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September 20, 2013

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Take 2: EPA Re-Proposes Its Regulation of Greenhouse Gas Emissions from New Power Plants

By Mike Nasi, Jacob Arechiga, and Ben Rhem

Today, September 20, 2013, the U.S. Environmental Protection Agency (EPA) re-proposed its regulations to limit greenhouse gases (GHGs) emitted from newly constructed power plants, known as the GHG New Source Performance Standards (NSPS) for power plants, available here. President Obama has requested that the rule be finalized in a "timely fashion."1
Having withdrawn its original proposal from April 2012, EPA is once again moving forward with an incredibly burdensome regulation that, although proposed with a slightly different rationale, would reach the same outcome. The rule would make it practically unlikely, if not impossible, to construct a new coal-fired power plant in the United States in the foreseeable future.  The proposal also sets the groundwork for EPA's impending regulation of the country's existing power plant fleet, with regulations scheduled to be proposed in June 2014.
How did we get here?
On December 30, 2010, EPA reached a settlement agreement with certain states and environmental groups to move forward on GHG NSPS for power plants.  The agreement included that by July 26, 2011, EPA would propose a rule under Clean Air Act Section "111(b) establishing standards of performance for GHGs for new and modified EGUs," as well as propose a rule under Clean Air Act Section "111(d) that includes emissions guidelines for GHGs from existing EGUs."  EPA did not meet this deadline.  EPA published its original version of a new-source NSPS proposal in the Federal Register on April 13, 2012. 
Rather than establishing separate limits for the different categories of gas-fired power plants and coal-fired power plants, the April 2012 version of the rule proposed one overarching "fossil-fueled power plant" category which included coal, coal refuse, oil, petroleum coke, and natural gas power plants.  The limit for all of these plants was set at 1,000 pounds of carbon dioxide per megawatt-hour (lb CO2/MWh).  This is a standard of performance based on the most modern natural gas fired combined cycle (NGCC) power plant.  EPA concluded that these natural gas power plants qualified as the "best system of emission reduction"2  for the entire "fossil-fueled category," even for coal-fired power plants.  The result was a standard that even the most advanced coal-fired power plants could not meet without the installation of carbon capture and storage (CCS) technology – a technology that has not yet been demonstrated to be feasible on a full scale project, much less available on a commercial level.3  
EPA's combining of source categories was unprecedented, as EPA has historically proposed emissions limits by source category or subcategory.  For example, EPA has looked at the best performing, or group of performing, gas-fired power plants and has set limits for all gas-fired power plants based on that standard of performance; EPA has done the same for coal and the other categories.  EPA has also historically established subcategories to account for differences within the categories, such as different types of combustion technology or different characteristics of fuel. 
This combination of categories led to intense opposition by numerous parties.  Perhaps because of this pressure and a fear of the legal frailty of such an approach, the President in June 2013, requested that the April 2012 rule proposal be withdrawn and be re-proposed, which is what the EPA has done today.
What does the rule proposal require?
The rule proposed today includes only minor substantive changes from the April 2012 proposal and will have the same effect on the development of new electric generation resources, particularly coal generation sources.  Unlike the April 2012 proposal, this new proposal establishes separate categories for coal-fired and gas-fired power plants.  However, while the gas-fired emission limit remains at 1,000 lb CO2/MWh4,  the coal-fired power plant limit is raised only to 1,100 lb CO2/MWh5;  still far below what even the most technologically advanced coal-fired power plant can meet and well below the standard that EPA's own assessment of what the newest coal-fired power plants can meet (1,800 lb CO2/MWh). 
Rather than relying on the emissions rate of a natural-gas combined cycle power plant like it did in the April 2012 proposal, EPA in this rule proposal claims to be basing its 1,100 lb CO2/MWh limit for new coal plants on the implementation of "partial" carbon capture and sequestration.  EPA believes that a carbon-capture-based standard for new coal plants complies with the Clean Air Act's requirements that these limits are "adequately demonstrated" and appropriately takes into account the cost of achieving these reductions, nonair quality health and environmental impacts, and energy requirements.  This is despite the fact that, as stated above, carbon capture is prohibitively expensive; has yet to be installed on a full scale project; is not commercially available and won't be for many years; and will prevent the development of new coal generation for the foreseeable future.
The new rule proposal also changes the applicability of the standards to simple-cycle gas units, often referred to as "peaker" units because they typically come online during times of peak electricity demand.  The April 2012 proposal explicitly excluded these units from regulation, but this new proposal removes that exclusion. Instead, it sets a criteria that the standards would apply only to a power plant that supplies more than one-third of its potential electric output, based on a rolling three-year average, and more than 219,000 MWh net electric output to the grid per year.  EPA predicts that this practically will still likely exclude "most" simple-cycle units.
What happens next?
EPA has proposed a 60-day comment period on the rule proposal released today.6  The comment period will begin to run once EPA formally publishes the rule proposal in the Federal Register, likely in the next few weeks.  After which, it is expected that EPA will move relatively quickly to finalization.  Once final, the rule will almost certainly be challenged in federal court by numerous companies and states opposing the rule. 
EPA has stated that once it has issued new-source NSPS, it then has the legal authority to proceed with an existing-source NSPS.  The President has requested that an NSPS for existing sources be proposed by June 1, 2014, with finalization by June 1, 2015.  The  Clean Air Act and EPA rules require that EPA establish a yet to be determined "standard of performance" for existing sources.  Each state is then required to prepare and submit a state implementation plan to EPA, based on EPA guideline documents, that details how that state's power plants will meet  the EPA's standard of performance.  Under the President's proposed timeline, states would be required to submit their implementation plans by June 30, 2016. 
The legal certainty of the new-source NSPS and the process and substantive requirements for the existing-source NSPS are still unclear at this time, but what is clear is that EPA is closer to regulating GHGs from power plants than it ever has in its history. 
For additional information on this rule proposal, please contact Mike Nasi (mnasi@jw.com or 512.236.2216), Jacob Arechiga (jarechiga@jw.com or 512.236.2049), or Ben Rhem (Ben Rhem or 512.236.2012).

1Presidential Memorandum -- Power Sector Carbon Pollution Standards, June 25, 2013.  Available HERE.
2The Clean Air Act states that the “standard of performance” is to reflect the degree of emission limitation achievable through the use of the “best system of emission reduction” that has been adequately demonstrated; the standard also takes into account the cost of achieving the reduction and any nonair quality health and environmental impacts and energy requirements.  See Clean Air Act § 111(a)(1).
3Simple cycle natural gas plants were not included in the category or factored into the April 2012 standard. 
4This 1,000 lb CO2/MWh for gas plants only applies to larger units, those with a heat input rating over 850 mmBtu/hr.  Smaller units (those with a heat input rating less than 850 mmBtu/hr) will have a limit of 1,100 lb CO2/MWh.  
5The 1,100 lb CO2/MWh standard applies over a 12-month operating period.  EPA is also seeking comment on a proposal to allow for a 1,000-1,050 lb CO2/MWh standard over an 84-month operating period. 
6Comments to the Office of Management and Budget should be submitted 30 days after publication.

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