EPA's Proposed Carbon Pollution Standards for New and Existing Power Plants.

 

 

Presidential Mandate: Climate Action Plan

In June 2013 President Barack Obama put forward his Climate Action Plan for his second term of office. A major focus of this plan was to direct the Environmental Protection Agency (“EPA”) to utilize its authority under Sections 111(b) and 111(d) of the Clean Air Act (“CAA”), to develop regulations and procedures to reduce the amount of Greenhouse Gases emitted in the United States. Section 111 of the CAA establishes a mechanism for controlling air pollution from stationary sources and applies to those sources for which the EPA administrator in his/her judgment finds “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.”

 

The President’s mandate stipulated that the guidelines would incorporate: 1) direct engagement with states, leaders, in the power sector, labor leaders, NGOs, public and tribes, 2) take into account other regulatory objectives affecting power plants (such as MATS and CSAPR), and 3) develop flexibilities in program design, including market-based instruments and performance standards.

The Clean Power Plan is among some of the most aggressive environmental legislature to come out of Washington. This called for reductions in emissions in all of the states starting in 2022, but even before the rule was finalized, states had started to sue EPA. These states claimed that the CPP was actually causing harm to the state. Industry petitioners argued that changes under CPP would radically change the electricity sector. In order for some power plants to comply they would have to start implementing possibly irreversible changes now in order to reach the deadline of 2022.

 

The DC circuit court seemed to be leaning in the favor of the EPA. The states hadn’t demonstrated sufficiently that they were actually being harmed by the CPP. At this point petitioners applied to the Supreme Court Chief Justice for a stay. This move was seen as a “long-shot”. It was unprecedented for the Supreme Court to stay a case before the lower court had come to a decision. The Supreme Court decided to take on the case. They moved extremely quickly and within several hours had decided to stay the case. This has serious repercussions that spill into the carbon market. The intrigue of the case has been compounded by the fact that only days later Justice Scalia passed away leaving a vacancy in the Supreme Court.

 

This leaves for interesting decisions to come. The DC circuit court has expedited the case and there is optimism that the court will come up with a decision this summer. After which the case could be appealed to the Supreme Court. While it is very hard to predict the Supreme Court time line, a decision could be made as early as June 2017 or as late as June 2018. In the meantime all deadlines are stayed, however some states are cooperating with EPA with their own preparations.

Supreme Court Stays Clean Power Plan

Proposed Rules for New Sources: Section 111(b)

Consistent with the President’s mandate, on September 20, 2013, the EPA issued a proposal for carbon pollution from new power plants. Section 111(b) of the CAA requires that the EPA Administrator to “establish Federal standards of performance” for “new sources within [the] source category.”

 

Standard of Performance - “A standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction, which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.” 

 

Best System of Emission Reduction (BSER) – The EPA has outlined three key factors in determining the BSER:

  1. Feasibility – The system of emission reduction must be technically feasible

  2. Costs – Cost of the system must be reasonable

  3. Size of reductions – The EPA may consider the amount of emissions reductions the system would generate 

The September proposal sets forth different standards for different types of newly constructed power plants. Under the proposed rules:

  • New coal-fired power plants as well as new small natural gas-fired plants (less than 850MW) may not exceed a maximum of 1,100lbs of CO2 per MWh.

  • New large natural gas-fired plants must achieve a level not to exceed 1,000lbs of CO2 per MWh. 

Although, Section 111(b) includes in its definition of new sources “any stationary source, the construction or modification of which is commenced after the publication of regulations,” the EPA proposal does not apply to units undergoing modification or reconstruction. 

 

Section 111(d)

President Obama’s Climate Action plan additionally required the EPA to release proposed carbon standards for existing power plants. The EPA held several public listening sessions to receive input from industry and the general public to aid in the development of the regulations for existing sources and  on June 2, 2014 announced their proposal to cut national CO2 emissions by 30% from 2005 levels.

 

The President’s mandate states that final carbon standards for existing power plants must be finalized by June 1, 2015. These guidelines must be consistent with Exec. Orders 12866 (Sep. 30, 1993) and 13563 (Jan. 18, 2011) and must be a result of direct engagement with states, leaders in power sector, labor leaders, NGOs, etc. The rules must also utilize the development of market-based instruments and performance standards taking into account other regulatory objectives affecting power. CMCA members can find out more information on the EPA's proposal by clicking here. More information on the EPA’s website for carbon pollution standards.

 

Carbon Market Compliance Association