Yesterday, EPA proposed its first-ever “carbon pollution standard rule” for power plants. The rule would establish a new source performance standard (NSPS) for carbon dioxide (CO2) emissions from fossil-fuel electric generating units (EGUs). The proposed standard is an emission rate of 1,000 lbs CO2 per megawatt hour. About 95% of all natural gas combined cycle (NGCC) power plants already meet the standard (p. 115). No existing coal power plants do. Even today’s most efficient coal plants emit, on average, 1,800 lbs CO2/MWh (p. 134). EPA is effectively banning investment in new coal electric generation.

Like the rest of EPA’s greenhouse agenda, the proposed rule is an affront to the Constitution’s separation of powers. Congress never voted to prohibit the construction of new coal power plants. Indeed, Congress declined to pass less restrictive limits on coal electric generation when Senate leaders pulled the plug on cap-and-trade. Congress should reassert its constitutional authority, overturn the rule, and rein in this rogue agency.

EPA of course denies its proposal would “interfere with construction of new coal-fired capacity” (p. 38). How so? Because “a new coal-fired power plant may be able to meet the 1,000 lb CO2/MHh standard by installing CCS [carbon capture and storage] at the time of construction.”

That doesn’t pass the laugh test. As EPA acknowledges, “at present,” installing CCS would “add considerably to the costs of a new coal-fired power plant,” which are already higher than the costs of new natural gas combined cycle plants. The CCS option is phony — there is no market demand for it.

EPA says financing is “available to support the deployment of CCS,” but private funding would not exist absent lavish federal grants and tax breaks that our deficit-ridden government can ill-afford to renew or expand.

EPA lists six coal-fired EGU projects that plan to install CCS (pp. 159-160), and acknowledges that “most if not all” get grants or loan guarantees from the Department of Energy. Consider one of the largest, Southern Company/Mississippi Power’s Kemper County project. Here’s what the company’s Web site says about federal financial support:

To offset the costs to construct the facility, Mississippi Power has received a $270 million grant from the Department of Energy, $133 million in investment tax credits approved by the IRS provided under the National Energy Policy Act of 2005, and loan guarantees from the federal government. . . .Mississippi Power also recently received an additional $279 million in IRS tax credits.

Why should Congress pony up billions more for exotic CCS coal plants when virtually all natural gas power plants already meet the proposed standard at much lower cost and no risk to taxpayers?

EPA’s proposed rule is weird in four ways.

(1) The proposal tries to palm off natural gas combined cycle — a type of power plant — as a ”control option” or ”system of emission reduction” for coal-fired power plants.

EPA picked 1,000 lb CO2/MWh as the “standard of performance” for new fossil-fuel EGUs because that is the “degree of emission limitation achievable through natural gas combined cycle generation” (pp. 35-36). But consider how the Clean Air Act (CAA) defines “standard of performance” [Sec. 111(a)(1)]:

The term “standard of performance” means a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.

Performance standards are supposed to reflect the best “system of emission reduction.” But natural gas combined cycle is not a system of emission reduction. It is a type of power plant. EPA is not proposing that new coal power plants install emission reduction systems that have been “adequately demonstrated.” Rather, EPA is proposing that new coal power plants be new natural gas plants. EPA is saying with a straight face that natural gas combined cycle is an emission reduction system that has been adequately demonstrated for coal power plants.

To my knowledge, this is the first time EPA has ever defined a performance standard such that one type of power plant or facility can comply only by being something other than what it is.

(2) The proposed rule lumps coal boilers and natural gas turbines into a newly-minted industrial source category (fossil-fuel EGUs) — but only for CO2 emissions, not for conventional air pollutants.

EPA sets performance standards for specific categories of industrial sources. A coal boiler is different from a gas turbine, and up to now EPA reasonably regulated them as different source categories, under different parts of the Code of Federal Regulations (Subpart Da for coal boilers, Subpart KKKK  for gas turbines). EPA now proposes to regulate them together as a single source category — fossil fuel EGUs — under a new subpart numbered TTTT. But only for CO2! Coal boilers and natural gas turbines will continue to be regulated separately for “criteria air pollutants” (pollutants contributing to soot and smog) under Subparts Da and KKKK (p. 71).

Why hold coal boilers and gas turbines to different standards for criteria pollutants? EPA’s answer:

This is because although coal-fired EGUs have an array of control options for criteria and air toxic air pollutants to choose from, those controls generally do not reduce their criteria and air toxic emissions to the level of conventional emissions from natural gas-fired EGUs. [p. 102]

Wouldn’t the same logic argue even more strongly against imposing a single CO2 standard on coal boilers and natural gas turbines? Coal-fired EGUs have only one real option for reducing CO2 emissions to the level of emissions from natural gas power plants — install CCS, which nobody can afford to do without subsidy. As EPA notes, ”using today’s commercially available CCS technologies would add around 80 percent to the cost of electricity for a new pulverized coal (PC) plant, and around 35 percent to the cost of electricity for a new advanced gasification-based (IGCC) plant” (p. 124).

So we’re back to EPA’s contortion of classifying natural gas combined cycle as a ”control option” for CO2 emissions from coal-fired power plants.

(3) The proposed rule exempts modified coal-fired power plants from the CO2 performance standard even though CAA Sec. 111 requires modified sources to be regulated as “new” sources.

CAA Sec. 111(a) defines “new source” as “any stationary source, the construction or modification of which is commenced after the publication of regulations (or, if earlier, proposed regulations) prescribing a standard of performance under this section which will be applicable to such source [emphasis added].” The provision defines “modification” as “any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.” These definitions clearly imply that, once EPA promulgates CO2 performance standards for power plants, a coal-fired EGU that increases its CO2 emissions due to a physical change or change in operation is a “new” source and should be regulated as such. Yet under EPA’s proposal, modified coal-fired EGUs will not be treated as new sources.

Why? EPA claims it does “not have adequate information as to the types of physical or operational changes sources may undertake or the amount of increase in CO2 emissions from those changes.” That’s odd. Hasn’t EPA been collecting data on power plant CO2 emissions since the 1990 Clean Air Act Amendments (Sec. 821) and on power plant modifications for even longer? EPA also says it does not have ”adequate information as to the types of control actions sources could take to reduce emissions, including the types of controls that may be available or the cost or effectiveness of those controls” (p. 151).

A more plausible answer is that EPA knows full well what types of controls would be available, how costly such controls would be, and how damaging the political backlash to EPA and the Obama administration. There are no economical options to reduce CO2 emissions from modified coal-fired EGUs to 1,000 lb CO2/MWh. The owner of a modified coal-fired EGU would either have to install CCS or convert the facility from a coal-fired to a natural gas-fired power plant. Is EPA once again “tailoring” (amending) the CAA to avoid a regulatory debacle of its own making?

(4) The proposed rule has no monetized costs or benefits.

EPA says the rule will not ”add costs” to the electric power sector, ratepayers, or the economy (p. 36). That’s because EPA “does not project construction of any new coal-fired EGUs” between now and 2030. Rather, EPA expects electric power companies “to build new EGUs that comply with the regulatory requirements of this proposal even in the absense of the proposal, due to existing and expected market conditions” (p. 200), namely, the superior economics of natural gas:

. . . new natural gas-fired EGUs are less costly than new coal-fired EGUs, and as a result, our Integrated Planning Model (IPM) projects that for economic reasons, natural gas-fired EGUs will be the facilities of choice until at least 2020, which is the analysis period for this rulemaking. Indeed, our IPM model does not project construction of any new coal-fired EGUs during that period. This state of affairs has come about primarily because technological developments and discoveries of abundant natural gas reserves have caused natural gas prices to decline precipitously in recent years and have secured those relatively low prices for the future [p. 36].

The rule won’t “add costs” because it simply ratifies where the market is already going. Conversely, the rule will have no quantifiable benefits:

As previously stated, the EPA does not anticipate that the power industry will incur compliance costs as a result of this proposal and we do not anticipate any notable CO2 emissions changes resulting from the rule. Therefore, there are no monetized climate benefits in terms of CO2 emission reductions associated with this rulemaking [p. 202].

Creeping Kyotoism

So what’s the point? Why propose a “carbon pollution standard” that won’t reduce CO2 emissions and has no estimated climate benefits?

Because the rule expands EPA’s control over the power sector and advances its greenhouse regulatory agenda. It puts fossil-fuel EGUs squarely under EPA’s regulatory thumb with respect to CO2 emissions. It sets the precedent for EPA to promulgate CO2 performance standards for other industrial source categories. Most importantly, it tees up EPA to extend CO2 emission controls to modified and existing (i.e. non-modified) coal power plants. In EPA’s words:

Although modified sources would not be subject to the 1,000 lb CO2/MWh standard for new sources, the EPA anticipates that modified sources would become subject to the requirements the EPA would promulgate at the appropriate time, for existing sources under 111(d). [p. 153]

The proposed rule will also serve as a necessary predicate for the regulation of existing sources within this source category under CAA Section 111(d). [p. 201]

The proposed rule is EPA’s first — not last — action to fulfill the agency’s December 2010 settlement agreement with state attorneys general and environmental groups. The agreement requires EPA to establish CO2 performance standards for new and modified EGUs and emission guidelines for non-modified EGUs (p. 64).

So yes, the proposed rule will add no cost (other than paperwork) to modified and existing coal power plants. But once the framework is in place, EPA will be able to impose costs down the line. Coal is already losing market share to natural gas even without having to meet CO2 performance standards. The proposed rule positions EPA to put coal power plants in an ever-tightening regulatory noose.

It is hard to imagine EPA not targeting modified and existing coal plants in a second Obama administration. Consider how fast Team Obama has moved on the mobile source side of the greenhouse agenda. Only two weeks after EPA and the National Highway Traffic Safety Administration (NHTSA) published model year (MY) 2012-2016 greenhouse gas/fuel economy standards for new motor vehicles in the Federal Register — standards costing the auto industry an estimated $51.7 billion (Tailpipe Rule, p. 25642) – the White House announced plans to establish even tougher standards for MYs 2017-2025.

There have been a few news stories out of Durban suggesting that China (the worlds largest CO2 emitter) has turned a corner on carbon emissions and has tentatively agreed to limit them, with Bloomberg running an article titled “China Climate Plan Makes ‘Excited Buzz’ as U.S. Lags: UN Envoy.” What did China actually say?

Ron Bailey, Reason magazine science correspondent reports:

So here’s what China apparently wants the rest of the world to do: (1) agree that China’s greenhouse gas targets can be different from those imposed on rich countries, (2) agree that for the next 9 years rich countries will continue to cut their greenhouse gas emissions under the Kyoto Protocol while China’s continue to grow, (3) agree that no negotiations take place on targets until a scientific review is finished in 2015, and (4) agree that rich countries begin showering poor countries with $100 billion in climate reparations annually. If the rich countries will just do that, China will consent to begin negotiating some kind of “legally binding” treaty after 2020. Frankly, with these preconditions, it seems that China’s current position actually remains pretty much what it has always been: It will accept legally binding limits on its greenhouse gas emissions when Hell freezes over.

China’s best offer is to consider limiting emissions after 2020, still almost a decade away, and only if all the other countries continue to play this game until then. Who can blame them — they are rapidly industrializing and getting wealthier, which requires massive amounts of fossil fuels.

What if future negotiations aren’t successful? China is currently ‘negotiating’ with other countries regarding their annual emissions, it just so happens they are offering zero emissions reductions. Where is the evidence that they will agree to anything sufficient in 2020, when their per capita incomes will still be markedly lower than other developed countries?

Has the EU met its emission reduction targets under the Kyoto Protocol? Not if emissions associated with goods Europe imports from Asia are taken into account. So finds a study published this week in Proceedings of the National Academy of Sciences (PNAS).

The study, Growth in emission transfers via international trade from 1990 to 2008, calculates the net increase in global carbon dioxide (CO2) emissions resulting from developed countries’ imports of goods produced in developing countries. The study provides additional evidence of Kyoto’s futility, although the authors, a team of Norwegian, German, and U.S. researchers, don’t draw this conclusion and would likely deny it.

Some key findings:

• Global CO2 from the production of traded goods increased from 4.3 gigatons (Gt) in 1990 (20% of global emissions) to 7.8 Gt in 2008 (26%).
• Emissions from production of exports increased 4.3% annually, faster than the growth in global population (1.4% per year), CO2 emissions (2.0% per year), and GDP (3.6% per year), although not as fast as the dollar value of international trade (12% per year).
• Global emissions increased 39% from 1990 to 2008. At the regional level, emissions from developed countries (classified as “Annex B” countries in the Kyoto Protocol, with quantified emission limitations) largely stabilized, but emissions from developing countries (non-Annex B) doubled.
• However, territorial emission inventories don’t take into account “consumption-based emissions” — CO2 emitted in developing countries to produce goods consumed in developed countries.
• The “net emission transfers” via international trade from developing to developed countries increased from 0.4 Gt CO2 in 1990 to 1.6 Gt CO2 in 2008 — 17% per year average growth. 
• Developed countries ”imported” more emissions than they reduced domestically via efforts to comply with the Kyoto Protocol.
  • “For comparison, if the average emission reduction target for Annex B countries in the Kyoto Protocol (~5% reduction of 1990 emissions) is applied to CO2 emissions only, representing ~0.7 Gt CO2 per year, then the net emission transfers from non-Annex B to Annex B countries is 18% higher on average (1990-2008) and 130% higher in 2008.”
  • “Because estimated Annex B emission reductions from 1990 to 2008 are only ~ 2%, representing only 0.3 Gt CO2, the net emission transfers from the group of non-Annex B countries is 520% higher in 2008.”
  • “Collectively, the net CO2 emissions reduction of ~2% (0.3 Gt CO2) in Annex B countries from 1990 to 2008 is much smaller than the additional net emission transfer of 1.2 Gt CO2 from non-Annex B countries . . .”
• China’s emissions accounted for 55% of the growth in global CO2 emissions from 1990 to 2008. Chinese exports accounted for 18% of the growth in global emissions and for 47% of the growth in Annex B consumption-based emissions.
• Curiously, “International trade in non-energy-intensive manufactured products dominates the net emission transfers (accounting for 41% of the growth), despite the policy focus on energy-intensive manufacturing.”

In the discussion section of their paper, the authors observe that the increase in consumption-based emissions “may benefit economic growth in developing countries, but the increased emissions could also make future mitigation more costly in developing countries.” Right, but that has two obvious implications the authors do not mention: (1) Developing countries are unlikely to accept mandatory emission limits in the foreseeable future; and (2) Kyoto-like controls on developing country emissions could be harshly disruptive to global trade and investment.

The authors argue that the rapid growth in “imported” emissions is not a case of “carbon leakage” — the flight of capital, jobs, and emissions from countries with CO2 controls to countries lacking such controls. They find, for example, that “both the United States and European Union have had a large increase in net emission transfers, but only the European Union has a broad-based climate policy.”  

Undoubtedly multiple factors contribute to the rapid growth of China’s export sector. However, one factor boosting investment in China is low energy cost. A closely related factor is the regulatory certainty that Beijing will not slap a price on carbon in the policy-relevant future or erect political roadblocks to the development of energy resources and infrastructure. How very different is the political climate in the USA! 

America may not have a “broad-based climate policy,” but we have an EPA bent on ‘legislating‘ climate policy via the Clean Air Act, an EPA implementing a panoply of non-climate regulations with the same (or even greater) potential to suppress electric generation from coal, regional greenhouse gas policies, state-level renewable energy mandates, an environmental movement hostile to fossil fuels and natural resource development, politicians in Congress and the White House imbued with the same mentality, and countless NIMBY activists determined to block construction of all energy-related infrastructure.

The researchers, methinks, take too narrow a view of the policy-related risks that can cause or contribute to carbon leakage.

[youtube:http://www.youtube.com/watch?v=Y1cOLI2n2Ec 285 234]

[youtube:http://www.youtube.com/watch?v=rYpXoMdZqX4 285 234]