The U.S. Environmental Protection Agency (“EPA”) yesterday announced a proposed rule to limit greenhouse gas (“GHG”) emissions from electric generating units (“EGUs”). The proposal seeks to drastically reduce emissions of GHG and conventional emissions while promoting the use of carbon capture and sequestration (“CCS”) and hydrogen co-firing technologies. This proposed rule is part of the Biden Administration’s larger regulatory effort to transition the American economy toward “low carbon” technology.
The proposed rule treats new EGUs differently based on level of output and targets certain existing fossil-fuel-fired combustion turbines (both simple cycle and combined cycle).
The proposed rule contains three primary parts: (1) strengthening CO2 standards for new gas-fired combustion turbines, based on three new categories; (2) providing emissions guidelines for existing gas plants that have a capacity of 300 MW and operate at a more than 50 percent capacity factor; and (3) covering existing steam generation units—mostly coal—by requiring those EGUs to choose between new control technologies or retirement.
Consistent with Clean Air Act Section 111, the proposed New Source Performance Standards and emissions guidelines “reflect the application of the best system of emissions reduction [(“BSER”)] that, taking into account costs, energy requirements, and other statutory factors, is adequately demonstrated.” To this end, the EPA’s newly proposed rule also seeks to repeal the Affordable Clean Energy (“ACE”) Rule, stating, among other rationales, that the BSER therein are no longer appropriate for existing coal-fired EGUs.
The proposed rule would create different standards based on three categories of new gas EGUs and enhance standards for certain existing gas EGUs.
New and Reconstructed Fossil-Fuel-Fired Stationary Combustion Turbines: EPA proposes three subcategories for new gas plants, based on how heavily a plant is used. For new low-load “peaker” units—defined as operating at below 20 percent capacity factor—EPA proposes as BSER the use of a “lower-emitting fuel,” such as natural gas or distillate oil.
For new intermediate load units—defined as operating at between a 20 and 50 percent capacity factor—EPA proposes a phased standard. The first phase establishes as BSER the performance of a highly efficient combustion turbine. The second phase establishes BSER as co-firing 30 percent (by volume) of “low-GHG” hydrogen by 2032 and 90 percent by 2035. The second phase requires continued use of highly efficient generation. The EPA is soliciting comments as to whether intermediate-load units should be subject to a more stringent third phase that would require higher levels of hydrogen co-firing by 2038.
For new baseload combustion turbines—defined as operating at above a 50 percent capacity factor—EPA proposes as BSER one of two pathways, either co-firing with “low-GHG” hydrogen starting at 30 percent in 2032 and ramping up to 96 percent by 2038, or by achieving a 90 percent CCS rate by 2035.
Existing Fossil-Fuel-Fired Stationary Combustion Turbines: EPA’s proposed standards for existing gas plants would only apply to existing EGUs with a 300 MW capacity and at least a 50 percent capacity factor. BSER for these units is based on either the use of CCS by 2035 or co-firing 30 percent (by volume) low-GHG hydrogen by 2032 and co-firing 96 percent low-GHG hydrogen by 2038. The proposed rule does not purport to set new standards for smaller or less frequently used existing gas plants.
The proposed rule requires existing coal-fired EGUs to choose between new control technology or retirement.
EPA relies heavily on CCS and the co-firing of “lower-emitting” fuels to address existing coal-fired generation. The proposed rule would allow operators of existing coal-fired EGUs to forego installation of CCS or certain other emissions control technologies if they commit to near-term retirement of their facilities. The proposed rule would not require any reductions for coal plants closing before 2032, or for plants that commit to retire before 2035 and have a less than 20 percent capacity factor. Existing coal plants that remain online longer than the applicable 2032 or 2035 deadline, but still intend to retire before 2040, may co-fire with natural gas to avoid CCS or other control equipment requirements. Those coal plants intending to remain online through 2040 and beyond must be modified to curb their emissions by 88.4 percent, a level based on achieving 90 percent carbon capture and storage by 2030. This regulatory scheme reflects EPA’s view that it is most efficient to deploy CCS technology with EGUs that will operate over a longer period.
EPA’s path forward is not without obstacles.
This announcement comes less than one year after the Supreme Court limited EPA’s authority to regulate power plants in West Virginia v. EPA, a contentious battle over the Obama administration’s signature Clean Power Plan. The proposed rule is sure to be challenged by industry operators and attorneys general from Republican-led states. The following are a few of the principal issues that are likely to become the focus of legal battles over this rulemaking.
- The efficacy of CCS technologies remains to be seen. Both legal and political challenges to the proposed rule will emphasize that CCS is a nascent technology that is not yet adequately demonstrated, despite the Biden Administration’s undoubted hopes that this rulemaking will hasten the adoption of CCS technologies at EGUs. State legislatures have, in recent years, shown an increasing amount of institutional support for CCS technologies, with many states introducing legislation to permit and regulate CCS practices. However, given the generally undemonstrated efficacy of CCS technologies, some entities may experience implementation challenges from either a physical plant perspective, a capital cost perspective, or a compliance perspective.
- EPA has never regulated the carbon dioxide emissions of existing power plants. Challengers to the new rule may point to the fact that this rule is one of first impression. However, while it stands in the stead of other failed rules that sought to reach similar objectives, it implements a decidedly different method to do so. The Supreme Court in West Virginia v. EPA rejected EPA’s generation-shifting efforts and found that EPA has narrow authority to regulate powerplants “inside the fenceline.” However, the BSER definitions put forth by EPA constitute a relatively novel approach to reducing emissions. As such, parties may dispute whether this is a lawful exercise of EPA’s power to regulate greenhouse gas emissions within the fenceline of a power plant, as qualified by West Virginia v. EPA.
- Flexibility through trading will be an imperative. States and regulated entities already engaged in certain cap-and-trade programs will expect that those programs may continue under the proposed rule. To meet this expectation, EPA should provide some flexibility in how entities can meet their obligation under the rules, including through existing and newly developed trading regimes.
Contact Michael Best & Friedrich for more information about how this proposed rule might impact your business.