Update: EPA proposes first carbon standard for future power plants

The U.S. Environmental Protection Agency (EPA) has proposed the first Clean Air Act standard for carbon pollution from new power plants. The proposal does not apply to plants currently operating or new permitted plants that begin construction over the next 12 months.

The proposed rule has been in the making for years and would require any new power plant to emit no more than 1,000 pounds of carbon dioxide (CO2) per megawatt of electricity produced. The average U.S. natural gas plant, which emits 800 to 850 pounds of CO2 per megawatt, meets that standard; coal plants, however, emit an average of 1,768 pounds of carbon dioxide per megawatt.

EPA Administrator Lisa P. Jackson said the Administration is aware of 15 coal plants that are in the permitting process or currently under construction. According to the proposal, these plants would already comply with the standard. EPA does not project additional cost for industry to comply with this proposed standard.

The power sector currently accounts for 40 percent of the nation’s greenhouse gas emissions.

EPA Administrator Lisa P. Jackson said the proposed rule is not an effort to terminate coal generation. “We believe that coal will remain an important part of America’s electric generating mix; (it will) remain the largest single source of electricity in our nation’s future.”

However, many in the power industry view the proposed rule as an attack on coal generation.“By banning the future of efficient and effective coal in the United States, coal may instead by exported and used overseas,” said Scott Segal, executive director of the Electric Reliability Coordinating Council (ERCC).

Many in the power industry believe the Administration is pushing for a gradual shift toward natural gas through this proposed rule, as well as other recent regulations, such as the Mercury and Air Toxics Rule and the Cross State Air Pollution Rule. But with gas prices facing remarkably low rates, an industry-wide switch to natural gas could be perilous if prices escalate again.

"In that case, we may be missing coal," said Paul Forrester, partner at Mayer Brown.

“In the rule proposal, we looked at what happens if the price of natural gas goes up, and it’s fair to say the price would have to rise dramatically … for the economics of this rule to change,” Jackson said.

Under the proposed regulation, new coal plant operators will have two options for compliance: Using carbon capture and sequestration (CCS) technology to limit carbon emissions, or averaging carbon emissions over a 30-year period.

“Plants that choose to pursue new coal have to look at a 30-year horizon to meet the 1,000 pounds of CO2 per megawatt,” Jackson said.

For the first 10 years of the 30-year averaging, a plant would be permitted to emit up to 1,800 pounds of CO2 per megawatt.

Segal said that CCS technology is “still highly speculative, likely expensive, and EPA has provided no assurance that it will help with inevitable permit delays.”

Todd Palmer, a partner at Michael Best & Friedrich LLP, said there could be other options for complying with the proposed regulations, such as designing a new fossil-fired facility as a combined heat and power plant (CHP). “We’re going to see more and more industrial facilities looking at on-site CHP. The power from the CHP unit would go to the host facility; it would not be sold retail, and therefore would not be subject to this rule.”

While Jackson said that EPA has “no plans” to adjust greenhouse gas levels at existing plants, some in the power industry fear that EPA might create such a regulation after the November presidential election.

“We have little confidence that the Administration will adhere to this view, particularly after the election is over,” Segal said.

The proposed rule could potentially result in the extinction of new coal-fired generation, but it will first have to face federal lawsuits already in existence. “Lawsuits are currently pending as to whether EPA has authority to regulate greenhouse gases under the Clean Air Act, and if they do, to what extent,” Palmer said.

EPA is seeking additional comment and information, including public hearings, and will take that input into account as it completes the rulemaking process. EPA’s comment period will be open for 60 days following publication in the Federal Register. Steve Fine, vice president of ICF International, said a final rule will likely come “later this year, presumably sometime after the election.”

For more information, go to http://epa.gov/carbonpollutionstandard/.

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