EPA Proposes Aggressive Carbon Pollution Standards to Reduce Greenhouse Gas Emissions

Pillsbury Winthrop Shaw Pittman LLP

Pillsbury Winthrop Shaw Pittman LLP

The Environmental Protection Agency (EPA) is proposing actions to address greenhouse gas (GHG) emissions from new and existing fossil-fuel-fired power plants in a bid to expedite the U.S. clean energy transition.

On May 23, 2023, the Environmental Protection Agency (EPA) published greenhouse gas (GHG) emissions standards for fossil-fuel-fired power plants, both new and existing, in The Federal Register. Interested parties have 60 days to provide comments on the proposed rule language, which will be due on or before July 24, 2023.

The proposal seeks to address GHG emissions from both new and existing facilities through five actions. Most notably, the EPA is proposing to revise new source performance standards (NSPS) for GHG emissions from new fossil-fuel-fired stationary combustion turbine electric generating units (EGUs), and from fossil-fuel-fired steam generating units that undertake a large modification. When it comes to existing facilities, the EPA is proposing emission guidelines for GHG emissions from existing fossil-fuel-fired steam generating EGUs and the largest and most frequently operated existing stationary combustion turbines, and it is seeking comment on approaches for emission guidelines for the remainder of this particular combustion turbine category.

Lastly, to remove any ongoing legal ambiguity that may exist as a result of the Affordable Clean Energy Rule (ACE), the EPA proposes to repeal it.

Practically Speaking, What Does It Mean?
The proposal seeks to establish more protective standards and guidelines for GHG emissions from new, reconstructed and existing fossil-fuel-fired energy sources. To do so, the proposal relies upon the use of highly efficient generating practices, carbon capture and sequestration/storage (CCS), low-GHG hydrogen co-firing and natural gas co-firing, depending upon the type of facility under consideration.

The proposal also lays out a series of different timelines for technology adoption and execution, which are intended to account for individual facility lifespans and long-term best system of emissions reduction (BSER) application. (View the proposed BSERs for new and reconstructed stationary combustion turbine EGUs (primarily natural gas) here.)

Given that no new coal-fired power plants are proposed, the proposal does not provide standards for new, modified and reconstructed fossil-fuel-fired steam generating units (primarily coal).

For the existing fossil-fuel-fired steam generating units (primarily existing coal units), the EPA has proposed the emission guidelines for states’ use in plan development. (Read a summary of the proposed BSER, subcategories, and degrees of emission limitation for affected EGUs here.)

On a macro level, the proposal signifies both a near and long-term regulatory plan to further accelerate and cement the domestic clean energy transition towards renewables through the use of bridge technologies, such as CCS and low-GHG hydrogen co-firing. On a micro level, the proposal signifies the EPA’s recognition and desire to create a durable GHG regulatory framework for EGUs that will withstand legal scrutiny in the aftermath of West Virginia v. EPA.

Adequately Demonstrated BSER
Since West Virginia v. EPA, the EPA has worked to accommodate the Supreme Court of the United States (SCOTUS) determination that BSER must be utilized within the gates of a facility, not beyond, and that the EPA cannot force domestic generation shifting via rulemaking.

Therefore, similar to its approach taken under the Obama Administration’s Clean Power Plan (CPP) rule, the EPA has determined that low-GHG hydrogen co-firing and CCS are both adequately demonstrated and therefore qualify as BSER under the Clean Air Act (CAA) Section 111 as being applied “inside the fence.” To reach this determination, the EPA relied upon the following BSER features:

  • Costs of controls must be reasonable,
  • The EPA may determine a control to be “adequately demonstrated” even if it is new and not yet in widespread and commercial use, and
  • The EPA may reasonably project the development of a control system at a future time and establish requirements that take effect at that time.

Beyond CAA Section 111, the EPA also relies upon changes within the electric power sector, developments in emissions controls, passage of both the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA), and state legislation to demonstrate support for the investment and market movement towards utilizing CCS and hydrogen co-firing to decarbonize the energy sector.

These various market and legislative supports may also assist the EPA in accomplishing what it previously did not after the promulgation of the CPP, which is to point to congressional and market actions upon which the EPA is following, instead of leading. For example, while deployment of CCS and hydrogen co-firing technologies has been very limited to date, the passage of both the IIJA and the IRA provides significant funding and broad federal policy support to reduce GHG emissions throughout the country. This point may assist in strengthening the agency’s arguments that the costs of these specific technologies are reasonable, that they are adequately demonstrated, and that the EPA can “reasonably project” these control systems will be developed and established at some point in the future.

According to the U.S. Energy Information Administration, about 60% of the electricity generated in the United States last year came from burning fossil fuels at the nation’s 3,400 coal and gas-fired plants. The proposal is an ambitious initiative for curbing GHG emissions from the nation’s electric power sector. Time would tell how the proposal would pan out given key economic, technical and legal challenges. These challenges will likely include all major and supporting aspects of the rulemaking, including whether CCS and hydrogen co-firing qualify as adequately demonstrated BSER, grid reliability concerns, and the benefits and cost of the rule to regulated entities and energy consumers. The comments related to such issues will subsequently inform the legal challenges and strategy in support of and against the final rulemaking.

The proposed standards hinge on CCS and low-GHG hydrogen. Whether there will be adequate CCS capacity and/or an adequate supply of “clean hydrogen” by 2032 is an open question and is tied to the other open question of whether federal permitting reform will ultimately expedite such clean energy projects. Additionally, the economics of CCS retrofits, and the risk of stranded assets, vary in different markets. The low-GHG market is nascent and blending low-GHG hydrogen at 96% (by volume) by 2038 would require new infrastructure. Further, the “additionality” requirements related to the 45V hydrogen production tax credit included in the IRA could potentially cause significant delays in the scaling up of low-GHG hydrogen. Guidance is awaited on how emissions intensity of electrolysis-based hydrogen is calculated.

In conclusion, for those companies, customers or communities who may be impacted by the final rulemaking, now is the time to weigh in on the legal and technical merits of the proposal via the comment process.

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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