EPA Carbon ‘Pollution’ Rule to Require Carbon Capture and Storage for New Coal Power Plants

by Marlo Lewis on September 12, 2013

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Next week the EPA is expected to issue its revised greenhouse gas (GHG) performance standards for new coal- and gas-fired power plants, also known as the Carbon ‘Pollution’ Rule. In addition, in 2014 the EPA is expected to adopt “guidelines” for controlling GHG emissions from existing power plants.

This morning in my in-box, I received an unattributed analysis of the revised Carbon ‘Pollution’ Rule. The analysis is in my opinion completely sound and leaves no doubt the EPA is still aggressively waging regulatory warfare on coal electric generation and, thus, on affordable energy. Here’s the text:

EPA Greenhouse Gas Performance Standards for New Units

1. Next week, EPA will issue greenhouse gas (GHG) performance standards for new coal and natural gas-fired electric generating units (EGUs). EPA’s proposed performance standards for coal-fired EGUs are expected to require carbon capture and storage (CCS). EPA’s justification for these highly aggressive standards is expected to rely heavily on the Kemper County IGCC facility in Mississippi, which is still under construction and not expected to begin operation until next spring.

2. These proposed standards are not appropriate under the Clean Air Act (CAA), which provides that performance standards must reflect “the best system of emission reduction which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.”

A CCS-based standard is not the “best system of emission reduction,” or “BSER,” under this language because: (a) Kemper is not even running yet, and so its performance level has not been demonstrated; (b) Kemper could not have been built without significant government support; and (c) Kemper has access to enhanced oil recovery (EOR) sites where the captured CO2 can be injected, whereas coal-fired EGUs built in many areas of the country will not be located near EOR sites and will not be able to store CO2 unless significant new storage sites and pipelines are developed and a permitting and legal liability system are put in place.

Standards for Existing Units

3. EPA’s aggressive standards for new units create significant concern that EPA will adopt comparably aggressive standards for existing units. Although EPA is not expected to require CCS-based standards for existing units, EPA is expected to adopt minimum requirements that can be met only by either retiring existing coal units or significantly reducing their hours of operation. This approach could lead to significant stranded investment. Utilities around the country, in response to other EPA regulations such as MATS [Mercury and Air Toxics Standards Rule, also known as the Utility MACT Rule], have been forced to install very expensive pollution control technology on their existing units. Unless these units can run as intended, this investment cannot be fully amortized.

4. The CAA does not give EPA authority to dictate existing-source performance standards. Unlike standards for new units, where EPA promulgates standards that apply directly to sources, States – not EPA – adopt existing-source performance standards. Under Section 111(d) of the CAA, EPA has authority to issue regulations calling for states to adopt plans that contain performance standards. The States themselves, however, promulgate the performance standards. EPA claims that it has authority to issue guidelines setting forth minimum requirements and has recently said that those guidelines will be “binding” on the states.

Eighteen state attorneys general, however, have written a White Paper that expresses the legal opinion that States retain ultimate power to decide how stringent the standards must be (transmitted [by Nebraska Attorney General Jon Bruning] to EPA Administrator McCarthy, attached below).

5. Moreover, any minimum requirements EPA sets must be tied to the “best system of emission reduction” for reducing GHG emissions from existing units. Not even EPA would claim that CCS is “BSER” for an existing coal unit. The only system for reducing GHG emissions from existing units is to improve unit efficiency. It is not expected that efficiency improvements will yield significant GHG reductions.

6. EPA has begun a process of trying to obtain stakeholder buy-in of a concept where EPA could require states to adopt plans that would yield greater GHG emission reductions than would be achieved through unit-by-unit efficiency improvements. These reductions would come from programs not typically administered by EPA and its state partners, such as demand-side management programs and other non-traditional and “outside-the-fence” options. EPA has stated that it can develop “flexible” and “market-based” mechanisms such as trading that will facilitate these reductions and ultimately achieve EPA’s desired level of control.

7. States and stakeholders should be wary of these EPA efforts. Certainly, “flexibility” and “market-based” mechanisms are desirable in the context of implementing whatever GHG standards are developed. But these concepts cannot be used by EPA to require more stringent standards than are justified as BSER.

8. EPA will propose GHG rules and guidelines next year for existing sources. Between now and then, EPA will conduct stakeholder outreach efforts. Numerous conferences will also be held. It is critical for states and stakeholders to carefully and fully evaluate EPA’s proposals and how they will impact the economy and environment.

So how will the revised Carbon ‘Pollution’ Rule differ from the rule as proposed by the EPA in April 2012? The revised rule will not overtly be based on the absurd premise that a gas turbine is an emission control system for a coal boiler.

Under the Clean Air Act, an emission performance standard is supposed to reflect “the degree of emission limitation achievable through the application of best system of emission reduction” that has been “adequately demonstrated.” As discussed previously on this blog, the EPA initially picked a performance standard of 1000 lbs. carbon dioxide (CO2) per megawatt hour (MWh), because that is the “degree of emission limitation achievable through natural gas combined cycle generation” (proposed Carbon ‘Pollution’ Rule, p. 22394). But natural gas combined cycle is a type of power plant, not a “system of emission reduction” for coal power plants.

The EPA tried to hide the absurdity by lumping coal boilers and gas turbines into a newly-minted industrial category, “fossil fuel electric generating units.” But nobody was fooled. Even the EPA had to acknowledge that the most efficient commercial coal power plants do not come close to meeting the proposed standard. For example, state of the art “supercritical” units emit, on average, 1,800 lbs. CO2/MWh (proposed Carbon ‘Pollution’ Rule, p. 22417). The proposed Carbon ‘Pollution’ Rule was a de-facto fuel-switching mandate. Never before had the EPA used new source performance standards (NSPS) to mandate fuel switching.

Moreover, in March 2011, the EPA assured electric utilities it would not use best available control technology (BACT) standards for GHG emissions from new and modified power plants to require fuel switching, and BACT standards are typically more stringent than NSPS.

To reduce litigation risk, the EPA argued that the proposed Carbon ‘Pollution’ Rule did not really require fuel switching because utilities would still have the option to build new coal power plants with CCS. But this was a phony “choice.” The “levelized” cost of new coal plants already exceeds that of new natural gas combined cycle plants, and, as the EPA admitted, “today’s CCS technologies would add around 80% to the cost of electricity for a new pulverized coal (PC) plant, and around 35% to the cost of electricity for a new advanced gasification-based (IGCC) plant” (proposed Carbon ‘Pollution’ Rule, p. 22415).

Reportedly, the revised rule regulates coal- and gas-fired power plants as separate industrial categories and sets the NSPS for coal plants as high as 1,300 to 1,400 lbs. CO2/MWh. But CCS has not been adequately demonstrated as a commercial technology (see points 1 & 2 above), and is prohibitive to investors without significant subsidy (the Kemper plant received a $270 million grant from DOE and $133 million in investment tax credits from the IRS).

In short, based on available information, the revised rule is still a de-facto mandate to fuel-switch from coal to gas.

 

 

 

 

 

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