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EPA Proposal Seeks 30 Percent Reduction In Carbon Dioxide From Power Plants by 2030

Tuesday, June 3, 2014

By Andrew Childers  

June 2 --The existing fleet of fossil fuel-fired power plants would be required to reduce emissions of carbon dioxide by 30 percent from 2005 levels by 2030 as part of the first ever greenhouse gas emissions standards for existing power plants proposed by the Environmental Protection Agency June 2.

Each state would be required to achieve its own specific carbon dioxide emissions rate as part of the proposed rule issued under Section 111(d) of the Clean Air Act (RIN 2060-AR33). The EPA is proposing interim emissions rate targets to be met during the initial phase in the period between 2020 and 2029 and a final goal that applies beginning in 2030.

“I promise you, you will hear from critics who say the same thing they always say--that these guidelines will kill jobs or crush the economy,” President Barack Obama said on a June 2 call with environmental groups. “What we've seen every time is these claims are debunked when you actually give workers and businesses the tools and the incentives they need to innovate.”

Obama ordered the EPA to propose the carbon dioxide emissions guidelines as part of his climate action plan. It follows a similar proposed rule in January that would set the first carbon dioxide new source performance standards for new fossil fuel-fired power plants (79 Fed. Reg. 1430; ).

Additionally, the EPA proposed a separate rule June 2 that would set carbon dioxide performance standards under Section 111(b) of the Clean Air Act for existing power plants that are modified or reconstructed.

Benefits Outweigh Costs

The EPA anticipates the proposed rules would produce net climate and health benefits of between $48 billion and $82 billion at a cost of between $5.4 billion and $8.8 billion to the power industry in 2030. The EPA anticipates its proposals could reduce retail electricity bills by 8 percent as states and power companies invest in measures to reduce electricity demand.

The EPA predicts about 30 gigawatts to 49 gigawatts of coal-fired capacity will close by 2020. However, the agency said that coal and natural gas would remain the dominant sources of electricity generation under the proposed rules, with each providing more than 30 percent of generation.

Though the EPA anticipates its proposed rule will reduce carbon dioxide emissions from the existing fleet of power plants by 30 percent from 2005 levels by 2030, many of those reductions already have been achieved as a result of the slowing economy and a shift from coal to natural gas to fuel power plants. Carbon dioxide emissions from power plants have declined by nearly 16 percent since 2005, according to the EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012.

States Administer Standards

The rules would be administered by state and local air pollution officials through a process similar to that used to approve state implementation plans. States would have the option of demonstrating compliance either by meeting the proposed carbon dioxide emissions rates or by converting that emissions rate into a mass-based standard.

The mass-based standard could be used to establish emissions trading programs such as the Regional Greenhouse Gas Initiative in the Northeast.

The EPA's proposals would require the largest carbon dioxide emissions rate reduction from Texas, which would be required to reduce its emission rate by nearly 72 percent from 2012 levels (see related story).

South Carolina and Arizona would be required to reduce their emissions rate by more than 50 percent while Arkansas, Georgia, Minnesota, New Hampshire, New Jersey, New York and Oregon would be required to reduce their emissions rates by more than 40 percent from 2012 levels.

States would be required to submit their plans for implementing the proposals to the EPA by June 30, 2016. However, the EPA said it will grant extensions, if necessary, particularly for states trying to coordinate interstate programs.

Reductions Sought Beyond Fenceline

The proposed carbon dioxide standards for existing power plants would allow states to claim emissions reductions achieved beyond the fenceline of the power plants themselves.

The EPA, in its proposed rule, describes four “building blocks” that states will be able to use to craft their implementation plans.

The proposed rule would allow states to take credit for carbon dioxide emissions reductions achieved by making improvements to the heat rate at individual power plants, switching electricity generation from coal-fired units to more efficient gas-fired generation, investments in renewable energy and other sources with no or few carbon dioxide emissions and investing in programs to reduce demand for electricity.

The Clean Air Act requires the EPA to determine the “best system of emissions reduction” to comply with the proposed emissions limits. The EPA said it looked beyond simply improving the heat rate at power plants because greater emissions reductions could be achieved cost effectively through additional programs.

Power plants could only reduce emissions by an estimated 1.3 percent to 6.7 percent through heat rate improvements alone, the agency said.

Heat Rate Improvements

“Our assessment of heat rate improvements showed that these measures would achieve CO2 emission reductions at low costs, although compared to other measures, the available reductions were relatively limited in quantity,” it said.

For example, the EPA said natural gas combined cycle power plants already are being relied upon to generate baseload electricity, displacing coal generation. The EPA said gas-fired generators are expected to generate more than 1,400 terawatt-hours of electricity by 2020, a 50 percent increase, as new generators begin operation.

The power industry has expressed early opposition to measures that would predicate compliance with the carbon dioxide emissions rate based on actions taken outside of the actual facility. They argue that they have little control over those factors .

The EPA argues that the term best system of emissions reduction is sufficiently broad to encompass actions taken beyond the fenceline at power plants.

Jeffrey Holmstead, a partner with Bracewell & Giuliani LLP who previously served as the EPA assistant administer for air and radiation, argued that the Clean Air Act was intended to require pollution controls that could be installed on-site.

Systems Reduction Application

“The question is at what point is the system of emissions reduction applied,” he told Bloomberg BNA June 2. “For 44 years, the system of emissions reduction is the system that can be applied to a regulated plant, and we set a performance standard based on that system of emissions reduction. I think they have a hard time getting around that. That's very clearly what the statute contemplates.”

Despite power industry objections, state regulators praised the proposed rules for being flexible and accommodating existing state climate change programs.

“The proposal is meaningful, yet flexible,” Bill Becker, executive director of the National Association of Clean Air Agencies, said in a June 2 statement. “It provides states and localities with an ability to tailor their programs to the unique characteristics of their individual economies. It allows more time to develop state strategies. And it credits past actions that states have taken to reduce their greenhouse gas emissions. Still, the regulatory and resources challenges that lie ahead are daunting. Overcoming these challenges will require a heavy lift by all levels of government, particularly state and local.”

Precedents Suggest EPA Due Deference

Recent U.S. Supreme Court decisions in favor of the EPA suggest the agency will be given due deference when it determines the best system of emissions reductions, legal professors said.

The Supreme Court in Am. Electric Power Co. v. Connecticut held that the EPA's ability to regulate greenhouse gas emissions under the Clean Air Act displaced federal common law climate change claims (Am. Electric Power Co. v. Connecticut, 131 S.Ct 2527, 72 ERC 1609, 2011 BL 161239 (2011)).

The court specifically cited the EPA's Section 111 authority to regulate carbon dioxide from power plants as one of the factors in its opinion, Tim Profeta, director of the Nicholas Institute for Environmental Policy Solutions at Duke University's Sanford School of Public Policy, told Bloomberg BNA June 2.

“There is indication the EPA is using the right provision, and there's clearly an ambiguous term that does not have a precedent available in terms of how to interpret it. It does seem the agency should be given some discretion,” he said.

Cross-State Air Rule

Another recent Supreme Court decision restoring the EPA's Cross-State Air Pollution Rule, which had been vacated by a lower court, also indicates the agency is due deference when crafting cost-effective programs to deal with large air pollution issues, Michael Livermore, associate professor of law at the University of Virginia School of Law and senior advisor to the Institute for Policy Integrity, told Bloomberg BNA June 2 (EPA v. EME Homer City Generation LP, 2014 BL 118432, U.S., No. 12-1182, 4/29/14). He said addressing air pollution that blows across lines is analogous to climate change regulation.

“You had a complex environmental problem that has vexed the agency for some time,” he said. “The agency developed a sophisticated regulatory plan based on modeling and the best science and came up with cost-effective emissions reductions and large net benefits and does it in a flexible manner.”

EPA Considers Single Category

As part of its proposed rule, the EPA is seeking comment on combining both gas-fired and coal-fired power plants into a single emissions category to foster emissions trading under its proposed carbon dioxide emissions standards for existing power plants.

The EPA said it is considering establishing a new subpart UUUU under 40 C.F.R. Part 60 that would combine the carbon dioxide emissions requirements for all fossil fuel-fired power plants. Setting a single standard would make it easier for states to implement emissions trading programs, the EPA said.

Treating gas-fired and coal-fired power plants as separate emissions categories would prevent emissions trading between the two groups, Thomas Lorenzen, a partner at Dorsey & Whitney LLP, told Bloomberg BNA June 2. The EPA would need to bring those two source categories together to ensure the largest, most robust trading programs possible, he said.

Agency Earlier Considered Same

The EPA had proposed creating a single emissions category for newly built fossil fuel-fired power plants in 2012. The agency dropped that proposal in light of opposition from the power sector. Instead, the agency proposed separate carbon dioxide emissions standards for natural gas-fired and coal-fired power plants in January.

“They do want that for the broadest possible cap and trade programs, and if you exclude gas from the category, you can't really offset your coal emissions,” Lorenzen said. “It's an odd thing to have gone out of their way to separate the two categories previously in response to public comment and now be reproposing to re-merge them.”

Lawyers said whether the EPA can treat coal- and gas-fired power plants as separate emissions categories for the purposes of the new source performance standards while lumping them into a single category for the existing power plant rule may prove difficult to defend legally.

Standards Proposed for Reconstructed Plants

In addition to the carbon dioxide emissions guidelines for existing power plants, the EPA also proposed June 2 emissions standards for modified and reconstructed power plants. The emissions requirements largely would consist of operating practices and equipment upgrades.

The EPA is proposing two options for modified boilers and integrated gasification combined cycle plants. Under one option, the specific form of the standard would depend on whether the source makes the modification before or after becoming subject to the existing power plant standards under Section 111(d).

That would take into account improvements made to comply with the existing power plant standards. The other option would set a single performance standard for all units.

Modified natural gas-fired units would be required to achieve the performance equivalent to natural gas combined cycle units.

Reconstructed utility boilers, integrated gasification combined cycle units and natural gas-fired units would be required to achieve the standards of performance based on the most efficient generating technology that is applicable to each category.

Sufficient Trigger

The EPA in its proposal to regulate existing power plants argues the proposed rule to regulate carbon dioxide emissions from modified and reconstructed power plants would be sufficient to trigger regulation of existing power plants.

The agency's January proposal to regulate carbon dioxide emissions from newly built fossil fuel-fired power plants under Section 111(b) of the Clean Air Act triggers a requirement for the EPA to set similar emissions limits for existing power plants under Section 111(d).

The power industry has opposed the EPA's proposed rule for new sources because new coal-fired units would be required to install carbon capture systems to comply, and industry argues carbon capture technology isn't yet viable at commercial scale.

If the new-source rule were invalidated, it also would eliminate the Clean Air Act trigger that the EPA needs to regulate existing power plants, which account for 40 percent of greenhouse gas emissions. However, the EPA in its proposed rule to regulate existing power plants argues that either the January proposal to regulate new power plants or its June 2 proposal to regulate modified units--both of which were issued under Section 111(b) of the Clean Air Act--are sufficient to trigger the requirement to regulate existing power plants.

'Belts and Suspenders.'

“The EPA intends to complete two CAA section 111(b) rulemakings regulating CO2 from new fossil fuel-fired [electric generating units] and from modified and reconstructed fossil fuel-fired [electric generating units] before it finalizes this rulemaking, and either of those section 111(b) rulemakings will provide the requisite predicate for this rulemaking,” the EPA said.

Lawyers questioned whether the EPA's legal reasoning would withstand judicial review, but Lorenzen said that gives the EPA an alternate argument to pursue regulating existing power plants even if its proposal for new units is ultimately overturned.

“What they've done is a careful job of giving themselves belts and suspenders. Where they perceive vulnerabilities in their approach, they try to address those by coming up with alternative theories,” he said.

The EPA will accept comment on the proposals for 120 days after they are published in the Federal Register. Comments can be made at http://www.regulations.gov and should reference docket ID Nos. EPA-HQ-OAR-2013-0602 and EPA-HQ-OAR-2013-0603.

The agency also will hold public hearings in Atlanta, Denver, Pittsburgh and Washington, D.C., during the week of July 28.

 

To contact the reporter on this story: Andrew Childers in Washington at achilders@bna.com

To contact the editor responsible for this story: Larry Pearl in Washington at lpearl@bna.com


The EPA's proposed rule for existing power plants is available at http://www2.epa.gov/sites/production/files/2014-05/documents/20140602proposal-cleanpowerplan.pdf.

The EPA's proposed rule for modified and reconstructed power plants is available at http://www2.epa.gov/sites/production/files/2014-05/documents/20140602proposal-modsreconstructs.pdf.

For more information, contact Amy Vasu in the EPA's Sector Policies and Programs Division at (919) 541-0107 or vasu.amy@epa.gov.

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