Thursday, April 24, 2014
Climate Policy Watch - Analysis

EPA Floats GHG Plan For Modified Plants In Likely Bid To Ease CCS Mandate

EPA is floating a proposed rule for how modified power plants must comply with its pending new source performance standard (NSPS) for reducing greenhouse gas (GHG) emissions, a measure that appears aimed at shielding facilities that install more efficient technologies to lower emissions from having to install costly carbon capture and sequestration (CCS) systems as the agency's strict plan for new coal plants requires.

EPA April 21 sent its proposed NSPS for modified electric utility generating units to the White House Office of Management and Budget (OMB) for interagency review, according to OMB's website. The new proposal was sent about three weeks after EPA sent its proposed NSPS for existing power plants to OMB for review March 31. Both measures are slated for release by June 1, the deadline set by President Obama when he ordered the agency to develop the rules last year.

An EPA spokeswoman says the NSPS for modified and reconstructed power plants will be issued under Clean Air Act section 111(b), which applies to new facilities, rather than under section 111(d), which governs existing plants.

Generally, existing facilities that modify are considered "new" sources and are subject to stricter requirements under the agency's NSPS program. But in this case, EPA has proposed to require new coal-fired electric generating units (EGUs) to install partial CCS, a technology that many in the coal sector say is costly and not "adequately demonstrated" as the air act requires.

Agency officials have long stressed that they will not require existing plants to install CCS, but beyond that it is unclear what kind of relief EPA will seek to offer in the proposal.

For example, EGUs that undergo major modifications to boost efficiency -- one expected compliance pathway in the forthcoming NSPS -- could also trigger costly new source review (NSR) or prevention of significant deterioration (PSD) permit requirements which require installation of state-of-the-art pollution controls. It is unclear what kind of relief, if any, the new draft proposal for modified facilities will offer from NSR.

EPA is also expected to offer the option for facilities to pursue "outside the fence line" ways to cut emissions, such as demand-side efficiency or building renewables, or possibly clean dispatch that would result in operating coal plants less. These approaches would not need onsite modifications, and so these plants would only be subject to the NSPS for existing plants.

EPA indicated in its unified agenda issued late last year that it was planning to do separate rules for new and modified facilities. And agency officials, citing air law flexibility to separate modified sources and new facilities, have said for at least two years that they have the power to shield power plants that are undergoing major modifications from its strict proposed NSPS for new facilities, which requires installation of CCS.

Industry and others have long urged EPA to provide relief in the NSPS from triggering NSR. But they have struggled with how EPA can overcome likely opposition from environmentalists and legal hurdles that have doomed past efforts to soften the NSR program.

"I think EPA has to address it, but I don't know how they do it," one industry source said recently. "I would not want to be in the agency's shoes trying to tap dance on a mine field."

The problem, from the perspective of utility and other industry officials, is that if they try to limit GHGs by improving the efficiency of aging coal-fired power plants, those upgrades would trigger NSR if they increase their hours of operation.

Most recently, the state of Pennsylvania earlier this month submitted a white paper urging EPA to exempt existing facilities that install efficiency upgrades from NSR or PSD permit requirements. Specifically, the state wants to alter the NSR applicability test from the current tons-per-year (tpy) basis to a rate-based pounds per megawatt hour threshold as a way to allow efficiency upgrades avoid triggering NSR or PSD.

NSR Relief

But the agency is considered unlikely to offer such relief, as efforts in the past to do so have largely been rebutted by the courts. Additionally, the Obama EPA never acted on a proposal issued near the end of the Bush administration to ease NSR triggers by changing the tpy measure from an annual to an hourly one -- an approach similar to what Pennsylvania is advocating.

One industry source does not expect EPA to agree to adopt the Pennsylvania approach, noting that it would allow annual emissions tonnage to increase as long as hourly rates are lower, "and since people breathe on an annual basis, the agency is not too keen on" making the change.

EPA official Joe Goffman told a National Association of Regulatory Utility Commissioners conference in early February that the agency would seek to address industry concerns that power plant efficiency upgrades made to comply with the NSPS don't trigger costly NSR or PSD permitting rules requiring state-of-the-art pollution controls.

However, Goffman also made clear that EPA was not necessarily going to change its NSR rules but instead would need to include at least a discussion of the issue under the NSPS package.

The separate proposal for modified sources indicates that agency has made some decisions for how to address the issue.

EPA in its original 2012 NSPS for new sources, which it has since revoked, sought to exempt "pollution control projects" aimed at complying with its conventional pollution rules at existing plants. "Because all of these actions would be treated as pollution control projects under EPA's current NSPS regulations, they would be specifically exempted from the definition of modification" and therefore not considered a new source, the old proposal said.

The proposal for new sources, signed last September and published in January, notes that the agency is "not proposing standards for modified or reconstructed sources. . . . Thus, this NSPS would not establish a [best available control technology (BACT)] floor for sources that are modifying an existing EGU, for example, by adding new steam tubes in an existing boiler or replacing blades in their existing combustion turbine with a more efficient design."

The proposal adds that it "considers only the extent to which particular pollution control technologies are [the best system of emissions reduction (BSER)] for new units, and does not evaluate whether such techniques also qualify as BSER for modified or reconstructed sources. . . . Therefore, we do not believe that the content of this rule has any direct applicability on the determination of BACT for any . . . modified or reconstructed sources obtaining a PSD permit."

Industry Warning

Industry warned EPA as far back as April 2012 that it lacked Clean Air Act authority to exempt modifications from its original NSPS for new sources, arguing that existing sources that undergo modifications would by law become subject to the new source requirements.

EPA at the time had "no plans" to issue a rule for existing facilities, and thus said there was no need to issue a separate proposal for modified plants. The agency told Inside EPA in April 2012 that, "The proposed carbon pollution standard only sets a standard for new power plants. After a thorough review as required by the Clean Air Act, EPA decided not to propose a standard for modified power plants. A decision to not set a standard is not an exemption, as some have suggested. Since there is no proposed standard for modified power plants, none can be applied to power plants making modifications that are covered under the PSD permitting program."

Environmentalists at the time backed EPA's position, called industry's interpretation "cynical" and urged the agency to develop its existing source proposal.

Since then, EPA revoked its original NSPS for new power plants, issued the revised version and then drafted its proposed NSPS for existing facilities that is undergoing OMB review.

EPA in the new OMB notice for modified facilities calls the proposal for modified and reconstructed power plants not "economically significant," compared to the NSPS for existing facilities, which it does identify as economically significant.

But other than that difference, the rest of the information in the unified agenda about the two rules is nearly identical. For example, the statement of need for both rules cites EPA's 2009 finding that GHGs endanger public health and the environment, and notes that EGUs are the single largest GHG source. "The regulatory path that the EPA has embarked upon commits the agency to regulating emissions from, not just new EGUs, but also existing EGUs." The description of the NSPS for modified units adds in parentheses "including those that are modified."

Additionally, both say, "At this time, we do not have any estimates regarding the benefits and costs of this action, but we do it expect to be a significant regulatory action with annual effects on the economy exceeding $100 million." -- Dawn Reeves (This e-mail address is being protected from spambots. You need JavaScript enabled to view it )


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