As detailed in our recent Client Alert, the Obama Administration, in an effort to curb carbon dioxide (CO2) emissions, has released a proposed rule that, if finalized, will require 30% reductions of CO2 emissions from 2005 emission levels from existing power plants by the year 2030.  The proposed existing source performance standard (ESPS) purports to provide states with flexibility to determine how to meet the minimum federal reductions.  Indeed, individual states are “free” to choose from any or all of the suggested guidelines US EPA has determined constitute the best system of emission reductions (BSER) under Section 111 of the Clean Air Act to meet the reductions for their state.  But, upon closer examination, the flexibility that US EPA claims may not be as adaptable as states might have hoped.  States, especially those that are heavily reliant on coal for power generation, will inevitably face critical choices as they work to craft plans to implement the ESPS and maintain their local economies.

US EPA’s proposed ESPS provides four “building blocks” for states to consider as they craft their plans to meet BSER.  From these blocks, US EPA proposes state-specific rate-based goals for CO2 emissions.  Specifically, the building blocks are:

  1. Reducing the carbon intensity of generation at individual affected power plants through heat rate improvements.
  2.  Reducing emissions from the most carbon-intensive affected power plants in the amount that results from substituting generation at those power plants with generation from less carbon-intensive affected power plants.
  3.  Reducing emissions from affected power plants in the amount that results from substituting generation at those power plants with expanded low- or zero-carbon generation.
  4.  Reducing emissions from affected power plants in the amount that results from the use of demand-side energy efficiency that reduces the amount of generation required.

Although the building blocks appear to provide options that will encourage flexibility, what the proposed rule ultimately requires is significantly reduced reliance on coal—a  fuel source that according to the U.S. Energy Information Administration made up 37% of total US generation in 2012.

Block One does this by requiring reductions in heat rate.  Heat rate is the amount of energy used by an electrical generator or power plant to generate one kilowatt hour (kWh) of electricity.  To reduce heat rate, US EPA suggests a few options.  The first is energy efficiency measures associated with the generation station that will result in “relatively limited” reductions at relatively low costs.  The Agency also reviewed the application of carbon capture and sequestration technology but concluded that application would result in “substantial” costs and therefore did not propose the use of this technology as BSER.  That ultimately leaves sources with US EPA’s suggestion of converting coal-fired power plants to natural gas or co-firing with natural gas.  The Agency explained that this option will result in “greater potential CO2 emission reductions than heat rate improvements, but at a higher cost (although less than the cost of applying [carbon capture and sequestration or] CCS technology).”  Thus, to improve heat rate, Block One really only suggests the limited options of becoming more efficient at low cost with little reward, or the more extensive option of switching from coal to natural gas.

Block Two relies exclusively on displacing coal with natural gas to achieve CO2 reductions. The Agency stated that an “obvious” alternative to conversion or co-firing contemplated under Block One would simply be to use existing natural gas combined cycle units instead of coal-fired power plants.  Given such statements, states that rely heavily on coal will need to look hard to find the “flexibility” in this block.  Blocks Three and Four also emphasize a decreased reliance on coal by supporting measures that will “displace, or avoid the need for” affected units including coal-fired power plants.

Whether US EPA’s proposed method to regulate CO2 emissions from existing power plants will be adopted or ultimately survive the inevitable array of legal challenges that will follow remains to be seen.  US EPA projects that it will finalize the ESPS by June 1, 2015, and if promulgated as proposed, the deadline for states to submit plans would be June 30, 2016, with the possibility of additional time allowed for states that opt to develop regional plans.  Comments on the proposed rule will be due 120 days after it is published in the Federal Register.