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Proposed Regulations Would Limit Power Plant Greenhouse Gas Emissions

New York Law Journal

June 28, 2012

Power plants are the largest emitters of greenhouse gases (GHGs) in the nation, emitting approximately 40 percent of all U.S. anthropogenic carbon dioxide (CO2) emissions. In recognition of the power sector’s contribution to GHGs, and armed with the U.S. Supreme Court’s 2007 ruling that GHGs meet the definition of an “air pollutant” under the Clean Air Act (CAA),[1] the U.S. Environmental Protection Agency (EPA) issued a proposed rule on March 27, 2012, limiting, for the first time, GHGs from new fossil fuel-fired power plants.[2]  The New York State Department of Environmental Conservation (DEC) has proposed a similar rule as it relates to the siting of new power plants in New York State.[3]  Most notable about these two proposals is the apparent adoption of policy positions by both agencies that will essentially restrict the construction of new power plants that burn coal.

Proposed Federal Regulation

Pursuant to CAA Section 111, the EPA has proposed establishing a New Source Performance Standard that would require new fossil fuel-burning power plants to emit no more than 1,000 pounds of CO2 gas for every one megawatt hour of power they generate (“1,000 lb CO2/MWh”). For new coal plants, the proposed rule also includes a 30-year averaging option, which would allow coal plants to phase in emerging and expensive carbon capture and storage (CCS) technology to reduce emissions over time, resulting in the same 1,000 lb CO2/MWh standard, but averaged over 30 years.

While most new power plants would be covered by the rule, “transitional sources,” which are those power plants that have already received preconstruction permits and are “poised to commence construction within the very near future” (i.e., within 12 months of the proposed rule), are exempt. The EPA is aware of 15 such transitional sources.

The most controversial aspect of the proposed rule is that it establishes the emissions of a modern natural gas plant as the performance benchmark for all future fossil fuel plants. The 1,000 lb CO2/MWh standard is based on the typical emissions of natural gas combined-cycle power plants, which the EPA says meets the relevant CAA standard of performance of the “best system of emission reduction” that has been “adequately demonstrated.”[4] By contrast, coal burning power plants emit twice as much CO2 per unit of energy as combined-cycle natural gas plants.

In order to meet the new standard, coal plants would have to install CCS. Although there are various CCS pilot projects in the United States and around the world, CCS remains prohibitively expensive and has not been installed on a commercial basis on any power plant. Depending on whom you ask, commercial CCS is either right around the corner, or decades away due to technological, economic, and legal obstacles. In response to the proposed rule, coal industry groups say that the 30-year compliance option is “sleight of hand,” because no reasonable utility would commit to build a new plant and hope that CCS would become feasible in the future.[5]  Coal industry groups also assert that if CCS becomes commercially feasible, there is no reason not to apply it to natural gas plants as well to reduce emissions.[6]

The EPA asserts that CCS is technologically feasible, its costs will decline, the few coal plants that are constructed can take advantage of existing government subsidies and other funding sources, and several states have already set standards that will make CCS necessary.[7] Regarding technological feasibility, the EPA wrote that “there are no insurmountable technological, legal, institutional, regulatory or other barriers that prevent CCS from playing a role in reducing GHG emissions.”[8]

On the cost of CCS, the EPA states that current research will “dramatically lower the cost of capturing CO2 from fossil-fuel energy plants compared to today’s available capture technologies.”[9]  While the government estimates that the CCS technology available today would add approximately 80 percent to the cost of electricity for a pulverized coal plant and 35 percent for an advanced gasification-based coal plant, Department of Energy research is working to reduce those premiums to below 30 and 10 percent, respectively.[10]

In light of the divergent views about the readiness of CCS technology and as a reflection of the lack of political consensus on climate change in the federal government, 216 members of Congress wrote a letter opposed to the rules to the Office of Management and Budget, stating that “[f]orcing a transition to commercially unproven technologies could send thousands of U.S. jobs overseas and raise electricity rates on families and seniors at a time when the nation can least afford it.”[11]  In addition, the regulatory uncertainty surrounding CO2 had occasionally become a hindrance to the development of CCS technology.[12]

Energy Diversity

Because new natural gas plants are less expensive than new coal plants, gas is currently cheap and plentiful, and “nonconventional” gas extraction techniques such as horizontal drilling and “hydrofracking” promise to make gas even more plentiful, the EPA estimates that, even without this regulation, natural gas plants will dominate until at least 2020, and EPA does not project the construction of any new coal-fired plants during that period. Curiously, the EPA states that the proposed rule is consistent with the economic trend toward natural gas, and “is not intended to affect that apparent trend.”[13]

Regardless of EPA’s statement that its rule is not affecting the trend toward natural gas, we nonetheless expect that, in 50 years, the fleet of fossil fueled power plants is likely to be powered exclusively by natural gas plants as a result of this regulation as well as other existing and future environmental regulations and market conditions. Thus in the long term, the United States will not have a diverse portfolio for meeting its energy needs but rather will become very dependent on natural gas, with renewable energy helping to absorb some of its energy capacity needs. While we lose energy diversity, there are benefits. Natural gas and renewables are the cleanest sources of energy, and natural gas’ dominance will result in the reduction of GHGs and other air pollutants such as ozone and particulates, thus benefiting public health and the environment.[14]

New York State Regulation

The DEC has also proposed a regulation for the siting of power plants as part of the re-enacted Article 10 of the Public Service Law that generally mirrors the EPA’s proposal, but differs in some key respects.[15]  The DEC proposed an emission limit for boilers, combined-cycle combustion turbines, and stationary internal combustion engines of 925 lbs CO2/MWh (output based) or an alternative limit of 120 pounds of CO2 per million british thermal unit of input (“lb CO2/MMBtu”)(input based). For simple-cycle combustion turbines or stationary internal combustion engines that fire liquid fuel or liquid and gas, the proposed limit is 1,450 lbs CO2/MWh of output (or 160 lb CO2/MMBtu of input). (The proposed EPA rule exempts simple cycle turbines.[16])

Types of emission sources not specifically listed in the proposed regulation would have to meet a case-specific emission limit, based on what is “achieved in practice from the best controlled similar sources.”[17]  The DEC does not provide the 30-year compliance alternative option as in the EPA proposed rule, essentially closing the door to new coal-fired plants in New York State.

Conclusion

While the precise impetus for the EPA and DEC rules may be a multivariable function of environmental concerns, economics, and political policy-making, the endgame seems clear. The landscape of the energy sector both nationally and at the state level is poised to change with the adoption of the new rules. The coal industry, once an absolute cornerstone of an industrialized U.S. economy, may find itself marginalized in the coming decades unless it can adapt to the changing times.


Christine A. Fazio is a partner and co-director, and Ethan I. Strell, a senior associate, in the environmental practice group at Carter Ledyard & Milburn. Matthew James, a summer associate of the firm, assisted in the preparation of this column.
 
Reprinted with permission from the June 28, 2012 edition of the New York Law Journal © 2012 ALM media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.
 
Endnotes


[1]Massachusetts v. EPA, 549 U.S. 497 (2007).

[3] “CO2 Performance Standards for Major Electric Generating Facilities,” Express Terms 6 NYCRR Part 251, §251.3, available at http://www.dec.ny.gov/regulations/79556.html.

[4]This is in compliance with CAA §111, which also requires the simultaneous consideration of costs and other factors.

[5]National Mining Assoc., Statement of Alex Bond, Director, Air Quality at EPA public hearing, May 24, 2012.

[6]Id.

[7]77 Fed. Reg. at 22416. See, e.g., Recovery Act: Carbon Capture and Sequestration from Industrial Sources and Innovative Concepts for Beneficial CO2 Use ($3.4 Billion); The Clean Coal Power Initiative ($2.5 Billion).

[8]77 Fed. Reg. at 22414-15.

[9]Id. at 22415.

[10]Id. at 22415-16.

[11]Letter from 216 Members of Congress, Feb. 23, 2012.

[12]In a July 17, 2011, press release, American Electric Power’s chairman announced the suspension of a demonstration of CCS stating: “We are placing the project on hold until economic and policy conditions create a viable path forward…[As] a regulated utility, it is impossible to gain regulatory approval to recover our share of the costs for validating and deploying the technology without federal requirements to reduce greenhouse gas emissions already in place. The uncertainty also makes it difficult to attract partners to help fund the industry’s share.”

[13]77 Fed. Reg. at 22399.

[14]Reductions in GHG emissions from the U.S. power sector will be marginalized, however, by the continuing growth of electric generation, especially from coal, in Asia. James M. Taylor, “New EPA Data Show Futility of U.S. Carbon Dioxide Restrictions,” www.Forbes.com (Feb. 2, 2011) ( http://www.forbes.com/2011/02/23/china-carbon-dioxide-emissions-opinions-contributors-james-taylor.html).

[15]“CO2 Performance Standards for Major Electric Generating Facilities,” Express Terms 6 NYCRR Part 251, §251.3, available at http://www.dec.ny.gov/regulations/79556.html.

[16]77 Fed. Reg. at 22398.

[17]Id.



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