Greenhouse Gas Speculation at Existing Power Plants

It’s been nearly two (2) months since President Obama released his Climate Action Plan (Plan) on June 25, 2013.  In his Plan, Obama directed U.S. EPA to re-propose New Source Performance Standards (NSPS) for emissions of carbon dioxide (CO₂) for new electric generating units (EGUs) by September 20, 2013 and directed U.S. EPA to propose a CO₂ NSPS for existing EGUs by June 2014.  Obama’s recent directives were in response to U.S. EPA’s failure to issue the final CO₂ NSPS for new EGUs within one (1) year of its original groundbreaking proposal on April 13, 2012.  Since U.S. EPA failed to issue the final NSPS for new EGUs within one (1) year of the original proposed version, the rule must be “terminated” and U.S. EPA must propose, accept comments on, and finalize a new version of the rule.  U.S. EPA recently announced its submittal of the draft re-proposed rule to the White House Office of Management and Budget, and we all wait patiently to learn whether the re-proposal will this time include unique standards for coal- vs. gas-fired plants.

Now that we have confidence that U.S. EPA is finally on track concerning the CO₂ NSPS for new EGUs, we’ve started to speculate what a future rule may look like for existing facilities.  As already noted, U.S. EPA is required to propose a CO₂ NSPS for existing facilities by June 2014.  Once proposed, U.S. EPA is required to finalize that rule within a year, with the understanding that the NSPS for new plants must be finalized prior to finalization of the NSPS for existing plants.  Environmental gossip concerning the future CO₂ NSPS for existing facilities is on the rise, and ALL4 would like to take this early opportunity to summarize some of the possible avenues U.S. EPA may take for achieving greenhouse gas (GHG) emissions reductions through an NSPS at these existing facilities. 

1. A unit-specific, rate-based limit (i.e., pounds per megawatt-hour limit).  Proponents of this approach like that existing EGUs would not be forced to limit the amount of energy they produce, which in turn wouldn’t limit economic growth.  A rate-based approach allows for production increases and the ability for facilities to remain in compliance during an economic boom.  However, opponents to this approach feel that although the rate-based limit could potentially reduce short-term emissions, there is no guarantee of any long-term GHG emission reductions since such a limit would not result in emissions reductions if electricity production increases.
2. A hard cap.  Some believe that imposing a hard cap on GHG emissions from existing facilities is the only means by which U.S. EPA can guarantee GHG emission reductions from this sector of the power industry.  But if U.S. EPA takes this approach, they are destined to receive an immense amount of opposition from industry since it would not only cap emission but also cap future economic growth. 
3. Utility upgrades.  This approach is a very sensitive one that U.S. EPA will be considering very cautiously.  Utility companies may need to undertake efficiency projects that would enable them to comply with the rule; however, in doing so they may extend the life of their existing EGU beyond its normal life expectancy.  This scenario could result in the emissions reductions that EPA predicts to be associated with the construction of new EGUs to be negated by the extended operation of existing EGUs.  U.S. EPA will be seeking a “sweet spot” where they achieve reductions from existing EGUs without forcing others to close due to an inability to comply.   U.S. EPA also appreciates that many coal-fired EGUs have recently already invested a great sum of money to meet rules such as the Mercury and Air Toxics Standards (MATS).  U.S. EPA will be trying to strike a balance between requiring mandatory upgrades and meeting emission limits so as not to undermine any of those historic investments or require shutdown.
4. Unit-specific, rate-based limits with trading programs managed by individual states.  This program, similar to Option #1, will impose a rate-based GHG limit but also set a cap on overall regional emissions.  By combining emission limits along with a trading program, individual states would have flexibility in managing their GHG emissions and ensuring reductions occur from existing facilities. 

We’ll hopefully have a better sense of what path U.S. EPA will take concerning the future CO₂ NSPS for existing EGUs prior to U.S. EPA’s June 2014 deadline for proposal.  We anticipate the spotlight on this future rulemaking to brighten following U.S. EPA’s upcoming re-proposal of the CO₂ NSPS for new EGUs this September and will keep you posted as to any additional speculations.