United States: EPA's Newest Proposal For GHG Standards

EPA Proposes Greenhouse Gas Emissions Limits for New Power Plants

On March 27, 2012, the US Environmental Protection Agency ("EPA") issued its long-awaited "Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units" (EGUs). The proposal is the clearest statement yet by EPA that new coal-fired power will be strongly disfavored unless built with carbon capture and sequestration (CCS) technology.

The Proposed Standard

EPA's proposed standard–1,000 pounds of CO2 per megawatt-hour (lb/MWhr)–is based on the demonstrated performance of natural gas combined cycle (NGCC) plants, which EPA finds to be the best system of emission reduction for greenhouse gases (GHG). EPA posits that coal and pet coke plants can also meet this standard with CCS.

The standard was issued under the authority of the New Source Performance Standards (NSPS) section of the Clean Air Act, in contrast to current regulations requiring pre-construction permits for new and modified major sources of GHGs, which were issued under New Source Review Prevention of Significant Deterioration (PSD) program. The NSPS GHG standard is based on EPA's past findings that EGUs cause or contribute significantly to air pollution that may reasonably be expected to endanger public health or welfare, or, in the alternative, is based on similar findings EPA made with respect to GHG emissions from automobiles.

Scope of Coverage

The standards only apply to new EGUs over 25 MWe, including coal, oil and combined cycle gas plants. It does not apply to simple cycle gas plants (typically peakers) or, for now, plants that primarily burn biomass (including those that co-fire with less than 250 MMBtu/h of fossil fuel). It also does not currently apply to existing units or modifications of existing units, although EPA suggests such plants may be covered by future NSPS regulations under section 111(d). Further, the standard does not apply to modifications that plants are undertaking to construct pollution controls to meet other EPA requirements for conventional and toxic pollutants.

EPA is further exempting from the standard "transitional" plants that have pre-construction permits and will commence construction within 12 months of the proposal, including those being constructed through federal funding (i.e. government demonstration plants).

Coal Plants Can Be Built with CCS

EPA asserts that there is still a future for new coal plants to ensure energy diversity. Hence, its proposal would allow coal and pet coke plants to meet the standard by using CCS (capturing approximately 50% of the CO2 in exhaust gas at startup) and averaging emissions over a 30 year period. Thus, a plant could install CCS at the outset or after ten years, as long as its 30 year average met the same overall standard. Plants seeking this option would need to meet a 1,800 lb CO2/MWh standard on an annual basis, which can be achieved by installing super-critical boiler technology. By the 11th year of operation, the plant would need to meet a 600 lb CO2/MWh annual standard for the remaining 20 years of its 30-year period.

While many argue that CCS is not commercially viable, EPA appears to view CCS as a more near term option if industry is given the necessary certainty, and by this rule, EPA is seeking to provide that signal.

Standard Based on Industry Practice

EPA claims that the proposed standard is consistent with industry practice and will not impose notable costs upon sources. EPA states that its modeling and industry projections show that NGCC will be the predominant choice for fossil-fuel generation, even absent the rule, until at least 2020, and that few if any new coal plants will be built during that period. It further posits that there will be no coal plants built without CCS by 2030. Even using assumptions of increased gas prices and increased electric demand, EPA did not see significant coal construction in 2030.

EPA reasons that NGCC plants are cheaper to build than coal plants with CCS and take advantage of cheap and widely plentiful gas. It concludes that CCS costs will decline as the technology matures and is utilized more widely. EPA is also clearly sending a signal to the industry as to what plants may be constructed in the future and hopes that this standard will provide the clarity and certainty to the power sector and make CCS more quickly commercially viable.

Likely Next Steps

The proposal will be open for public comment for 60 days following its publication in the Federal Register, which hasn't yet occurred. EPA may then finalize the rule within the next year. It is possible that EPA may significantly modify its proposal before it is final.

We expect that the proposal now, and any final rule that largely keeps the proposal intact, will be vehemently opposed by many in industry and Congress as too costly and impractical, and allegedly based on unsupported projections of gas prices and CCS availability. It will be particularly opposed by the coal industry and those who have called into question the science behind climate change and strongly oppose any regulation of GHGs.

While it will likely be challenged in court, upon finalization, the proposal itself will impact new plants that are not yet permitted and commence construction a year from publication of the proposed rule. That is because "new sources" are defined as those that commence construction after the date of the proposal, but EPA has given a twelve month reprieve to "transitional" plants.

Moreover, any court challenge will be impacted by a ruling on EPA's initial endangerment finding and automobile tailpipe and PSD GHG regulations, challenges to which were heard by the D.C. Circuit in February 2012.

In addition, the standard, when final, would serve as the "floor" for a "Best Available Control Technology" (BACT) analysis for PSD permitting for new GHG sources. Such new sources would need to consider the standard as BACT when applying for pre-construction permits under the Tailoring Rule. However, it is not clear how this might affect existing sources making major modifications which would require pre-construction permits under Tailoring Rule since arguably there is no GHG NSPS for existing plants. Ironically, the proposed standard may have the affect of encouraging companies to modify and/or continue running older plants since construction of new plants would be costly and difficult

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