The President’s Climate Plan for Power Plants Won’t Significantly Lower Emissions

President Obama released his Climate Action Plan to much fanfare on June 25, 2013 in an attempt to reduce the country’s greenhouse gas emissions “in the range of 17 percent below 2005 levels by 2020.”¹1.Executive Office of The President, The President's Climate Action Plan 6 (June 2013) (hereinafter Obama's Climate Plan), http://www.whitehouse.gov/sites/default/files/image/president27-sclimateactionplan.pdf. The centerpiece of the plan is to have the Environmental Protection Agency (EPA) issue carbon dioxide (CO2) standards for new and existing power plants, which account for roughly one-third of this country’s emissions.²2.Id. at 6.

Obama’s announcement sent the news media and politicians into a frenzy, with vast proclamations on both sides about these regulations shutting down a large number of power plants, increasing electric costs, and killing the coal industry.³3.See, e.g., Brenda Buttner, How Will Obama's Fight on Global Warming Change the Economy?, Fox News (June 29, 2012); Jim Malewitz, In Obama Climate Plan, States Seek Flexibility, USA Today (July 12, 2013); Mark Drajem, Republicans Propose Limiting Obama Climate Plan in Budget, Bloomberg (July 22, 2013). But as this Essay will illustrate, these proclamations are exaggerated. The new regulations are unlikely to cause any significant retirements of existing coal-fired power plants (the largest emitters by far⁴4.Obama's Climate Plan at 6.), and at best will lead to no more than about a five percent reduction in power plant emissions once fully implemented around 2020. The reason for this lackluster result is not President Obama’s fault. The Clean Air Act – which governs the EPA’s ability to issue these standards – and more than forty years of federal court and EPA decisions interpreting the Act leave the EPA’s hands tied.

This Essay will explain why.

I. The Clean Air Act’s Limitations

The Clean Air Act allows the EPA to set emission standards for new and existing power plants based on the best emissions control technology available. In making this determination, the EPA must consider what emission reductions are achievable from the available technologies, but it must also take into account cost and prove that the chosen technology has been adequately demonstrated.

Unfortunately, the carbon control technology options for coal-fired power plants are limited. The only options are to improve the efficiency of the plant, to switch to lower emitting fuels like natural gas, or to sequester the carbon underground (which involves separating the carbon from the exhaust stream and piping it to underground storage reservoirs, sometimes hundreds of miles away).⁵5.Interdisciplinary MIT Study, The Future of Coal: Options for a Carbon Constrained World 5, 17-42 (2007), http://web.mit.edu/coal/The_Future_of_Coal.pdf. There are no add-on scrubbers that remove carbon dioxide during the process like there are with other pollutants.

The Clean Air Act allows the EPA to set two different types of technology standards. First, EPA can set blanket emission standards, called new source performance standards (NSPS), which uniformly apply to all sources covered by them.⁶6.42 U.S.C. § 7411. EPA has set more than eighty of these uniform technology standards for various categories of sources since the Act was adopted in 1970 – covering everything from landfills and petroleum refineries to dry cleaners.⁷7.See 40 C.F.R. pt. 60 (containing all of the EPA's final NSPS regulations). It set the first NSPS for power plants in 1971, and has revised those standards various times. But the current NSPS for power plants only regulates conventional pollutants, such as particulate matter, nitrogen oxides (NOx) and sulfur dioxide (SO2).⁸8.40 C.F.R. §§ 60.40-52da. CO2 is not regulated.

The second general type of technology standard that the EPA can impose is done on a case-by-case (or power plant by power plant) basis. These case-by-case technology standards, called best available control technology (BACT) determinations, are conducted when a company obtains a construction permit to build a new plant or to significantly modify an existing one.⁹9.42 U.S.C. § 7475(a)(4). BACT is the case-by-case technology standard that applies in areas currently meeting EPA's national ambient air quality standards. In those areas that are not currently meeting air quality standards (called nonattainment areas), there is a separate and more stringent control technology standard called the lowest achievable emission rate (LAER) standard. Because there are no national air quality standards for CO2, LAER is not applicable to the analysis in this Essay. BACT determinations are set for each pollutant “subject to regulation” under the Clean Air Act, which includes all of the conventional pollutants regulated by the NSPS and others.¹⁰10.42 U.S.C. § 7475(4). In 2011, the EPA began requiring new and significantly modified power plants to conduct BACT determinations for CO2.¹¹11.Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, 75 Fed. Reg. 31514, 31516 (final rule June 3, 2010). Every new or modified plant subject to BACT has a slightly different limit to meet, based on the specific layout of the plant and what control technologies are available for that plant.

Now here’s the rub: according to the Clean Air Act, the case-by-case BACT standards must be more stringent than the blanket, uniform NSPS ones. The definition of “best available control technology” in the Act specifically states that “[i]n no event shall application of ‘best available control technology’ result in emissions of any pollutants which will exceed the emissions allowed by any applicable standard established pursuant to [the NSPS] section of this title.”¹²12.42 U.S.C. § 7479(3). In other words, as the D.C. Circuit Court of Appeals has said, “[a]t a minimum, . . . BACT [is] as restrictive as NSPS.”¹³13.State of New York v. EPA, 413 F.3d 3, 13 (D.C. Cir. 2005).

This requirement is important because President Obama’s plan calls for the EPA to issue the NSPS standards for new and existing power plants. Yet the EPA has already approved the more stringent case-by-case BACT standards for a number of existing and planned coal-fired power plants, and they have not amounted to much, generally requiring modest efficiency improvements that are relatively inexpensive and achieve at most about a five percent reduction in emissions.¹⁴14.See, e.g., BACT Analysis and Correspondence for MidAmerican Energy Company George Neal South Power Plant Construction Permit (Jan. to Mar. 2011) (on file with author); US EPA Comments on MidAmerican Energy Company George Neal South Power Plant Construction Permit (May 06, 2011) (on file with author); Construction Permit for MidAmerican Energy Company George Neal South Power Plant (May 16, 2011) (hereinafter “Neil South Materials”) (on file with author); see also EPA Comments on Wolverine Power Supply Cooperative, Inc. Construction Permit (May 19, 2011) (on file with author); Response to EPA Comments on Wolverine Power Supply Cooperative, Inc. (June 29, 2011) (hereinafter “Wolverine Materials”) (on file with author).

For example, a case-by-case BACT standard for CO2 was set for the Wolverine Power Supply Cooperative, Inc.’s proposed 600 MW coal fired plant located in Rogers City, Michigan in 2011 and led to only a 4.7% CO2 emissions reduction. A BACT standard for CO2 was also set in 2011 for the existing coal-fired George Neal South Power Plant in Salix, Iowa, and it resulted in only about a 1.2% reduction in emissions.¹⁵15.Neil South Materials, supra note 14; Wolverine Materials, id. These BACT determinations are representative of the various determinations set to date, and the plants are typical of coal-fired power plants in the industry.

These past BACT determinations have put the agency in a difficult legal position. The President’s planned NSPS regulations will almost certainly need to be less stringent than these BACT determinations, or the EPA risks violating the Act. In other words, if the EPA tries to adopt uniform NSPS limits for new or existing power plants that require more than about a five percent reduction in emissions, it will almost certainly run afoul of the Act.

While the statutory language unequivocally provides that BACT limits must be more stringent than the NSPS, the EPA might argue that the converse is not also true, and that the agency can set NSPS standards that are more stringent than previous BACT determinations. But this argument seems tenuous. The technology tests under the Act are the same in all material respects for the NSPS and BACT. So, even if the courts agree that the Act does not bar the EPA from adopting NSPS that are more stringent than previous BACT determinations, they would almost certainly find that the EPA was arbitrary and capricious if the agency set an NSPS at a significantly more stringent level than past BACT determinations that were recently set for the exact same types of sources.¹⁶16.Unless, of course, a new technology popped up between the time of the BACT determinations and EPA setting the NSPS (which seems unlikely in this case).

With this background, let’s turn to Obama’s specific plan for regulating new and existing sources under the NSPS program.

II. The Standards for New Power Plants Will Not Have Any Effect on Emissions

The President’s plan directs the EPA to issue CO2 standards for existing power plants by 2015 and for new plants as expeditiously as possible.¹⁷17.Environmental Protection Agency, Presidential Memorandum - Power Sector Carbon Pollution Standards (June 25, 2013). In April of 2012, well before the release of the President’s climate plan, the EPA issued its first proposal to regulate CO2 from new power plants using the NSPS program.¹⁸18.Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units, 77 Fed. Reg. 22392 (proposed Apr. 13, 2013). That proposal determined, rather counter-intuitively, that the best control technology available for new coal-fired power plants was to be a natural gas-fired power plant, and set the standard based on a typical natural gas-fired plant’s emissions.¹⁹19.Id. at 22398 (“We propose that a (natural gas combined cycle) facility is the best system of emission reduction”). In other words, the proposal – if finalized – would essentially ban the future construction of all coal-fired power plants in this country because no conventional coal-fired plants can meet the standard. Not surprisingly, the utility industry and coal companies went ballistic with public comments (the EPA received more than 2.6 million comments) – many arguing that the EPA’s approach was unlawful.²⁰20.eRulemaking Program Management Office, U.S. Environmental Protection Agency (search for docket number “EPA-HQ-OAR-2011-0660;” then click on “open docket folder” for Greenhouse Gas New Source Performance Standard for Electrical Generating Units; comment letter count will be on the right side of the screen) (last visited Aug. 2013).

The primary legal problems with the EPA’s approach are fairly obvious. A natural gas plant is not a carbon control technology; it’s a different kind of power plant. And courts (and even the EPA) have said for years that technology-based limits should not “redefine the source,” which is exactly what the EPA’s proposal would do.²¹21.See, e.g., Sierra Club v. U.S. E.P.A., 499 F.3d 653, 655 (2007) (“The EPA's position is that 'best available control technology' does not include redesigning the plant proposed by the permit applicant.”); Longleaf Energy Associates, LLC v. Friends of the Chattahoochee, Inc., 681 S.E.2d 203 (Ga. App. 2009) (“The BACT analysis did not, however, require the EPD to consider any alternative control technology that, if applied to the proposed power plant, would constitute a redesign of the plant.”); In re Old Dominion Electric Cooperative, 3 E.A.D. 779, 793 n. 38 (EPA Adm'r 1992) (“(T)raditionally, EPA does not require a . . . (permit) applicant to change the fundamental scope of its project.”). Moreover, the EPA’s proposal would impose an NSPS limit for new power plants that is vastly more stringent than any of the existing BACT standards for coal-fired power plants.

The overwhelming industry response and these legal issues led the EPA to recently announce plans to re-issue the proposal in late September of this year, and separate the control technology determination for plants that burn coal as compared to those burning natural gas.²²22.Zach Coleman, EPA Sends White House Revised Rule for Power Plants, The Hill (July 1, 2013). But even if the EPA does separate coal plants from gas plants in the new proposal, the control technology options for coal-fired power plants are still limited, and the EPA is hampered by past precedent. Technology-based limits cannot require a plant to switch from coal to natural gas,²³23.See Sierra Club v. EPA, 499 F.3d 653; see also Larry Parker & James E. Mccarthy, EPA'S BACT Guidance For Greenhouse Gases From Stationary Sources, Congressional Research Service 16 (November 22, 2010) (“Natural gas substitution for coal in a facility is generally considered by EPA to be an option that redefines the source”). and the EPA in its April 2012 proposal has already basically admitted that separating and sequestering the carbon is too costly, noting that it “would add around 80 percent to the cost of electricity” for a new plant.²⁴24.77 Fed. Reg. 22392, 22415 (“The DOE/National Energy Technology Laboratory . . . estimates that using today's commercially available (carbon capture and sequestration) technologies would add around 80 percent to the cost of electricity for a new pulverized coal (PC) plant”). All of the previously mentioned BACT decisions considered and eliminated both fuel switching and sequestration as the technological choice. That just leaves the EPA with efficiency improvements in new plant design, which would at best lead to minor emissions reductions – if new plants are built that replace older, higher emitting ones.

Yet even the EPA does not expect new coal-fired power plants to be built any time soon. The EPA admitted in its original NSPS proposal that current market conditions make it highly unlikely that anyone will build a new coal plant between now and 2020, regardless of what the EPA does with the CO2 NSPS.²⁵25.Id. at 22398 (“We propose that a (natural gas combined cycle) facility is the best system of emission reduction”). Natural gas prices are too low and are forecasted by the EPA to stay that way, while other EPA regulations aimed at mercury and SO2 emissions are pushing the cost of new coal-fired power plants up compared to gas plants. In fact, even though the EPA’s proposal would basically ban the construction of new coal-fired power plants, the agency admitted in its proposal that it “believes that this proposed rule is not likely to produce changes in emissions of greenhouse gases or other pollutants” because of market conditions.²⁶26.Id. at 22430.

Given these current market conditions and the looming legal battles, some in the industry believe the EPA will back down from its proposal and allow the construction of new coal plants, as long as they include the most efficient design (a “supercritical” advanced coal plant).²⁷27.Dawn Reeves, EPA's Stationary Source GHG Rules Face New Legal, Policy Uncertainty, Inside EPA 1 (March 22, 2013). This would allow the EPA to avoid setting bad legal precedent on the new NSPS, which could impact the viability of its plans for the existing power plant NSPS.

Either way, the EPA’s new power plant NSPS is not likely to have any impact on CO2 emissions between now and 2020.

III. The Standards for Existing Sources Might Reduce Emissions Slightly, or Not at All

The prospect for existing power plant standards, which Obama’s plan calls for the EPA to finalize by June of 2015, is equally ho-hum. As discussed, these existing plant standards should be less stringent than the case-by-case BACT ones, so even if Obama follows through with his promise, the most we are likely to see are standards for existing coal-fired power plants based on modest efficiency improvements.

The EPA’s own statements in the past also pose an obstacle to proposing more stringent standards for existing power plants. The agency has already publicly taken a narrow view of the technological alternatives available to it in imposing CO2 standards for existing sources. In 2008, the agency admitted that these standards would likely focus on incremental improvements in the heat rates of existing units through options that “are well known in the industry” (aka energy efficiency improvements).²⁸28.Parker & Mccarthy, supra note 23, at 16. Plus in its already released proposal for new plants, the EPA made the same admission, saying that “[t]he most likely candidates for control actions [for modified existing sources] would be efficiency measures.”²⁹29.77 Fed. Reg. 22392, 22421.

Existing BACT standards and the EPA’s past statements are not even the EPA’s most significant legal problem associated with setting standards for existing plants. Most of the EPA’s current NSPS regulations only apply to new or significantly modified sources. They do not generally apply to existing plants, as the Act grandfathered existing sources out of many of its most stringent requirements. The President’s plan, however, is to have the EPA issue NSPS for existing sources using Section 111(d) of the Clean Air Act, a rarely used section that the EPA generally has only used to regulate smaller sources that are not otherwise regulated under the Act.

Section 111(d) states that the EPA can force the states to adopt standards for “any existing source for any air pollutant: . . . which is not . . . emitted from a source category which is regulated under section [112] of the Act . . .”³⁰30.42 U.S.C. § 7411(d). Based on a plain reading, this section seems to only allow the EPA to issue existing source NSPS for categories of sources that are not subject to hazardous air pollutant standards under Section 112 of the Act. Power plants are a category of sources, however, that are subject to hazardous air pollutant standards for mercury under Section 112.³¹31.National Emissions Standards for Hazardous Air Pollutants From Coal- and Oil-Fired Electric Utility Steam Generating Units and Standards of Performance for Fossil-Fuel-Fired Electric Utility, Industrial-Commercial-Institutional, and Small Industrial-Commercial-Institutional Steam Generating Units; Final Rule, 77 Fed. Reg. 9304 (February 16, 2012). As such, it is highly questionable whether the EPA can even regulate existing power plants at all using Section 111(d).³²32.See American Electric Power Co. v. Connecticut, 131 S. Ct. 2527, 2537, n. 7 (2010) (“EPA may not employ §7411(d) if existing stationary sources of the pollutant in question are regulated under . . . the 'hazardous air pollutants' program, §7412.”).

IV. Conclusion

The EPA’s regulation of CO2 from new and existing power plants under the NSPS program faces significant legal hurdles. The EPA’s best hope for the regulations to make it through the courts is if the agency takes a conservative approach and sets the NSPS for new and existing sources based on something less than the existing BACT standards. This means – at best – reductions in the range of 1-5% by 2020 for existing sources, with no emission reductions from new sources (since none are likely to be built).

The President’s climate plan calls for a 17% reduction in total nationwide emissions by 2020. Given no emission reductions are expected from the new power plant NSPS – and assuming minimal reductions from the existing power plant NSPS – the Administration will need to obtain significantly more reductions from the sources comprising the other two-thirds of national emissions, or the President’s 17% total reduction goal by 2020 will not be met.

Brian H. Potts is a partner at the law firm of Foley & Lardner LLP and has authored numerous articles on the Clean Air Act. He holds an LL.M in Energy Law from the University of California, Berkeley School of Law, a J.D. from Vermont Law School, and a B.S. from Centre College. Parts of this Essay appeared in an op-ed originally published by Mr. Potts in The Hill on August 5, 2013.