On June 16, 2014, EPA published its much anticipated proposed carbon pollution emission guidelines for existing electric utility generating units pursuant to President Obama’s Clean Power Plan. The proposed rule includes state-specific rate-based goals for CO2 emissions and guidelines for development and implementation of state plans addressing CO2 emissions from existing fossil fuel-fired electric generating units in order to achieve those goals. 

According to EPA, the proposal would result in a 30 percent reduction in GHG emissions (from 2005 levels) from power plants by 2030. The proposed rule generally calls for states to submit their plans by June 30, 2016, one year from the date the rule is scheduled to be finalized.

Section 111(d) of the Clean Air Act serves as the basis for the proposal. Pursuant to the requirements of that statutory provision, the proposed rule identifies the “best system of emission reduction” that has been adequately demonstrated for the source category. For the existing source category here, EPA has proposed four “building blocks” or emission reduction strategies as constituting the best system of emission reduction, identified as: (1) heat rate improvements at individual affected EGUs; (2) substituting generation from the most carbon-intensive affected EGUs with less carbon intensive affected EGUs such as natural gas combined cycle units; (3) expanding low or zero carbon generation (i.e., renewable energy); and (4) use of demand-side energy efficiency. According to EPA, the proposed rule affords states flexibility in choosing among the identified strategies and implementation options to determine an appropriate plan for compliance with their state-specific emission goal, including partnering with other states in regional cap and trade programs. 

There are a host of questions and uncertainties regarding the proposal and many interested parties are only beginning to formulate positions on the proposal and its impacts. Some of the many issues that have already been raised include: questions concerning the proposed 2012 baseline for determining reduction compliance; EPA’s proposal to allow measures applicable to the power system as a whole and thus “beyond the fence” of the regulated units to be implemented to achieve compliance; and overall lack of detail concerning how to calculate compliance. Numerous questions concerning potential impacts to the nation’s economy and power grid reliability have also been raised. 

The current deadline for comments on the proposed guidelines is Oct.16, 2014. On June 8, certain groups asked EPA to extend that deadline by 60 days. As of the date of this publication, EPA had not responded to that request. On July 3, EPA did extend the four public meetings regarding the proposal from one to two days.

Kentucky and Indiana 

With regard to Kentucky specifically, the proposal calls for the state to go from a rate of 2,158 pounds of CO2 per megawatt hour (lb/Mwhr) in 2012 to 1,773 lb/Mwhr in 2030 -- an 18 percent reduction. The Kentucky Energy and Environment Cabinet’s Assistant Secretary for Climate Policy, John Lyons, has publicly stated that since 2012, Kentucky has already reduced this emission rate by 10 percent, down to 1,951 CO2 lb/Mwhr. Lyons reports that the reduction to date is derived primarily from the retirement of existing units due to other EPA rules. It has been suggested that natural gas combined cycle projects already in the works should bring Kentucky to nearly 11 percent of the proposed 18 percent reduction goal. 

On the legal front however, on June 26, 2014, Kentucky along with eight other states filed an amicus brief in litigation pending in the D.C. Circuit Court of Appeals (In re Murray Energy Corp., Case No. 14-1112) asking for entry of a writ to block the standards on the basis that EPA is barred, as a threshold matter, from regulating CO2 emissions from existing power plants under Section 111(d) of the Clean Air Act since power plants are already regulated under Section 112 of the Act.

For Indiana, the proposal calls for a 20 percent reduction in the CO2 emission rate, from 1,923 lb/Mwhr to 1,531 lb/Mwhr. In early June, a spokesperson for the Indiana Department of Environmental Management stated that the agency had not yet formulated a position on the proposal, including its feasibility.

Proposed New Source Performance Standards Remain Pending

EPA’s June 16 existing source proposal follows up on EPA’s controversial proposed performance standards for new electric utility generating units published in January. See the fourth quarter 2013 issue of the Air Quality Letter for further details. That rule is currently scheduled to be finalized in December 2014.

Kentucky Cabinet officials have stated that, if finalized as proposed, the NSPS would effectively preclude new coal-fired power generation. On June 16, the same day that the proposed existing source guidelines were published, EPA also published proposed Clean Air Act Section 111(b) GHG new source performance standards for modified or reconstructed coal-fired electric generating units. That proposal would set a limit of 1900 pounds of CO2 per megawatt hour net for reconstructed utility boilers and IGCC units with a heat input rating greater than 2000 MMBtu/hour or 2100 pounds of CO2 per megawatt hour net for sources with a heat input rating of 2000 MMBtu/hour or less. EPA co-proposed two alternatives for modified IGCC units.