On May 8, 2023, the U.S. Environmental Protection Agency (EPA or Agency) released a Proposed Rule under Section 111 of the Clean Air Act (CAA) that would regulate greenhouse gas emissions (GHG) from fossil fuel-fired power plants. If finalized, the Proposed Rule would have profound effects on future energy production in the U.S. Stakeholders from across every sector of the economy should understand the proposal, as the Biden administration seeks to move ahead to achieve carbon emissions reduction goals.

Here are five key takeaways from the proposal:

  • Existing coal-fired power plants would need to reduce GHG emissions by 90% by 2040 or retire. EPA is once again seeking to restrict GHG emissions from existing coal-fired power plants. EPA would require coal plants expecting to operate in 2040 and beyond to cut GHG emissions by 90% through the use of carbon capture and sequestration (CCS). EPA would provide some flexibility before then, with existing coal plants that retire sooner (before 2032 or 2035) allowed to operate with varying restrictions but without CCS or comparable GHG emissions reductions.
  • EPA is proposing significant restrictions for GHG emissions from natural gas-fired units. EPA’s previous power plant GHG rules had largely focused on coal-fired capacity. No doubt reflecting the shift in the U.S. energy mix, EPA would impose significant GHG emissions reductions on both new and existing natural gas-fired electricity generating units. However, EPA would not restrict emissions from smaller peaking units that fill gaps that cannot be met with renewables and storage.
    • For the first time, larger, existing natural gas-fired units would need to reduce GHG emissions; smaller units would not. Under the Proposed Rule, existing natural gas-fired units that are 300 MW or less and run less than half the time will not have to install new controls. Units that are more than 300 MW with a capacity factor of 50% or more will have to reduce emissions, by either (1) installing CCS technology to capture 90% of carbon emissions by 2035 or (2) mixing more clean-burning green hydrogen into fuel to reach a 30% hydrogen mix by 2032 or 96% hydrogen mix by 2038. EPA solicits comment on how the Agency should consider emissions guidelines for the rest of the existing natural gas-fired plants not covered in the proposal.
    • Larger, new and reconstructed natural gas-fired power generation would likewise need to meet GHG emissions standards. As proposed, only intermediate and large, regularly run plants will be affected. Intermediate plants (that run 20% to 50% of the time) will need to add 40% hydrogen into their fuel mix by 2032. Larger plants that operate 50% of the time or more will be subject to the same parameters as existing natural gas-fired plants. Importantly, these standards for new plants apply from the date the proposal is published in the Federal Register — May 23, 2023.
  • As required by the Clean Air Act, regulation of existing sources would be done through guidelines issued by each state for sources within the state — and those guidelines are still some years away. After the rule is final, EPA proposes that states would have 24 months to submit plans to EPA to implement standards for existing sources. In general, EPA expects that state plans will be at least as stringent as EPA’s rule. States may, however, take into account remaining useful life and other factors when applying standards of performance to individual existing sources. Where a state fails to submit a satisfactory plan to EPA, the Agency may enforce a federal plan.
  • The administration is setting standards premised on CCS and clean hydrogen being “adequately demonstrated” technologies. A premise of the proposed standard and the ability to attain future significant GHG emission reductions from coal- and natural gas-fired generation is that CCS and clean hydrogen can be used to capture or reduce much of those emissions. Such a standard can pass muster under Section 111(d) of the Clean Air Act, however, only if it is in fact the “best system of emission reduction” or BSER, which is a system that has been “adequately demonstrated.” While the technology has evolved, there are no CCS power plant projects operating currently in the U.S. at the scale that may be needed — and there is yet no widespread commercial viability of green hydrogen.
  • Even if EPA finalizes a rule, its future will remain highly uncertain. What is certain, is that whatever EPA’s final rule provides, it will be challenged in court from all sides as either too stringent — or not stringent enough. One issue opponents to EPA action on GHG emissions will surely raise is the “major question” doctrine highlighted when the Supreme Court struck down the Obama EPA’s Clean Power Plan in West Virginia v. EPA. The agency has sought to structure a rule that satisfies the Court’s direction by only regulating the source “within the fenceline” and placing the proposal within a more traditional analytical framework. Moreover, with a rule not expected to be finalized before mid-2024, we could very well see the rule reconsidered if there is a new administration in January 2025 and possibly considered for repeal under the Congressional Review Act if Republicans gain control of the U.S. Senate and retain control of the U.S. House of Representatives.

EPA is seeking comment on its Proposed Rule through July 24, 2023, and accepting feedback at two public hearings scheduled for June 13 and 14, 2023. The Agency is additionally hosting two informational webinars about the Proposed Rule on June 6 and 7, 2023.