On June 2, 2014, the United States Environmental Protection Agency (EPA) issued the Clean Power Plan – a proposed rule passed under the authority of the Clean Air Act (CAA) section 111(d) – which will significantly affect fossil fuel-fired electric generating units (EGUs).  As one step in President Obama’s Climate Action Plan, the Clean Power Plan represents a trend to cut carbon pollution that may affect all carbon emitting industries in the near future.

Clean Air Act Section 111(D)

Rather than mandating a technology standard to reduce emissions, the EPA, under CAA section 111(d), has instead chosen the unprecedented approach of requiring states to figure out the best system to meet the state-specific emission rates established by the EPA.  Section 111(d), which applies to existing sources, has been codified as part of the CAA since 1970.  But in the intervening four decades EPA has used section 111(d) to regulate air pollutants only a handful of times.  Because of the relatively limited precedent regarding EPA’s authority under section 111(d), this rule will most likely face lawsuits challenging both EPA’s authority to require states to meet the state-specific emission rates and EPA’s establishment of disparate requirements for each state.

Clean Power Plan

This proposed new rule seeks to reduce, by 2030, the levels of carbon emissions from the power sector to 30 percent below 2005 levels.  With the final rule, EPA will establish state-specific carbon emission goals that each state is required to meet.  To set these state-specific goals, EPA analyzed practical and affordable strategies that were already in place in some states and came up with “four building blocks” for reducing the intensity and amount of carbon emissions:

  • Make fossil fuel power plants more efficient through heat rate improvements from implementing specific best practices (such as turning off unneeded pumps at reduced loads, installation of digital control systems, more frequent tuning of existing control systems, or earlier like-kind replacement of worn existing components) and equipment upgrades (including upgrades to boilers, steam turbines, and control systems).  EPA believes that these changes could produce, on average, 6 percent more electricity out of a ton of coal.
  • Use low-emitting power sources more through re-dispatch of  generation from steam EGUs to natural gas combined cycle units.
  • Use more zero- and low-emitting power sources by adding new nuclear and renewable generating capacity to the electric system.
  • Use electricity more efficiently and reduce demand for generation from affected EGUs through a variety of strategies such as energy efficiency programs, building energy codes, state appliance standards, tax credits, and benchmarking requirements for building energy use. Through such strategies, the EPA believes that a 1.5 percent annual incremental savings rate can be achieved by all states.

According to the EPA, combining these four building blocks represents the best system for reducing carbon emissions, however, states will be given flexibility in determining how to mix these building blocks in their particular state plan.  EPA will provide guidelines to help states meet these goals through the development and implementation of state plans.  States can draw upon a variety of tools to meet the goals, including demand-side energy efficiency programs, renewable portfolio standards or goals, and market-based greenhouse gas programs.

Costs

EPA estimates that the annual incremental compliance cost will range from $5.4 to $7.4 billion in 2020 and from $7.3 to $8.8 billion in 2030.  The estimated monitoring, reporting, and recordkeeping costs are $68.3 million in 2020, $8.9 million in 2025, and $8.9 million in 2030.  The likely increase in electric rates will also detrimentally affect the consumptive costs of energy-intensive industries.

Summary

EPA’s new initiative may well be the first step in an expanding effort to curtail greenhouse gases from all carbon emitting industries, with the Clean Power Plan as a template for future regulation.  The efficiency standards of the first building block currently being proposed for EGUs could, in the future, be applied to analogous emission sources in other industries.  Specifically, EPA may attempt to prescribe best efficiency practices and require equipment upgrades to reduce carbon emissions.  Potential targets for future regulation include industries associated with significant greenhouse emissions, including cement, lime, and steel manufacturing.  If EPA’s current proposed regulation is finalized and survives judicial challenges, it will be difficult for other potential targets of regulation to successfully oppose similar rules in the future.  Thus, companies with potential target operations should strongly consider participating in the current rulemaking.   

Topics:  Barack Obama, Carbon Emissions, Clean Air Act, Clean Power Plan, Climate Action Plan, Electricity, EPA, Oil & Gas, Power Plants, Proposed Regulation, Utilities Sector

Published In: Energy & Utilities Updates, Environmental Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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