EPA Proposes New and Differing Carbon Emission Limits for Future Natural Gas-Fired and Coal-Fired Power Plants

EPA Proposes New and Differing Carbon Emission Limits for Future Natural Gas-Fired and Coal-Fired Power Plants

On September 20, 2013, U.S. EPA rescinded its first attempt and proposed new rules to establish New Source Performance Standards (NSPS), i.e., national emission limits, for carbon dioxide (CO2) emitted from new electric power plants. EPA's proposed approach is to set different limits, and different technology, depending upon whether the electric generating unit (EGU) is natural gas-fired or coal-fired plant. For coal-fired EGUs, EPA proposed a CO2 limit that requires the use of carbon capture and storage (CCS) technology for at least some CO2 emissions, and sets two different limits based on the averaging period used. Natural gas EGUs have two different limits based on their size, but CCS is not to be required for any of those EGUs. EPA's new proposed rule is a significant departure from its original proposed rule for the electric utility sector, so at the same time it proposed the new NSPS, it formally rescinded its original proposal.

As background, in April 2012, EPA proposed a single electricity output-based emission limit of 1,000 pounds (lb) of CO2 per megawatt-hour (MWh) of gross electrical output for all new fossil fuel-fired plants. This emission limit was reached by determining the CO2 emissions only from modern, newly constructed natural gas combined cycle facilities. However, no new coal-fired plant would be able to use feasible and proven technology and still meet the 1,000 lb. CO2/MWh limit. Thus, the 2012 proposed standard was based on an EPA calculation that no new coal-fired units would be built in the near future.

EPA received 2.5 million comments in response to its 2012 proposed rule, more comments than in response to any other regulation in its history. Many of those comments criticized EPA for its foundational assumption that no new coal plants would be built and accused EPA of plotting the end of coal as an energy source. In response to these comments, EPA rescinded its proposed rule. In doing so, EPA explicitly recognized that its prior modeling did not consider that (a) since April 2012, some coal-fired units had reached advanced stages of construction and development; and (b) several utilities may need to build additional coal-fired units either due to higher than usual electricity demand and/or higher than expected natural gas prices. Thus, EPA proposed to set the NSPS for coal-fired plants at a higher emission limit than for natural gas EGUs, but required coal-fired plants to use of CCS to control their emissions.

Under § 111(b) of the Clean Air Act, EPA is required to set NSPS to limit emissions of "air pollutants" from stationary sources. NSPS are established based on "BSER" – the best system of emission reduction for the particular emission source. EPA already has issued NSPS for other pollutants emitted by power plants, but not for CO2, which was recognized by the U.S. Supreme Court as an "air pollutant" in Massachusetts v. EPA, 549 U.S. 497 (2007).

The new proposed rule recognizes that BSER is different for natural gas-fired electricity generating units than it is for coal-fired units. Thus, EPA set different NSPS based on different BSER for different types of EGUs. Specifically, for natural gas EGUs, EPA proposes to limit emissions to:

• 1,000 lb. CO2/MWh for units generating greater than 850 mm BTu/hr (large units)

• 1,100 lb CO2/MWh for smaller units

All new natural gas-fired units would need to use the most current natural gas combined cycle (NGCC) technology in order to meet this limit, but EPA recognized that, even with this technology, smaller NGCC units are less efficient. EPA specifically rejected requiring CCS for any NGCC units because the technology is not used or proven effective to control emissions from those units.

For fossil fueled-fired utility boilers and integrated gasification combined cycle (IGCC) units, which primarily use coal or other solid high-carbon feedstock, EPA proposed two alternative limits:

• 1,100 lb. CO2/MWh over a 12-operating month period; or

• 1,000 lb - 1,050 lb. CO2/MWh over an 84-operating month period.

EPA provides the choice of a lower limit, but longer compliance period in order to encourage CCS technological advances and allow start-up time for that new technology. To meet either of these numerical limits, a new unit would have to use CCS to capture some of its emissions. EPA rejected requiring full CCS because of its cost, putting the price of electricity at almost three times the cost of natural gas-fired units. However, EPA estimated that partial CCS would allow prices to be within the range of other non-natural gas-fired electricity generated options, such as nuclear, biomass, and geothermal.

EPA estimates that a coal-fired unit meeting the 1,100 lb. CO2/MWh standard would emit 30-50% less CO2 than a coal-fired unit without CCS. Anticipating that its choice of CCS, even on a partial basis, will be criticized as impermissibly imposing an infeasible technology, EPA noted that two IGCC projects currently use partial CCS and two others are in advanced stages of development. EPA also stated that almost all coal-fired EGUs in planning stages intend to implement CCS on some level.

Unlike the 2012 proposed rule, EPA is planning to apply its new rule to all new power plants in the planning phase which have not yet begun construction, except for perhaps one facility that is in an advanced stage of planning, but which is not designed to meet the new emission standard. The new rule would not apply to existing EGUs or those undergoing modification or reconstruction. The new rule also would not apply to EGUs that sell less than one-third of their power to the grid; are liquid oil-fired stationary combustion turbine EGUs; or do not burn any fossil fuels, such as those burning only biomass.

EPA will be receiving public comments on this proposal for 60 days after its publication in the Federal Register, but stated its intent to issue a final rule "in a timely manner," as directed by the President's June 2013 Climate Action Plan. In the same announcement of its proposed rule for new power plants, EPA reiterated its intent to issue proposed and final rules for existing power plants by June 1, 2014 and June 1, 2015, respectively.

 By Gabrielle Sigel, Partner, Jenner & Block

Read more at Corporate Environmental Lawyer Blog by Jenner & Block LLP.

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