New EPA standard for emissions from fossil fuel-fired electric generating utilities

Introduction
Background
Proposed rule
Comment

Introduction

On September 20 2013 the Environmental Protection Agency (EPA) reproposed the New Source Performance Standard for carbon dioxide emissions from new fossil fuel-fired electric generating utilities, as follows:(1)

• Boiler electric generating utilities, including coal-fired and integrated gasification combined cycle units, would need to capture and store a portion of carbon emissions (approximately 30% to 50%) to meet an output-based carbon standard of 1,100 pounds (lbs) of carbon dioxide per gross megawatt hour (MWh).
• Natural-gas fired turbines greater than 250 megawatts (MW) would need to meet a standard of 1,000lbs of carbon dioxide/MWh, which would become the most stringent standard in the country.
• Smaller natural gas-fired turbines between 73MW and 250MW would need to meet a standard of 1,100lbs of carbon dioxide/MWh.

In a significant break from past practice, the New Source Performance Standard will apply only to new sources – modified and reconstructed electric generating utilities will not be subject to the standard. Therefore, low natural gas prices and stringent maximum achievable control technology requirements for coal-fired production may mute the rule's immediate impact, as most new electric generating utility projects are for natural gas combined cycle plants.

Nonetheless, finalisation of the New Source Performance Standard for new electric generating utilities will allow the EPA to establish carbon dioxide guidelines for existing power plants and to set a deadline for state plans addressing carbon dioxide emissions from these sources.(2) In the current rulemaking, the EPA asserts that partial carbon capture and storage (CCS) qualifies as the 'best system of emissions reduction'(3) for non-natural gas-fired units. This means that the EPA considers CCS to be adequately demonstrated and an economically achievable technology, and gives rise to the possibility that the future guidelines, due for proposal in June 2014, will include CCS retrofits for existing electric generating utilities.

The proposed 'best system' finding may also factor into future best available control technology analyses under the prevention of significant deterioration pre-construction permitting programme. Whether CCS will be selected as the best available control technology for refineries, chemical plants and cement plants remains to be seen. Regardless, the EPA's 'best system' determination will almost certainly be used by environmental advocacy groups to oppose new and amended prevention of significant deterioration permits.

Background

The proposed carbon dioxide New Source Performance Standard stems from court challenges brought by, among others, 10 states, the Natural Resources Defence Council, the Sierra Club and the Environmental Defence Fund. The petitioners had alleged that the EPA was required to establish a standard for greenhouse gases when it revised New Source Performance Standard Sub-part Da (covering steam boilers and integrated gasification combined cycle units) in 2006. Following the Supreme Court's decision in Massachusetts v EPA in 2007, the EPA requested and was granted a remand of the greenhouse gas issues.(4)

The EPA did not act on the remand until 2010, when the agency and petitioners negotiated a May 26 2012 deadline for final action on greenhouse gas standards for electric generating utilities. On April 13 2012 the agency published a proposed rule imposing a standard of 1,000lbs of carbon dioxide/MWh for all new electric generating utilities, regardless of fuel. The EPA based the standard on a best system analysis of the emissions achievable by a new natural gas combined cycle plant.(5)

The EPA defended its omission of control analyses for other types of electric generating utility in light of projections that, due to low natural gas prices, few new coal-fired units would be built by 2025. Although the agency proposed an option under which coal-fired plants could be constructed if they installed CCS within 10 years, it did not conduct a best system analysis for the use of CCS. Approximately 2.5 million comments were received on the first version of the rule.

The new proposal replaces the one published by the EPA on April 13 2012, and would house the new carbon dioxide standards in existing Sub-parts Da and KKKK (combined cycle units). The EPA is also proposing that the new standards be established in a new, standalone Sub-part TTTT.(6) The existing non-carbon dioxide emissions limits imposed by Sub-parts Da and KKKK would remain in effect.

Proposed rule

The new New Source Performance Standard would generally apply only to fossil-fuel fired boilers, integrated gasification combined cycle units and stationary turbine units designed to generate electricity for sale and which:

• have a design heat input of greater than 73MW (250 million British thermal units per hour);
• combust fossil fuels for more than 10% of heat input during any three consecutive years; and
• actually supply at least one-third of their potential electric output and more than 219,000MWh(7) of net electric output to a utility distribution system.(8)

The proposed rule would exclude non-natural gas-fired combustion turbines, existing sources undergoing modifications or reconstruction and three specific electric generating utility projects.(9) There would not be an explicit exemption for simple cycle turbines. However, the proposed rule includes a three-year averaging period for turbines and the EPA believes that simple cycle units would generally fall outside the rule's requirements, because they are normally used for peaking and would not be anticipated to supply more than one-third of their potential electric output to the grid on a three-year basis.(10)

As part of the rulemaking, the EPA conducted a best system analysis for coal-fired steam boilers and a re-analysis for natural-gas fired turbines. Based on the analyses, the EPA adopted an emissions rate based on the application of partial CCS to coal-fired electric generating utilities and split natural gas turbines into three categories, as follows:(11)

• Steam boiler electric generating utilities – 1,100lbs of carbon dioxide/MWh computed as a 12-operating month rolling average, or 1,050lbs of carbon dioxide/MWh computed as an 84-operating month rolling average.
• Natural gas-fired turbines of more than 250MW – 1,000lbs of carbon dioxide/MWh computed as a 12-operating month rolling average.(12)
• Natural gas-fired turbines of more than 73MW but less than or equal to 250MW – 1,100lbs of carbon dioxide/MWh computed as a 12-operating month rolling average.

The application of partial CCS as the best system is the most controversial part of the rule. In the preamble, the EPA discussed the maturity of carbon absorption and transport technologies and the existence of a handful of existing and proposed CCS facilities. The agency then discussed the costs of partial (less than 90%) CCS and full CCS (90%), finding that the cost of partial CCS would place coal-fired generation on par with biomass and solar-generated electricity, but full CCS would result in considerably higher costs.(13)

The EPA rejected CCS as the best system for natural gas-fired turbines, finding that:

• CCS is more difficult for natural gas units due to the lower concentration of carbon dioxide in the flue gas;
• there is currently only one CCS demonstration project for a natural gas combined cycle plant; and
• the imposition of CCS for these units would have a much greater impact on electricity prices and reliability compared to the imposition of CCS on the relatively few coal-fired units projected to be constructed.(14)?

Comment

In reviewing the proposed New Source Performance Standard, the EPA attempted to increase the defensibility of the final rule. The original proposal applied a single emissions limit to all fossil-fuel fired electric generating utilities, regardless of fuel or design.(15) The EPA projected that no one would build a new non-CCS coal-fired power plant, but did not provide convincing arguments for how this absolved the agency from establishing a best system for coal-fired units in case the projections were wrong. Further, the alternative standard, involving the future installation of CCS, was not backed by a best system analysis and was based on the EPA's belief that CCS costs would come down in the future.

The revised rule attempts to narrow these possible legal gaps in apparent anticipation of legal challenges. For example, instead of challenging the rule based on the failure to conduct a best system analysis for coal-fired units, a key legal issue that is likely to be challenged is whether the EPA's assessment was an abuse of discretion.

If finalised, the New Source Performance Standard will significantly affect the design and economic viability of solid fuel electric generating utilities. Although the economic impacts are smaller than would have been the case if the EPA had chosen full CCS as the best system, they may still be enough largely to prevent new coal-fired generation. Despite the EPA's assurances, commercial-scale CCS systems are still viewed by many as unproven. When added to higher costs and a host of other regulatory requirements, such as the EPA's maximum achievable control technology standard for coal and oil-fired electric generating utilities, the CCS requirement may make it very difficult to obtain utility commission approvals and capital funding for new coal-fired projects. Many pundits have already predicted the end of new coal-fired electric generating utilities.

In light of low natural gas prices, the proposed rule's direct impact on new electric generating utility projects may be minor, at least in the near term. However, its impact on future regulation could be large. Just as the EPA's greenhouse gas standards for new motor vehicles led to prevention of significant deterioration permitting of stationary sources under the tailoring rule, the proposed New Source Performance Standard may lead to carbon dioxide standards for existing electric generating utilities under Section 111(d) of the Clean Air Act. Section 111(d) requires the EPA to establish guideline standards for existing sources. Once the new New Source Performance Standard is in place, the agency will be able to establish these guidelines and to require the submission of state plans to address carbon dioxide emissions from existing electric generating utilities. The Obama administration has set a June 1 2014 deadline for the proposal of existing source guidelines.(16) Time will tell whether retrofit CCS systems will feature in the guidelines.

Finally, the proposed New Source Performance Standard could prove influential for best available control technology determinations associated with prevention of significant deterioration permitting. Best available control technology is similar in some aspects to the best system – the determination of each relies on technical feasibility, costs and other associated impacts. The EPA considers CCS to be technically feasible for purposes of best available control technology, but analyses to date have rejected the selection of CCS based on cost. However, the new New Source Performance Standard proposal could result in applicants needing to analyse the costs of not just full CCS, but partial CCS systems. Regardless, the EPA's best system analysis will almost certainly provide ammunition to environmental advocacy groups challenging prevention of significant deterioration permits.

For further information on this topic please contact Edward Clark Lewis at Fulbright & Jaworski LLP's Houston office by telephone (+1 713 651 5151), fax (+1 713 651 5246) or email ([email protected]). Alternatively, please contact Bob Greenslade at Fulbright & Jaworski LLP's Denver office by telephone (+1 303 801 2700), fax (+1 303 801 2777) or email ([email protected]).

Endnotes