On September 23, 2013, the US Environmental Protection Agency (EPA) released its long anticipated New Source Performance Standards (NSPS) for greenhouse gas (GHG) emissions from new power plants under the Clean Air Act. When finalized, these would be the first ever uniform national limits on greenhouse gas (GHG) emissions from new power plants in the United States. At the same time, EPA withdrew its earlier proposal on the same subject it published in April 2012.

As expected, the new proposal does not differ dramatically in substance from EPA's earlier proposal, though EPA did make changes it said reflect the several million comments it received, "recent trends in the power sector," industry input -- and to address legal vulnerabilities. The proposal establishes separate standards for carbon dioxide emissions from natural gas units and from fossil fuel units. The proposed standards would require the former to meet the performance levels of a modern combined cycle natural gas plant and the latter to meet slightly higher levels through rapid implementation of "partial" carbon capture and storage (CCS). The proposal will only further the controversy over EPA's efforts to reduce GHG emissions through regulation, especially the agency's express desire to quickly incentivize the further commercialization of CCS, a technology many critics believe is not yet commercially available. Indeed, it would appear that EPA is seeking to both take advantage of, and help speed up, the transformation of the power sector toward cleaner generation.

EPA simultaneously launched a stakeholder process to begin work on NSPS for GHG emissions from existing power plants, which the President ordered to be proposed by June 1, 2014. EPA did not provide a specific timeline for finalization of the new unit NSPS, stating only that it will do so "in a timely manner," but presumably before it proposes NSPS for existing units next June.

Proposed Standards for Separate Categories of EGUs

In contrast to its earlier proposal, in which the agency established a single standard for all types of units, EPA now sets performance standards for two categories of electric generating units (EGUs), defined to include utility boilers, integrated gasification combined cycle (IGCC) units and natural gas-fired stationary combustion turbines that generate a threshold amount of electricity for sale and are larger than 25 megawatts (MW). These categories are now: 1) large and small natural gas plants; and 2) fossil fuel-fired plants and IGCC plants. The proposed standards are as follows:

  • Large natural gas units (above 850 mmBtu/hr) - 1,000 lb CO2/MWh-gross
  • Small natural gas units (at or below 850 mmBtu/hr) - 1,100 lb CO2/MWh-gross
  • Fossil fuel-fired units and IGCC units - 1,100lb CO2/MWh-gross over a 12-operating month period, or 1,000-1,050 lb CO2/MWh-gross over a 84-operating month (7-year) period.

The natural gas standard is based on the performance of a modern natural gas combined cycle unit. EPA claims that such units can meet the standard without the need for add-on technology; some industry groups have disputed this.

The proposed rule would not apply to liquid oil-fired stationary combustion turbine units or new EGUs that do not burn fossil-fuels, such as those that burn only biomass. The proposal also would not apply to most single cycle gas units or other units with low capacity factors that sell less than a third of their power to the grid.

Coal-Fired Plants and Carbon Capture and Storage

Perhaps the most significant and controversial part of the proposal is the standard for fossil fuel-fired EGUs. In its prior rule, EPA allowed new coal and pet coke plants to meet a natural gas combined cycle-based standard over a thirty year period if CCS were installed in the first decade of operation. This proposal raised considerable controversy based on concerns that CCS was too costly and would not be commercially available in the time period mandated by EPA.

Rather than providing industry more time to develop CCS, EPA in its new proposal has actually shortened that time period based on its determination that "partial" CCS is technologically feasible now and that its costs are reasonable in comparison to other sources of energy likely to be used in the future. EPA bases its analysis on only a few plants: one coal gasification plant that has been capturing 50% of its CO2 for over a decade for use in enhanced oil recovery, another gasification plant with CCS that is 75% complete, and two IGCC projects with CCS that are in advanced stages of development, as well as other plants around the world that are coming into operation. According to EPA, partial CCS is a basic, currently achievable technology that can secure 30-50% reductions of GHG emissions, depending on the type of unit.

EPA is proposing to provide new coal and IGCC plants with an optional compliance period that best suits their units. An EGU can either meet a 1,100 CO2/MWh-gross standard over a 12-operating month period or else meet a slightly tighter 1,000-1,050 CO2/MWh-gross standard over an 84-operating month period, allowing the unit to phase in the use of partial CCS over 7 years. EPA is taking comments on what might be an appropriate number within the range given for the longer period.

In addition to feasibility and costs, EPA believes that transportation infrastructure and storage sites are available and will continue to be developed in the coming years. EPA indeed has begun to lay the legal predicate through other rules and guidance to ensure such storage can be accomplished and verified. Plainly, however, there is much more that industry, EPA and other stakeholders, including states, need to do in terms of legal and physical infrastructure and planning before CCS can be installed and put into operation on a wide commercial scale across the country. Timing will be tight; hence, EPA is very much in the technology-forcing mode, bolstered by forecasts that most new generation being built in the next decade or more will be combined cycle natural gas and its belief that CCS will not be fully commercialized without such an incentive.

What Is "New" Unit?

Even though the rule is only proposed and would not be effective until a period after it is finalized, under the Clean Air Act's NSPS provisions, an EGU is considered "new" and thus subject to these standards if it begins construction after the date of the proposal, i.e. when the proposal is published in the Federal Register. Therefore, EGUs that start construction after the proposal is published will have to meet the proposed standard even though the rule is not yet final and there can be no actual enforcement of the standard until the rule is final and effective. The proposal also does not apply to existing units nor to EGUs undertaking modifications or reconstruction, as they will be addressed in other rules.

Nominal Potential Impacts Predicted

EPA claims that the proposed standards are "in line with investments in clean energy technologies that are already being made in the power sector," which signal a shift toward the cleaner next generation of power plants. According to EPA, its own projections and those of the Department of Energy and industry show that, due to the economics of coal and natural gas, among other factors (which likely includes other EPA regulations), new power plants that are built over the next decade or more will mostly be combined cycle natural gas, and potentially some fossil fuel-fired units with CCS. Such plants, according to EPA, would be expected to meet these same standards even without the rule. Hence, EPA does not expect the proposal to have "notable costs" or benefits (aside for incentivizing CCS) nor does it project the proposal to impact electricity prices or reliability. Opponents in Congress and industry will strongly push back on these claims, particularly with regard to CCS, costs and reliability.

What Are EPA's Next Steps?

Once the proposal is published in the Federal Register, EPA will provide 60 days for public comment, will hold public hearings, and then will work to finalize the rule. EPA generally has a year under the Clean Air Act to finalize NSPS proposals. EPA missed that deadline with its April 2012 proposal but is now under Presidential instruction to finalize the new proposal "in a timely manner," which is likely to mean before June 1, 2014, when it has been similarly ordered to propose NSPS for existing EGUs. This is an extremely short turnaround time, though presumably EPA has done a substantial amount of analysis since its initial proposal. It is virtually certain that the final rules will be challenged in court.

The existing unit proposal will differ substantially from this proposal because it is derived under another part of the Clean Air Act where EPA sets national guidelines for existing sources, and states develop and implement plans to meet those guidelines. EPA has stated that such guidelines will be less stringent and that the agency plans to approach them with "innovative, pragmatic approaches that build on the leadership that many states have already shown to cut carbon pollution form the power sector."

EPA has stated that the proposed new EGU standards should not be seen as a determination of what the existing plant guidelines might look like and that CCS is not planned for existing unit standards. Nevertheless, EPA's aggressive approach with regard to new units and creative interpretations of its authority under the Clean Air Act suggest EPA may propose similarly novel and broadly scoped regulations to help transform the U.S. power sector.