Experts React: EPA Greenhouse Gas Standards and Guidelines for Fossil Fuel-Fired Power Plants
On May 11, the Environmental Protection Agency’s (EPA) proposed new rules regulating carbon emissions from fossil fuel-fired power plants under the authority of the Clean Air Act. This comes as part of the Biden administration’s broad push on climate and enviromental objectives. The power sector is a major source of emissions, with fossil fuel-fired power plants responsible for roughly 25 percent of total U.S. greenhouse gas (GHG) emissions. The sector is undergoing a massive transition towards clean-energy, predicated mostly on wind, solar, and battery storage technology. These technologies have been boosted by Biden administration legislation accomplishments such as the Inflation Reduction Act (IRA), and Infrastructure and Investment and Jobs Act.
The EPA’s proposed rule also comes amid a contested legal environment. In the 2022 West Virginia v. EPA decision, the Supreme Court ruled against the EPA and limited its rule making authority. This was a blow to the Biden Administration mandate to the EPA to advance new rigorous emissions and pollution standards. The proposed rule has therefore been formulated in the context of this decision. Nonetheless, significant legal scrutiny of the proposed rule is expected, and legal battles are likely. Over the next 60 days of comments, proponents of the rule will focus on climate objectives and emissions reductions. Opponents will focus on implementation costs, economic impact, and excessive expansion of EPA oversight.
Raising the Stakes of Permitting Reform
Associate Fellow, Energy Security and Climate Change Program
The EPA’s primary objective is a reduction in GHG emissions from the power sector. The major question is how this progress is achieved: Will emissions reductions occur through the deployment of carbon capture and storage (CCS) and other technology, or by driving fossil-fired generators into retirement?
Aspects of the proposed rule appear to be concessions toward resource adequacy concerns. While new resources will have considerable standards applied to them, existing resources are granted significant exemptions. Coal plants that commit to closure by 2032 have no new operating standards. Coal plants that commit closure by 2034 and operate on a 20 percent capacity factor, essentially operating as a balancing resource, likewise face no new operating standards. Small gas-fired combustion turbines, also primarily used as a balancing resource, are similarly omitted from the new standards.
This appears to recognize the considerable near-term role these fossil fuel resources play in ensuring sufficient generation capacity. Nonetheless, it sets up a significant transition period (a resource adequacy cliff, one could call it) in the 2030s as coal-fired resources that have elected this path enter retirement. Exactly how much generating capacity elects these retirement pathways is a major uncertainty; comments over the next 60 days will provide insight into this question.
EPA rulemaking should be assessed in the context of the broader U.S. energy transition strategy. Despite uncertainty on scale and timelines, the new rules will drive fossil fuel generation into retirement. This places more importance on deployment of new clean energy resources to replace the lost capacity. The IRA contains incentives which make deployment at the required scale possible, but not certain. Legislation is needed to unclog the interconnection queue (which delays connection of new resources to the grid) and accelerate the build out of transmission to deliver power from renewable resource rich regions to urban demand centers. In short, the EPA’s proposed rule significantly raises the stakes in the permitting reform debate.
New Rules Are Part of a Portfolio of Decarbonization Actions
Senior Associate (Non-resident), Energy Security and Climate Change Program
After nearly a decade, the EPA has now redefined how and when fossil fuel power plants will need to decarbonize if they are to continue to play a role on the U.S. electric power grid in the future. This rule is part of a much broader set of actions taken by Congress, the executive branch, and states that require substantial declines in electric power and economy-wide emissions over the next decade or two. The Inflation Reduction Act’s suite of grant programs and tax credits are already slated to drive U.S. net GHG emissions down to 32–42 percent below 2005 levels in 2030. Meanwhile the United States has commitments under the Paris Agreement to get emissions down to 50–52 percent below 2005 levels in the same year.
How will EPA’s new proposed power plant rules on GHGs help to meet U.S. climate goals? The proposed compliance timelines for fossil plants do not require substantial changes to the fossil fleet until 2030 at the earliest, with the most stringent requirements coming into force in 2032 and beyond. If the final regulations look a lot like the proposal, other additional actions will be more consequential in closing the gap to the United States’ 2030 climate target. These actions include ramped-up state clean energy standards and carbon pricing programs, as well as EPA regulations clamping down on conventional pollutants in the power sector such as SO2, nitrogen oxides (NOx) and mercury. It may also mean that action in other sectors could become more important, such as expanding the number of states adopting California’s zero-emission vehicles mandate and a robust final EPA regulation on methane emissions from the oil and gas sector.
No single politically practical policy can carry all the weight required to get the United States on track for long-term decarbonization. Instead, continuous efforts to pursue actions at all levels of government and a leveraging of diverse policy tools across all economic sectors will get the United States to net-zero emissions by mid-century. The new EPA power plants rules are one more action to add to the list after they are finalized next year.
The Legal Hurdles Ahead
Senior Associate (Non-resident), Energy Security and Climate Change Program
From a legal standpoint, the EPA has designed its proposed rules to avoid the issues that prompted the Supreme Court to invalidate the Obama-era Clean Power Plan (CPP) rule. However, the proposals will attract new types of legal challenges.
Section 111 of the Clean Air Act requires EPA to set emission standards based on the “best system of emission reduction.” In the CPP, EPA determined that the “best system” involved the sector shifting generation from high-emitting power plants to low- or zero-emitting plants—primarily through emissions trading. In its West Virginia v. EPA decision, the Supreme Court rejected this approach, suggesting that Section 111 only recognizes a “best system” that can be implemented at individual plants.
The EPA’s proposals revert to a traditional technology-based approach. The proposals establish varied standards for different types of plants in different time periods—but each standard is based on systems applicable at the plant. The big headline, however, is the emphasis on CCS and the use of hydrogen-fueled generation as “best systems” starting in 2030 through 2040.
Under Section 111 of the Clean Air Act and related case law, a “best system of emission reduction” needs to be “adequately demonstrated” and “not exorbitantly costly.” In determining a “best system,” the agency can forecast future developments, but not through an unsupported “crystal ball” exercise.
EPA acknowledges that neither CCS nor hydrogen-fueled power are in widespread commercial use today. However, the agency asserts that each has been “adequately demonstrated.” Further, EPA argues that by 2030–2040, funding from IRA programs will decrease costs and enable the build-out of needed infrastructure, such as CO2 and hydrogen pipelines and low-GHG hydrogen production.
The question is whether the EPA can establish a rulemaking record that is sufficient both to fend off legal challenges and make it more difficult for a future administration to reverse course.
This commentary does not necessarily reflect the review of Van Ness Feldman, LLP, or its clients.
Unintended Consequences of Peaker Power Plant Exemptions
Research Associate, Energy Security and Climate Change Program
The proposed rule sets out to establish emissions reduction standards for coal-fired generation, new gas-fired generation, and large existing gas power plants that support base and intermediate load power generation. However, exemptions for gas “peaker” generation units could lead to operators of these generation units to reassess how they run their plants.
Combined-cycle (CC) gas power plants, which often service the grid as base load generation units, are composed of combustion turbines (CTs) directly powered by the combustion of natural gas (the first cycle) and steam turbines powered by the capture hot exhaust from the CTs (the second cycle), enabling these power plants to operate at higher efficiency levels. Peaker gas-fired power plants—also called simple-cycle power plants—skip the second cycle and are composed only of CTs, allowing for faster generation responsiveness to fluctuating electricity demand in exchange for lower operational energy efficiency and very low-capacity factors, since they only operate during peak hours.
Given their technological profile, it is possible, albeit uneconomical and inefficient, for CC plants to operate as peaker plants if needed. Costly retrofits necessary for implementation of CCS and hydrogen co-firing may incentivize some of the CC power plants to run as peaker plants in an attempt to circumvent stricter regulations, leading to an increase in the plant’s emission rate. The combination of plants making this shift and expected retirement of base and intermediate load plants would also result in exempted peakers running more often to make up for the difference in readily available generation. This raises environmental justice concerns since the majority of the peaker plants are located near urban centers and low-income communities.
The agency will have to strike a balance between the tradeoff of keeping electricity generation cheap and reliable during peak hours and establishing regulations on peaker power plants that are strict enough to disincentivize unintended consequences.