Following Massachusetts v. EPA, the Proposed Carbon Standard for New Plants Presents First GHG Regulations for the Power Sector

Wednesday, April 17, 2013, by Carla Gray

In the face of new pollution restrictions, the industry affected often resists change.  Thus, when the EPA announced on March 27, 2012 that it would create a Carbon Standard for New Plants as part of their strategy to regulate greenhouse gases (GHGs), some in the coal industry feared that new carbon dioxide regulations would halt the building of new coal plants.

This proposed standard would “limit[] carbon dioxide from new power plants to 1,000 pounds per megawatt hour.”  This is in contrast to today’s average operating level at many coal plants of 1,800 pounds per megawatt hour.  It appears that natural gas plants do not generally have a problem meeting this standard, as those plants tend to produce on average 800–850 pounds of carbon dioxide per megawatt hour.  Furthermore, the EPA also suggests a 30-year averaging compliance option, where a plant that cannot meet the standard initially might install carbon capture and storage technology (CCS) during the course of a 30 year period, in order to average out emissions at the plant to equal 1,000 pounds per megawatt hours over 30 years.

Future regulation could spell out difficulties for the coal industry, while possibly spurring growth in natural gas.

Although EPA announced the proposed rule last year, it appears that after receiving more than two million comments, the EPA is still working on the standard.  Reactions have bubbled to the surface once again since the some say the deadline passed on April 13, 2013.  The power industry, particularly those owning coal plants, continues to push against the regulation.  In contrast, one environmental group applauded the proposed EPA standard as “a move that will make for healthier kids and families and create much-needed jobs.”

Industry and environmental interests aside, the rule, and the beginning of GHG regulation, was first prompted by the 2007 Supreme Court ruling Massachusetts v. EPA.  There the “Court determined that greenhouse gases, including carbon dioxide, are air pollutants under the Clean Air Act and EPA must determine if they threaten public health and welfare.”  Thus, the Court’s ruling charged EPA with making an endangerment finding and regulating greenhouse gases und the Act.  The EPA, under the Obama administration, made the endangerment finding in 2009 and has worked on GHG regulation following the finding.

However, future regulation could spell out difficulties for the coal industry, while possibly spurring growth in natural gas. One expert from Duke University states that “[b]ecause of the cost of upgrading plants to meet the EPA’s pending emissions regulations and its stricter enforcement of current regulations, natural gas plants would become cost-competitive with a majority of coal plants — even if natural gas becomes more than four times as expensive as coal.”  If current trends and cost-competitiveness continue, natural gas stands to gain.

However, the EPA’s proposed rule does not apply to existing plants, or those plants “that have acquired a complete preconstruction permit by the time of th[e] proposal and that commence construction within 12 months of th[e] proposal.”  This means that existing plants will be effectively grandfathered into less stringent regulations, as they are in many instances in the Clean Air Act.  As a result, at least one company putting forth significant efforts to begin construction of a new coal plant before the April 13, 2013 deadline.

Multiple options exist for those affected by the rule, though it is too early to see affects because only a proposed standard is available.  Potentially, some coal companies might simply stop building plants and only allow grandfathered plants to operate because the cost of CCS technology is expensive.  Still, some companies might follow EPA’s proposed rule and use the 30-year averaging compliance option, if it is favorable for such a situation to occur.

In sum, the EPA’s proposed rule undoubtedly aims to protect human health by regulating GHGs following Massachusetts v. EPA.  It has yet to be determined which methods companies will choose to comply with the standard.  Each method requires those polluting above the proposed standard to change their mode of operation in a significant way: by employing CCS, by relying more heavily upon natural gas, or by ceasing to build plants that do not meet the standard.