On June 2, 2014, the Environmental Protection Agency (EPA) released a draft of its proposed rule that will, for the first time, limit carbon dioxide (CO2) emissions at existing fossil-fuel fired electric utility generating units (EGUs). The overarching goal is a 30 percent reduction below 2005 rates of CO2 emissions from EGUs by the year 2030. To achieve that goal, the agency has set individual CO2 emission performance goals (requirements) for each state. The proposed rule provides a framework of four "building blocks" for states to use in developing single or multi-state plans to meet these requirements. Comments on the proposed rule will be due 120 days from publication in the federal register, and public meetings are scheduled in Atlanta, Denver, Pittsburgh and Washington, D.C. the week of July 28. The rule is expected to be finalized by June 1, 2015.
This alert is the first in a series discussing the ongoing efforts to regulate CO2 emissions from EGUs. The series will be updated to address evolving federal, state, and industry responses to these efforts.
The proposed rule for existing power plants constitutes the second of three steps by the agency to comprehensively regulate CO2 from the power sector. Following the President's Climate Action Plan, EPA first proposed regulations to limit CO2 emissions from new EGUs in September 2013 (79 FR 1430, January 8, 2014). Concurrent with the June 2, 2014, release of the proposed rules for existing power plants, the agency also released proposed regulations for CO2 emissions from modified or reconstructed EGUs. Details on this proposal will be covered in a separate alert.
EPA asserted authority
Acting under Clean Air Act § 111(d), 42 U.S.C. § 7411(d), EPA has proposed CO2 emission rates (called "emission guidelines") for each state, by calculating the emission limitation that each state can achieve based on the application of the "best system of emission reduction" (BSER). States are then required to develop plans to address how their EGUs will meet the interim rates (for the years 2020-29) and the final rate in 2030. EPA's ability to use § 111(d) to regulate CO2 emissions from existing EGUs in this manner is controversial, as some believe EPA's proposed rule overreaches the agency's authority under this statutory provision. Furthermore, one interpretation of § 111(d) holds that EPA's authority to regulate existing EGUs cannot stand if the 2014 proposed rule to regulate new EGUs is not finalized, or is overturned. Therefore, the ability to regulate CO2 at existing EGUs is closely intertwined with the successful regulation of CO2 at new EGUs.
No new emission controls required
The proposed rule does not mandate new emission controls at existing power plants, although it does require installation of continuous emissions monitors (CEMs) for CO2 at all affected plants. Instead of basing its statewide CO2 goal on emissions rates achievable by the application of particular emission controls as is usual under other provisions of the CAA applicable to power plants, EPA has used the § 111(d) framework to determine that the BSER is made of four "building blocks." The "building blocks" that EPA used to establish the individual state CO2 emission goals are:
- Reducing carbon intensity by heat rate improvements, by, for example, applying efficiency improvements at existing plants.
- Reducing emissions at the most carbon intensive EGUs by substituting their generation with generation from less carbon intensive EGUs (including carbon capture and sequestration (CSS) plants). For example, dispatching power from existing natural gas combined cycle plants instead of from affected EGUs.
- Replacing carbon intensive EGU emissions with lower or zero carbon generation, by, for example, using or building more renewable energy sources (including coal plants with CSS and/or nuclear power) to replace affected power plants.
- Reducing demand side energy use, by, for example, energy efficiency requirements that reduce the demand for electricity.
Flexibility for State Plans
Although EPA proposes to set states' individual interim and final CO2 emission goals and provides a list of elements required in states' plans (including enforceable CO2 emission limits at affected EGUs), the proposed rule is written to provide a measure of flexibility in how states meet the required goals. For example, the rule proposes interim and final statewide CO2 goals on a pounds of CO2 per net megawatt hour basis, but states may choose to convert that number to a mass basis. Also, groups of states may work together to develop multi-state plans. Finally, states are granted some flexibility in how they use the four "building blocks" of the BSER in developing their required plans. As proposed, the rule allows states to determine what combination of the "building blocks" would work best given their particular generation profile. States can take advantage of and build off of existing programs addressing carbon emissions in the power sector when developing the plans.
Costs and Benefits
Dueling studies by industry groups and interest groups present different estimates of the costs and benefits of this proposal. EPA and interest groups emphasize the climate and public health co-benefits of the proposed rule. Industry groups believe the costs to the power generation industry and its consumers greatly outweigh any climate benefits, and that any health co-benefits are already addressed by regulations limiting emissions of SO2, NOx, Mercury and PM.
Under the proposed rule, states have until June 30, 2016 to develop plans for EPA approval. States that need more time to develop a complete plan and that meet particular criteria can submit an initial plan for EPA approval on June 30, 2016, and request an extension until June 30, 2017 for a final plan. States joining together to develop multi-state plans can request an extension until June 30, 2018. Anticipated lawsuits may result in the extension of this proposed schedule.
Faegre Baker Daniels' environmental practice has extensive experience with federal and state air quality rulemakings, and advice regarding impacts of new and proposed rules. FaegreBD Consulting routinely represents clients before the regulatory agencies and Congress on major energy issues such as this one. If you have questions about how the proposed rule might affect your business, please contact Olivia Lucas or Andrew Wheeler.