately upheld, some of the deadlines for the states will likely be delayed. While the CPP litigation progresses, with oral arguments before the en banc D.C. Circuit set to occur on September 27, 2016, EPA continues to work on the CEIP and other measures to complement the implementation of the CPP if it survives legal challenge. EPA's release of the CEIP proposed rule following the Supreme Court's order has raised questions regarding the agency's legal authority to move forward with the CEIP and other related measures while the CPP is stayed. The House Committee on Energy and Commerce sent a letter to EPA Administrator Gina McCarthy stating, "Continuing to develop a suite of derivative rules and guidance raises questions about whether EPA is complying fully with the Court's stay order, about what legal authority the agency has to proceed with such actions." Some have argued that EPA is effectively enjoined from engaging in any activities relating to the CPP, which would include the CEIP.