EPA’s new carbon rule sparks battle over CCS, with legal challenges likely

Source: Jean Chemnick, E&E reporter • Posted: Saturday, September 21, 2013

U.S. EPA’s just-released proposal that for the first time would require all future coal-fired power plants to capture and store a share of their carbon dioxide emissions has set off an immediate war of words between industry groups, which oppose it, and environmentalists and their political allies, who embrace it.

Both sides girded for legal challenges to the new rule.

In a speech this morning at the National Press Club in Washington, D.C., EPA Administrator Gina McCarthy cast the proposal as part of a multipronged approach to fighting global warming.

“We know that climate change and protecting our kids from harmful pollution can’t be solved overnight,” McCarthy said. “It’s going to take a broad, concerted effort from all levels of government, as well as the international community.”

The agency today proposed a standard of 1,100 pounds of CO2 per megawatt-hour for new coal-fired units if they use carbon capture and storage (CCS) technology from the time they come online, or a more stringent 1,000- to 1,050-pound-per-MWh standard if they phase in that technology over seven years.

The rule requires a “basic” level of CCS that would require the capture of between 30 and 50 percent of a coal-fired power plant’s CO2, a senior official at EPA’s Office of Air and Radiation said today on a call with reporters.

“This is a simpler and less costly way to reduce emissions than a full capture system that ensures power plants of the future will emit less CO2,” the official said, speaking on the condition of anonymity.

Large combined-cycle natural gas units would be limited to 1,000 pounds of CO2 per MWh, a standard they could easily achieve without the use of CCS. Smaller units and single-cycle gas plants would face the same 1,100-pound standard as coal units.

At her National Press Club appearance this morning, McCarthy said the proposed standards would “ensure that new power plants are built with available clean technology to limit carbon pollution, a requirement that is in line with investments in clean energy technologies that are already being made in the power industry.” The CCS phase-in provision would provide utilities with additional flexibility, she said.

The new proposal would replace the one EPA issued last year, which included one 1,000-pound-per-MWh standard for all new power plants regardless of technology (E&ENews PM, March 27, 2012).

That proposal would have allowed coal-fired power plants to phase in CCS after the first decade of operation.

The agency received almost 3 million comments on last year’s proposal.

McCarthy said earlier this week at a House committee hearing that the agency chose to reissue the rule in part because of comments that it had failed to adequately make the case that CCS is ready to help new coal-fired power plants meet such a stringent standard (Greenwire, Sept. 18).

The new version includes a much more extensive justification for why CCS is a demonstrated technology. It points out that Southern Co.’s integrated gasification combined cycle (IGCC) power plant in Kemper County, Miss., is 75 percent complete, and that SaskPower’s Boundary Dam power plant in Saskatchewan is being retrofitted to comply with a Canadian emissions rule. Two other IGCC plants in the United States are at earlier stages of construction.

The administration also points to a North Dakota project that has been in operation for 12 years that pipes CO2 to sites in the United States and Canada to be used in enhanced oil recovery.

But industry groups say the rule would slow the deployment of clean coal technology by encouraging utilities to invest in natural gas over coal.

“By forcing power plants to abandon the use of the nation’s largest and most reliable source of affordable electricity, EPA is recklessly gambling with the nation’s energy and economic future,” said National Mining Association President and CEO Hal Quinn in a statement.

Paul Cicio, president of the Industrial Energy Consumers of America, said EPA is attempting to “dictate” energy policy with the rule.

“EPA’s action raises very serious national policy issues,” he said. “What is to prevent the EPA from deciding to reduce or eliminate natural gas from the power generation mix in the future? This rule is precedent-setting.”

Manufacturers are a major consumer of electricity, which Cicio says would become much costlier under the rule. It is also a sector that could eventually be covered by its own Clean Air Act rule for CO2.

Industry lawsuits over the rule are likely to turn on whether CCS meets the Clean Air Act’s standard for the best system of emissions reduction that has been adequately demonstrated for new coal plants.

Jeff Holmstead, an attorney at Bracewell & Giuliani who represents several utilities, put the chance of such litigation at “100 percent.”

He said that EPA is due some deference in setting its standard but added that the agency will have a hard time making the case that the technology is ready to go. A task force of Obama administration officials three years ago determined that while the barriers to CCS are not insurmountable, “early CCS projects face economic challenges related to climate policy uncertainty, first-of-a-kind technology risks, and the current high cost of CCS relative to other technologies.”

“None of those hurdles have really been overcome in the last couple of years,” said Holmstead.

CCS is also far and away the most expensive control technology that has ever been mandated by such a rule, he said. And its cost exceeds the administration’s $33-per-ton estimate for the social cost of carbon.

‘They’re really rolling the dice’

Holmstead said that if EPA puts forward a rule for new power plants that is legally vulnerable because it requires the use of CCS for coal plants, it risks complicating its effort to finalize a much more significant rule for today’s power fleet. The new sources rule must be finalized before or simultaneously with a rule for existing sources.

“EPA is taking a big legal risk here, which is puzzling to me, because if in fact they come out with this rule and it gets struck down, then that eliminates their ability to do anything on existing plants, and there won’t be enough time in this administration to come back and fix that,” said Holmstead, who headed the EPA Office of Air and Radiation under President George W. Bush. “So they’re really rolling the dice here.”

But environmentalists say EPA is on firm legal ground in requiring the use of CCS. The Clean Air Act does not direct EPA to limit its rules to technologies that are already widely deployed, they say.

Dan Lashof, director of the Natural Resources Defense Council’s Climate and Clean Air Program, said at a briefing this week with reporters that while the agency is required to consider cost when promulgating rules, it has no obligation to keep a certain technology economically competitive compared with another technology.

“There is nothing in the statute that says it has to be the cheapest way to make electricity,” he said.

“Going forward, if investors find that they can’t afford to build new fossil fuels plants without dumping unlimited carbon pollution into the atmosphere, that’s probably how the market should work,” he added.

Lashof said EPA’s record of defeating industry challenges to Clean Air Act rules is “excellent.” He pointed to the defeat last year of an industry challenge to EPA’s finding that CO2 endangers human health and to other rules that form the foundation of EPA’s carbon regulatory regime.

EPA has estimated that today’s proposal would cost nothing, and would have no immediate impact on U.S. emissions.

“Because this is a rule that affects power plants that aren’t built yet, we are not actually projecting a reduction of pollution that is being emitted now,” the agency’s senior official said today.

The proposed rule is still significant, the official said, because EPA does expect that the rule will help avoid pollution in the future. Where coal-fired power plants built before the rule emit more than 4 million tons a year of CO2, this rule would require future coal units to emit no more than 3 million tons per year, and a gas plant would emit 1.7 million tons per year.

NRDC federal affairs chief David Goldston said this week that the rule showed EPA has “crossed the Rubicon” on carbon regulation, and would move swiftly to tackle existing power plants, which are responsible for 40 percent of man-made CO2 emissions in the United States.

“The political/policy impact of it is huge, but it’s to set the stage for the next piece,” he said.

The Clean Air Act directs EPA to finalize today’s proposal within one year. President Obama has asked the agency to propose an existing source rule by June 2014, to be finalized one year later.

Paul Billings of the American Lung Association said the fact that EPA met today’s deadline for the new power plant rule indicates that the existing source rule is likely to be out on schedule — a key to having it in place before Obama leaves office in January 2017.

“One of the challenges we’ve had with EPA and with this administration more broadly is making sure things get done on schedule,” Billings said in a brief interview. “What this shows is that EPA is moving forward, that the president’s memo is being followed.”

McCarthy said this week at the House Energy and Power Subcommittee hearing that the agency is exploring a variety of “flexible” models that will take into account state actions to curb emissions. She told the panel that utilities would be consulted throughout that process.

The senior air official drove home the same points on this morning’s call.

“Over the coming months, EPA will be building on the progress states have already made to address this pollution from existing power plants, and the steps the agency has already taken to engage with our state partners and a diverse set of stakeholders,” the official said.