EPA Proposes Carbon Standard and Carbon Capture for Power Plants

On March 27, 2012, the U.S. Environmental Protection Agency (EPA) proposed a New Source Performance Standard (NSPS), Subpart TTTT, that would limit carbon dioxide (CO₂) emissions from new fossil fuel electric generating utilities (EGUs) and, for units fueled with coal or petroleum coke, require the eventual use of carbon capture and storage (CCS) systems. ^[1] The agency did not propose any changes to the existing criteria pollutant standards for EGUs in Subparts Da and KKKK.

The rulemaking would impose an output-based carbon standard of 1,000 pounds of CO₂ per megawatt-hour (lb CO₂/MWh), averaged over 12 months. ^[2]  If finalized, this would be the most stringent standard in the country, surpassing the 1,100 lb CO₂/MWh limits enacted by California, Washington, and Oregon. ^[3]  Units which use coal or petroleum coke for fuel have the option to comply with an alternative annual standard of 1,800 lb CO₂/MWh for up to 10 years, but would be required to install and operate a CCS system thereafter. ^[4]

In a significant break from past practice, the NSPS will only apply to new sources—modified and reconstructed EGUs would not be subject to the rule. ^[5]  Also unusual, the EPA proposes to exempt "transitional sources," those that have been issued a Prevention of Significant Deterioration permit and commence construction within one year. Units rated at 25 megawatts or less, biomass-fueled units, waste combustion units, units located in a non-continental area, such as Hawaii and U.S. territories, and single cycle combustion turbines would also be exempt. ^[6]

It is clear that any EPA rule associated with greenhouse gas (GHG) emissions will be a lightning rod for controversy. The proposed NSPS rule will be no different, especially given the agency's assertion in the proposal that the rule will not impose notable compliance costs^[7], despite a CCS requirement that could make new coal- and petroleum coke-fueled EGUs cost-prohibitive. The comment period for the rule will start once it is published in the Federal Register and will last for 60 days, unless the EPA issues an extension. The proposal is further discussed below.

Background

The proposed NSPS rule stems from court challenges brought by a number of entities, including 10 states, the Natural Resources Defense Council, Sierra Club, and Environmental Defense Fund. These petitioners had alleged that the EPA was required to establish a standard for GHGs when it revised NSPS Subpart Da (covering steam boilers and integrated gasification combined cycle (IGCC) 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 GHG issues.^[8]

The EPA did not take action on the remand until 2010, when the agency and petitioners negotiated a settlement agreement establishing deadlines by which the EPA would propose and take final action on GHG standards for EGUs.^[9]  However, because the proposal is eight months late, the EPA will not be able to issue a final rule by the May 26, 2012, deadline established by the settlement agreement.^[10]

Also of note, the GHG standards are not being proposed under Subpart Da, as contemplated by the settlement agreement.  Instead, the EPA has elected to create a new subpart, TTTT, that covers the sources regulated under Subpart Da as well as those regulated under Subpart KKKK (combined cycle units). New Subpart TTTT would be in addition to Subparts Da and KKKK, both of which would remain in effect.^[11]

The Proposed Rule

The new NSPS would apply only to fossil-fuel fired boilers, IGCC units, and stationary combined cycle turbine units that generate electricity for sale and are larger than 25 megawatts. As previously discussed, the rule's central standard is a 1,000 lb/MWh limit on CO₂ emissions. According to the EPA, this limit represents the "best system of emission reduction" (BSER) which, taking into account cost, has been adequately demonstrated—as required by the Clean Air Act (CAA).^[12]

Significantly, the EPA only conducted a BSER assessment for natural gas combined cycle (NGCC) power plants, finding that almost 95% of the NGCC units commencing operation in the U.S. between 2006 and 2010 can meet the proposed 1,000 lb CO₂/MWh limit.^[13]  Although the proposed rule includes a CCS option for coal- and petroleum coke-fueled units, the EPA stresses that this option was not based on a BSER assessment.^[14]

The EPA justified its decision not to adopt a coal/petroleum coke subcategory based on economic models predicting that, due to the low price of natural gas, few if any such plants will be constructed in the foreseeable future, unless they are equipped with CCS and subsidized by government incentives.^[15]  In fact, the agency concluded that, due to market conditions, electric power companies would be expected to meet the standards even without the proposal and, therefore, the proposal has no notable associated compliance costs and will not have any impacts on the cost of electricity or the U.S. economy.^[16]

Notable exemptions from the rule and EPA's associated rationale for each are summarized below:

• Biomass-fired units would be exempt because they are not fossil fuels.^[17]  
• Single cycle units would be exempt because they are primarily used for peaking and not baseload generation, making it more expensive to lower their emission profile.^[18]
• Sources in non-continental areas, such as Hawaii and U.S. territories, would be exempt because pipeline quality natural gas is not available, making compliance with the 1,000 lb CO₂/MWh standard infeasible. ^[19]
• Transitional sources would be exempt because of the challenges of adapting proposed projects to the new standards, the small number of transitional sources, and the likelihood of promulgating future standards for existing sources "at the appropriate time." ^[20]
• Modifications would be exempt due primarily to a concern that pollution control projects implemented at power plants to comply with other regulatory requirements would result in increased CO₂ emissions. ^[21]
• Reconstructions would be exempt because there have been too few of these triggering events for power plants in the past to allow the EPA to propose standards for GHGs.^[22]

Discussion

If finalized as proposed, NSPS Subpart TTTT will significantly impact the design and economic viability of solid fuel EGUs. First, the alternative standard for coal- and petroleum coke-fueled units would effectively bar new subcritical pulverized coal units because only energy-efficient supercritical, ultra-supercritical, and IGCC EGUs will be able to meet an emissions level of 1,800 lb CO₂/MWh. Second, with costly CCS systems required after no more than ten years, even energy-efficient solid fuel EGUs may be cost-prohibitive.

Although the rule has only just been issued, it is already facing significant opposition. For example, Senator Inhofe (R-Okla.) has already stated his intent to kill the rulemaking through a Senate Congressional Review Act vote. Based on the level of opposition, it is safe to say  that there is less than universal agreement with the EPA's characterization of the new NSPS as a "common-sense approach"^[23] without notable compliance costs. ^[24]  

The EPA's rulemaking may be most vulnerable regarding the agency's decision not to create separate standards for different fuel subcategories. This is, by and large, a departure from past practice.^[25] The EPA's rationale on this issue is essentially that there is no meaningful reason to build a new coal-fueled EGU when natural gas prices are low and are expected to remain so. If no new coal-fueled facilities will be constructed for the foreseeable future, subcategories are unnecessary. Although the legislative history of the CAA indicates that fuel switching could be considered a control measure, it is questionable that this discretion extends to what could, in effect, be a ban on coal-fired plants.