EPA’s proposed standards have important implications, even though few coal plants are slated for development.
By Joel C. Beauvais and Stacey L. VanBelleghem
On December 6, the US Environmental Protection Agency (EPA) signed a proposed rule to establish new source performance standards (NSPS) under Clean Air Act Section 111(b) for carbon dioxide (CO2) emissions from new, reconstructed, and modified power plants. The proposal would replace the existing Obama-era standards — which were based on applying partial carbon capture and sequestration (CCS) technology for new coal-fired plants — with significantly less stringent requirements. EPA’s proposal has several important implications for the power industry and other emitting sectors, even though few, if any, new coal plants are expected to be built in the United States in the near future.
EPA’s Current and Proposed CO2 Standards: A Comparison
EPA’s proposal would establish new emission limits, based on the “best system of emission reduction” (BSER) identified by the agency, for new, reconstructed, and modified coal-fired steam electric generating units (EGUs). For natural gas-fired combustion turbines, EPA proposes no changes to the 2015 Obama-era rule.
Key differences between the 2015 and proposed rule are highlighted below.
- New coal-fired units: For new coal-fired EGUs, the 2015 rule established a limit of 1,400 lb CO2/MWh-gross, based on the application of partial CCS (accounting for roughly 15-25% of EGU CO2 emissions) to a highly efficient unit as the BSER. EPA’s new proposal would divide coal-fired EGUs into three subcategories (large, small, and coal refuse-fired), and establish less stringent standards for each based on efficiency alone — without any application of CCS — as BSER.
- For large plants (heat input of greater than 2,000 MMBtu/h), the proposed limit is 1,900 lb CO2/MWh-gross — based on the application of supercritical steam technology.
- For small plants (heat input of 2,000 MMBtu/h or less), the proposed standard is 2,000 lb CO2/MWh-gross — based on application of subcritical steam technology.
- For coal refuse-fired sources, the proposed standard is 2,200 lb CO2/MWh-gross.
- Reconstructed units: The proposal would adopt these same standards for “reconstructed” plants — defined as an existing source that replaces components at a capital cost exceeding 50% of the fixed capital costs of an entirely new facility, and for which compliance with NSPS is technologically and economically feasible.
- Modified units: For “modified” units — those that undergo a physical or operational change that increases the source’s maximum achievable hourly rate of emissions — the proposal largely retains the 2015 rule’s framework with minor tweaks.
- For units undertaking “large” modifications (resulting in a 10% or greater increase in hourly CO2 emissions), the proposed standard is to meet the lowest emission level achieved in the years between 2002 and the time of the modification. Like the 2015 rule, the proposal specifies that the emission limit for modified sources will be no more stringent than the new or reconstructed source standard for the applicable category. However, EPA’s new proposed limits are less stringent than the 2015 rule.
- For units undertaking “small” modifications (resulting in an increase of less than 10% in hourly CO2 emissions), EPA concludes that it lacks sufficient information to set a standard (as the agency also did in the 2015 rule). While EPA’s proposal does not set a standard for small modifications, the agency seeks comment on this approach, and on what an appropriate BSER and standard might be for this category.
The proposal comes amid a significant decline in coal-fired generation, which has been driven by low natural gas prices, increasingly cost-competitive renewable generation, low growth in demand, and the costs of environmental regulation, as well as the enforcement of state renewable portfolio standards and other policies.
Overall, US coal consumption in 2018 declined to its lowest level since 1979. The Energy Information Administration (EIA) projects that 2018 will be the second-highest year for retirements of coal-fired plants, with an estimated 14 gigawatts of coal-fired capacity retired by the end of the year. Concurrently, an increasing number of utilities have announced plans to transition away from coal entirely. In 2017, DTE Energy announced plans to phase out its remaining coal-fired power by 2040. Most recently, Xcel Energy Inc. announced plans to transition to 100% carbon free generation by 2050. And PacifiCorp — which operates in six states in the western US — announced that 13 of its 22 coal-fired units are more expensive than alternative sources, suggesting likely additional retirements in the future.
In this environment, few, if any, new coal-fired plants are expected to be built. Indeed, only a single new coal-fired power plant — a 17 MW unit in Alaska — is currently slated for development. Moreover, EPA projects that few sources will trigger the modification or reconstruction standards.
Key Implications of EPA’s Proposal
Despite the trend away from coal-fired generation, EPA’s proposal may impact the power sector and other key emitting industries in several ways.
1. Putting Existing Source Guidelines on a Stronger Legal Footing
First, the proposal has implications for federal regulation of CO2 emissions from existing EGUs. Under the Trump administration, EPA has proposed to rescind the Obama-era Clean Power Plan for existing sources, and to replace it with less ambitious, state-driven emission guidelines under the Affordable Clean Energy (ACE) proposal. (A more detailed discussion of ACE is available in this article.) Under the Clean Air Act, EPA can only establish existing source guidelines for a source category under Section 111(d) if the agency has already established NSPS for the same pollutant and category under Section 111(b). In other words, the NSPS is a legal predicate for regulation of existing sources under Section 111.
Accordingly, the greatest impact of the proposed NSPS may simply be that it signals the Administration’s intention to maintain a legal basis for regulating CO2 emissions from existing EGUs. This would align with what most key stakeholders in the power sector have requested — specifically, that EPA replace the Clean Power Plan with an alternative regulation, rather than simply rescind the rule. In addition, EPA’s newly proposed NSPS is arguably on firmer legal footing than in the 2015 rule — as it does not require the agency to justify reliance on CCS, a relatively novel technology, as the basis for the standard. Challenges to the 2015 NSPS were pending in the US Court of Appeals for the D.C. Circuit, although the court ordered them held in abeyance in 2017, in light of EPA’s review of the rule.
Thus, if EPA finalizes the current NSPS proposal, the agency’s regulation of power plant CO2 emissions from existing sources could gain firmer ground, notwithstanding the current Administration’s focus on deregulation — a result some might find surprising.
2. Leaving the Door Open to Rejection of CO2 Standards for Power Plants or Other Sectors
On the other hand, the proposal also includes one noteworthy element that could cut in the opposite direction. Under Section 111(b) of the Clean Air Act, EPA is obligated to list certain source categories — like steam EGUs — if the agency determines that the category “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health and welfare.” That determination is commonly referred to as an “endangerment finding.” Once EPA lists a source category, Section 111(b) requires the agency to adopt NSPS.
When EPA adopted the current CO2 NSPS for power plants in 2015, it concluded that the relevant source category was listed long ago and that the statute does not require a separate pollutant-specific endangerment finding to regulate CO2 emissions. Rather, the agency said it could establish NSPS for CO2 for a listed source category so long as EPA has a “rational basis” for doing so. EPA said that it had such a basis for power plants, because power plant emissions far exceeded other source categories of US CO2 emissions and the agency had made a separate endangerment finding for greenhouse gas emissions from motor vehicles. EPA said that even if an endangerment finding were required, the same factors supporting a rational basis determination would qualify as an endangerment finding.
EPA now proposes to maintain the same position as in the 2015 rule, but acknowledges that some stakeholders took a different view during the 2015 rulemaking. Accordingly, in a footnote, EPA states that it will consider comments on whether a new endangerment finding is required —particularly given any unique characteristics of greenhouse gases. EPA will also consider comments on whether it has a rational basis for regulating CO2 emissions from new coal-fired power plants, given that few if any are projected to be built. In the agency’s words, this scenario “raises questions about whether coal-fired EGUs contribute significantly to atmospheric CO2 levels.”
EPA’s willingness to change its position on these issues remains unclear. Nonetheless, the agency’s decision to leave the door open for potential reconsideration is consequential in and of itself. As a result, EPA could still consider abandoning regulation of power plant CO2 emissions altogether — though environmental groups and some states would undoubtedly challenge such a determination in court. Further, EPA’s stance suggests that the agency may still be considering alternative approaches to the “endangerment finding” question — including ones that might enable other source categories to avoid regulation more easily in the future. This issue will certainly attract vigorous feedback, as it will be of interest to a wide array of industries beyond electric utilities.
3. Changing the Way EPA Approaches CCS
EPA’s assessment of CCS in the proposal is also noteworthy. In proposing to determine that partial CCS is not the BSER for new coal-fired power plants, the agency departed from the analysis used in the 2015 rulemaking in several ways. One notable example is the proposal’s focus on how increased operational costs affect dispatch (and therefore the economic viability) of power plants. EPA concludes that the increased costs associated with partial CCS are such that, under current and projected market conditions, coal-fired power plants with such technology might operate at lower capacity factors — making them less economical and reducing their usefulness as baseload power generators. EPA’s new proposal also revisits geographic feasibility of CCS and water availability, concluding that CCS is not adequately demonstrated “in certain key respects.”
These proposed findings, along with several other changes in the way EPA analyzes the costs of CCS and how they are considered in setting NSPS, have important implications. Both the NSPS and the administrative record supporting it could be seen as setting a new bar for future regulation based on CCS technology. The agency’s proposed approach could affect future NSPS, “inside-the-fenceline” regulation of existing sources under Section 111(d) guidelines, or even best available control technology (BACT) analysis under the Clean Air Act’s preconstruction permitting programs. Stakeholders should take a keen interest, not only with regard to the technological basis for BSER in this regulation, but also in EPA’s method of analysis and its approach toward CCS more broadly. Precedents set in the pending NSPS rulemaking could affect these programs for years to come.
What Comes Next
EPA will accept public comment on its proposal for 60 days following publication of the proposed rule in the Federal Register. Stakeholders in the power sector, as well as other emitting sectors, will have an opportunity to engage with EPA on key issues.
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