EPA Carbon Rule for Utilities Expected To Continue Trend Toward Natural Gas Plants

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By Andrew Childers  

The Environmental Protection Agency will limit new fossil fuel-fired power plants to 1,000 pounds of carbon dioxide per megawatt-hour as part of a March 27 proposed rule setting the first source-specific greenhouse gas emissions standards.

The proposed new source performance standards would apply to new fossil fuel-fired power plants with a generating capacity greater than 25 megawatts.

EPA does not anticipate the proposed rule would significantly reduce carbon dioxide emissions from power plants because the industry has already been trending toward cleaner-burning natural gas. Power plants projected to be built going forward would already comply with the standards, the agency said.

The rule is expected to further that trend toward natural gas, as industry representatives say the controls that would be required for coal-fired plants are too expensive, particularly untested carbon capture and storage systems.

Placed alongside other Clean Air Act rules that target the power sector, industry groups say this will amount to a de facto ban on new coal-fired plants.

Rule Locks in Shift to Gas

Speaking with reporters March 27, EPA Administrator Lisa Jackson said the rule will have minimal impact on electricity prices and is not expected to have significant compliance costs for the power sector because it follows the shift from building coal-fired power plants toward cheaper, cleaner natural gas.

“We believe we're meeting the market where it is,” Jackson said. “People are moving toward cleaner generation. They're doing that by taking advantage of our country's abundant natural gas.”

New natural gas-fired combined cycle power plants should be able to meet the proposed standards without any additional controls, EPA said.

According to EPA's regulatory impact analysis of the proposed rule, the performance standard would have “negligible [carbon dioxide] emission changes, energy impacts, quantified benefits, costs, and economic impacts by 2020.”

Power plants emitted 2.3 billion metric tons of carbon dioxide-equivalent in 2010, 72.3 percent of reported emissions nationwide (07 DEN A-1, 1/12/12).

“In the short term and the medium term, we are only going to see cleaner generation sources proposed. We're not going to see new coal plant proposals,” Joanne Spalding, a managing attorney for the Sierra Club, told BNA March 27.

The Sierra Club participated in lawsuits forcing EPA to issue the power plant performance standards.

EPA's regulatory analysis projects only 2 gigawatts of new coal-fired capacity with carbon capture will be built by 2020. Meanwhile, the agency anticipates 7 gigawatts of natural gas-fired capacity will be built during that period while renewable energy will provide another 26.9 gigawatts of capacity.

“Forecasts suggesting that new coal is unlikely to be built by 2020 have been shown to be robust under a range of alternative assumptions that influence the industry's decisions to build new power plants,” EPA said in its analysis.

Coal Driven Toward Carbon Capture

Though EPA's proposal may push more power plants toward natural gas, coal “will remain the largest single source of electricity in our country” under the proposed rule, Jackson said.

The new source performance standards are technology-based emissions limits issued under Section 111 of the Clean Air Act. The proposed rule would amend 40 C.F.R. Part 60.

New coal power plants will be able to comply with the proposed standards using controls such as carbon capture and storage. EPA said in its regulatory impact analysis that it “intends this rule to send a clear signal” that carbon capture and storage technology will be a commercially viable approach for coal-fired power plants.

Jackson said carbon capture will be “commercially available certainly within the next 10 years.”

“Even today it's being built, demonstrated, and in use,” she said.

The Energy Department says it is on track to meet a goal to have as many as six large-scale carbon capture and storage demonstration projects in operation by 2016 (see related story).

As part of the proposed rule, new coal- and petroleum coke-fired power plants that opt for carbon capture and storage would be able to demonstrate compliance with the proposed performance standards by showing that their average emissions would be within the 1,000 pound per kilowatt-hour standard over a 30-year period. That would allow those plants to emit more carbon dioxide in the near-term until carbon capture becomes commercially viable.

Carbon Capture Called Too Expensive

Industry representatives were skeptical because carbon capture remains prohibitively expensive.

“No one is going to try to do carbon capture and sequestration because it's so expensive,” Scott Segal, executive director of the Electric Reliability Coordinating Council, a power plant trade group, told BNA March 27.

Combined with an EPA rule to limit emissions of mercury and other toxic pollutants from power plants, industry attorneys said it would be impossible to build a new coal-fired power plant.

“If you were going to build a new coal-fired power plant today, to comply with all of the regulatory requirements, assuming you can, it's going cost upwards of $2 billion,” William Bumpers, head of the global climate change practice at Baker Botts LLP, told BNA March 27. “No one is going to commit to a $2 billion power plant before there's a commercially demonstrable technology for carbon capture that they're going have to install within 10 years after construction.”

Performance Standards Influence BACT

EPA's proposed performance standards also have implications for how the agency administers its prevention of significant deterioration permitting program for greenhouse gases, industry attorneys said. The permits require industrial facilities to install best available control technology (BACT) when they expand or make modifications that increase their emissions.

EPA requires the BACT controls be no less stringent than the new source performance standards.

If EPA's performance standards require coal-fired power plants to install carbon capture technology, that could force more plants to install similar controls when they apply for prevention of significant deterioration permits, industry attorneys said.

“What happens to these plants that are still” in the application process? Jeffrey Holmstead, a partner at Bracewell & Giuliani LLP, said.

No Plans for Existing Plants

Jackson said EPA does not currently have plans to regulate carbon dioxide emissions from existing and modified power plants. However, Section 111(d) of the Clean Air Act requires the agency to issue performance standards for existing sources when it regulates pollutants that are not previously regulated.

Existing power plants, including those that make modifications to their facilities, would be exempted under the proposed rule. New power plants that begin construction within 12 months of the proposal being published in the Federal Register would also be exempted from the carbon dioxide standard.

EPA acknowledged its proposed rule “will also serve as a necessary predicate for the regulation of existing sources within this source category under CAA section 111(d).”

Environmental groups will press EPA to regulate those existing sources.

“EPA has a responsibility to issue carbon pollution standard for existing power plants,” Spalding said.

Regulations for existing power plants would be likely to focus on improving combustion efficiency rather than forcing those facilities to install expensive carbon capture technology, industry attorneys said.

“They will do a standard but it will likely be based on pretty modest efficiency improvements that can be achieved,” Holmstead said.

Republicans Decry ‘Assault on Coal.'

Sen. James Inhofe (R-Okla.), the ranking member of the Senate Environment and Public Works Committee, said in a statement the proposed rule is “all economic pain for no environmental gain.” Inhofe said he intends to take steps to block the greenhouse gas regulations.

Rep. Ed Whitfield, (R-Ky), chairman of the House Subcommittee on Energy and Power, called the proposal an “outright assault on coal.”

Whitfield and more than 200 members of the House had asked the White House Office of Management and Budget to block the proposed rule in a Feb. 23 leter. They predicted the proposal would have a “devastating impact” on job growth and the economy (36 DEN A-4, 2/24/12).

EPA Agreed to Rule in Settlement

EPA agreed in 2010 to issue the power plant rule as part of a legal settlement with the Natural Resources Defense Council, other environmental groups, and some states (New York v. EPA, D.C. Cir., No. 06-1322, 12/23/10; 246 DEN A-5, 12/27/10).

EPA also agreed to issue new source performance standards for petroleum refineries as part of a separate settlement (American Petroleum Institute v. EPA, D.C. Cir., No. 08-1277, 12/23/10).

EPA will accept comments on the proposed rule for 60 days after it is published in the Federal Register. Comment can be submitted at http://www.regulations.gov and should reference docket No. EPA-HQ-OAR-2011-0660.

EPA also will schedule public hearings on the proposed rule. The dates and locations will be published in a separate notice.

For More Information

More information on EPA's proposed carbon pollution standard for power plants is available at http://www.epa.gov/carbonpollutionstandard/actions.html.

For more information, contact Christian Fellner in EPA's Sector Policies and Programs Division at (919) 541-4003 or fellner.christian@epa.gov or Nick Hutson in EPA's Sector Policies and Programs Division at (919) 541-2968 or hutson.nick@epa.gov.