On Capitol Hill, industry lobbyists are predicting nothing but trouble for facilities like the Hyperion Energy Center, a $10 billion complex proposed for the cornfields and soybeans of southeastern South Dakota.
The massive facility would include the first refinery built in the United States since 1976, making gasoline from the Canadian tar sands.
And the planned project is notable for another reason: It is in line to become one of the first facilities to get a federal permit for its greenhouse gas emissions. State regulators gave the refinery the go-ahead in summer 2009, but developers need to go back to the drawing board so they can start construction late next year, said Preston Phillips, vice president of Dallas-based Hyperion Refining LLC, in a recent interview.
Starting Jan. 2, 2011, officials in all 50 states will need to start deciding whether new power plants and other large industrial facilities are doing enough to avoid releasing carbon dioxide and other gases that are contributing to global warming. It is a new hurdle for many plants that need federal pollution permits, and inside the Beltway, the industry lobbyists are saying that no one will be able to jump it.
More than a dozen of the nation's most powerful trade groups -- including the American Chemistry Council, the American Petroleum Institute and the National Association of Manufacturers -- have started a letter-writing campaign to persuade Congress to stop the climate rules from taking effect on Jan. 2. If lawmakers do not act, the groups say, there will be a virtual freeze on the construction of power plants, factories and other facilities that release large amounts of air pollution.
They see a bleak future for American industry. Without a doubt, The Wall Street Journal's editorial board said recently, U.S. EPA's regulations will lead to a "de facto project moratorium" -- a "permitorium," in short -- for at least 18 months.
But despite the massive size of the complex and the fact that greenhouse gases are previously uncharted territory, Hyperion expects the permitting process to be "pretty straightforward," Phillips said.
Asked whether EPA's new climate rules will freeze the permit process, Phillips said, "I certainly don't expect that for this facility. This permit will be in place in the second quarter of next year."
The planned complex is precisely the type of facility the Obama administration was imagining when it put those rules in place. It would roughly double South Dakota's carbon footprint, producing an estimated 16.9 million tons of carbon dioxide each year, and if it were a country of its own, it would rank 85th worldwide in greenhouse gas emissions, just behind the Dominican Republic and Estonia.
The project's developers are aiming to break ground by the end of next year, though some competitors in the oil business are skeptical they'll pull it off. But when the company applied for a permit without greenhouse gases, the naysayers made the same claims, Phillips said.
"A lot of people said you could never get the approvals necessary to build a refinery these days," he said.
Two sets of predictions
There is a great deal of uncertainty ahead for the Hyperion complex. In addition to the air pollution permit, the future of the project depends on the company's pipeline options and the economics of building a new refinery. But one way or the other, the outcome is going to depend on factors that are much more complicated than people on Capitol Hill are suggesting.
With the first nationwide regulations on greenhouse gases just weeks away from taking effect, fans and foes of the Obama administration's climate program are gazing into the tea leaves and seeing two completely different images -- one ominous, the other rosy.
As industry groups predict a construction freeze, environmentalists are rallying around EPA Administrator Lisa Jackson, who has recently taken to accusing lobbyists of spreading "doomsday scenarios" about the agency's work on climate change. With three weeks until the new rules take effect, EPA officials and their counterparts at the state level are still scrambling to get the rules in place, but they say that businesses should not worry.
"Everything is going to go very smoothly at the beginning of next year," said David Doniger, policy director of the Natural Resources Defense Council's climate center, during a recent interview. "People won't even notice the bump in the road" (E&ETV's "OnPoint", Nov. 29).
These opposing points of view have become the two brands of conventional wisdom on Capitol Hill, which is as divided as ever on the issue of climate change. Lawmakers are digging into their positions, preparing for the seemingly inevitable moment when they will be asked to decide whether EPA can proceed.
With a climate bill dead on Capitol Hill, the new rules are one of the only ways the administration can act on President Obama's pledge to reduce U.S. greenhouse gas emissions 17 percent from 2005 levels by 2020. EPA needs to take action on climate change, but in "digestible" steps that won't hurt the economy, said Bob Perciasepe, the agency's second-in-command, during a conference earlier this month.
"We need to be credible in the international arena that we're doing something," Perciasepe told an audience of past and present EPA officials, who had gathered at Harvard University to celebrate the agency's 40th birthday. "But also, we need to build confidence in our own country that we can actually make some significant progress here without breaking the system down somehow."
Industry lobbyists say it is a foregone conclusion that there will be enough votes in the Republican-led House to pass legislation blocking EPA's climate program. The battleground will be the Senate, which could soon be put to a vote on a proposal from Sen. Jay Rockefeller (D-W.Va.) to delay the agency's new permitting rules for two years.
His draft bill would only affect the regulations on power plants, refineries and other stationary facilities. It would not stop EPA's new fuel economy standards for cars and trucks, which are intended to reduce greenhouse gas emissions by reducing the amount of fuel that Americans need to burn for transportation.
Senate Majority Leader Harry Reid (D-Nev.) said earlier this year that he would schedule a vote on Rockefeller's bill, but more recently, he has said it depends on the schedule for the rest of the lame-duck session. The White House has vowed to veto it, and Rockefeller has said he would like to tack the measure onto a piece of must-pass legislation, such as an omnibus appropriations bill.
For months, Rockefeller has been courting moderate Democrats, who are split on the issue.
When EPA released a guidance document last month to explain how states should judge the facilities, other Democrats in Congress called it a "common-sense approach." But the Republicans, who formed a unanimous bloc in June when Sen. Lisa Murkowski (R-Alaska) put forward a resolution to reject EPA's whole climate program, disagreed.
The new rules will "keep the economy mired in stagnation," said Sen. James Inhofe of Oklahoma, who oversees the regulations as the top Republican on the Environment and Public Works Committee.
"Employers were looking for a clear path forward that would inspire confidence that permits would be granted, and in a timely manner," he said. "They won't find it here."
All quiet beyond the Beltway?
As intensely as the debate has raged in Washington, D.C., things have remained calm in the hinterlands.
Virtually no businesses have gone public to explain where their projects stand and whether they are worried about the new requirements. Instead, they are waiting quietly on the sidelines.
Matt Letourneau, a spokesman on energy issues for the U.S. Chamber of Commerce, said many businesses are choosing not to invest in new facilities right now because of the uncertainty in the permitting process. Other companies are worried about their ability to get permits, he said, but they are not raising their voices about it
"The problem is, you've got to deal with the same people you're mad at," Letourneau said.
But even as powerful trade groups try to convince Congress that the economy will be devastated by EPA's rules, some of the companies they represent are banking on their ability to break ground on facilities that would produce huge amounts of greenhouse gases.
To be sure, businesses are not crazy about the permitting process, which can depend largely upon the whims of regulators. But with billions of dollars on the line, many investors have been preparing for years to get the greenhouse gas permits they will now need. With greenhouse gases, as with other types of pollution, some of them have found a way to get approvals.
Calpine Corp., a power company that does most of its business in California, recently secured a federal permit for its Russell City Energy Center, a combined-cycle natural gas plant in Hayward, Calif. Though EPA's new rules had not taken effect yet, the Houston-based company agreed to set enforceable limits that would require the 600-megawatt plant to produce 50 percent less greenhouse gases than a coal plant.
As part of its deal with the Bay Area Air Quality Management District, Calpine also agreed to donate $10 million toward the construction of a new library in Hayward and make a $1.6 million gift to the local parks department.
The permit shows that EPA's new greenhouse rules can work, said Jack Fusco, the company's president and CEO, in a recent statement.
"The electric sector has known that these rules were coming," Calpine and seven other utilities wrote in a letter to The Wall Street Journal that was published last week. "Many companies, including ours, have already invested in modern air-pollution control technologies and cleaner and more efficient power plants."
In their efforts to block the new climate rules in court, industry attorneys have cited South Dakota as one of the states that would face a construction moratorium next year.
Their goal is supported in spirit by Republican-led South Dakota, which has joined the legal challenge to EPA's new rules. But according to the state's own permitting officials, there will be no moratorium on permits or construction.
It is true that the South Dakota Department of Environment and Natural Resources still does not have all of its rules in place for next year, said Kyrik Rombough, an engineering director in the agency's air division, but the state is changing them to follow the orders from Washington. At the end of the process, which could take a few more months, South Dakota will be able to issue permits, he said.
The state does not expect to be flooded with permit applications, anyhow, because of EPA's "tailoring rule," which limited the requirements to the largest sources of greenhouse gases. Over the next couple of years, the new rules will add about 2,000 facilities nationwide to the universe of sources needing federal permits, according to EPA estimates.
So far, Hyperion is the only company to ask for a greenhouse gas permit in South Dakota, Rombough said.
"I'm assuming there's going to be some hiccups," he said. "I'm sure some businesses won't want to come in because they don't want to be the first ones in that line, but once the first few get through, enough will have been learned that they'll be able to get their permits in an expedited manner."
Here is how the process works: To get a permit, the largest new plants will need to use the best available control technology (BACT) for greenhouse gases, along with other pollutants that are regulated under the Clean Air Act. Unlike a carbon tax or cap-and-trade program, both of which would put a price on emissions and let businesses decide what to build, the permitting program will require officials do a case-by-case review of the equipment and fuel used at each plant.
Hyperion is confident about its application, Phillips said, because these climate regulations have been on the horizon for a long time. More than a year before EPA finalized its regulations, the developers commissioned an analysis of the project's carbon footprint to check whether it would be using the best technology available to control greenhouse gases.
Right now, energy efficiency is just about the only thing that the complex can do to reduce its emissions, according to the company's own analysis. EPA acknowledges that the technology to trap and store carbon dioxide is not viable yet, but the Hyperion plant would be equipped with technology to filter out carbon emissions, just in case storage becomes practical later on, Phillips said.
Other companies have been critical of the guidance. It left behind as many questions as it answered, said Steve Rowlan, director of environmental affairs at the Charlotte, N.C.-based steel company Nucor Corp.
For example, if companies are not expected to capture and store their carbon emissions, Rowlan asked, why did EPA's guidance list it as the ideal technology for addressing climate change?
"It seems like an exercise in dealing with things that aren't really going to take us anywhere," Rowlan said. "It leaves us wondering exactly what the standard that we're going to be evaluated against is."
When industry lobbyists have suggested that there will be a construction freeze next year, officials at EPA have taken the uncommon step of calling them out -- sometimes by name.
One of their main targets is Jeff Holmstead, an industry attorney at Bracewell & Giuliani who was the agency's top air official under President George W. Bush. When he predicted that the new greenhouse gas regulations would lead to a moratorium, Holmstead was "simply wrong," EPA press secretary Brendan Gilfillan said last month in a statement.
"We understand there are a lot of lobbyists paid a lot of money to spread doomsday scenarios about what EPA is doing," Gilfillan told Greenwire. "It's been that way throughout our 40-year history, and even though those doomsday scenarios have always been proven wrong, that doesn't mean the arguments don't have sway inside the Beltway. We're asking Americans to look at what we're doing, not what lobbyists are saying."
When asked to explain why companies won't be able to start new projects next year, Holmstead backed off slightly from his prior statements. Some permits may go out by late next year, he said, though they will no doubt be challenged.
Even if things are not "black and white," he said, it is fair to say that people will see a "de facto moratorium" in the days, weeks and months after the new rules take effect. Not many companies have gotten federal air permits recently, though that is partly due to the slow economy, and it means there are only a few construction projects set to start next year.
Bill Becker, executive director of the National Association of Clean Air Agencies, said it is unfair to blame the greenhouse gas rules for the delays. It might be difficult to get permits for some types of facilities right now, he said, but those new requirements are not the reason why.
"If a coal-fired power plant is not permitted in a timely manner in the future, it will have nothing to do with the benign greenhouse gas permitting requirements of this program," Becker said. "There will be 15 other reasons that would prevent that application from going forward, and a greenhouse gas permit requiring energy efficiency will be the least of the problems."
But businesses say the slowdown has been made worse by the new administration's decision to get rid of a policy that froze the rules as they stood when a company applied for a permit. Under those rules, even if the agency issued new regulations while the permit was being reviewed, the applicant would not have to worry about them.
Because any permit in the pipeline on Jan. 2 will now need to include greenhouse gases, companies and some states are rushing to get their permits done by the end of the year so they won't be subjected to the new requirements. That is what Nucor is trying to do, Rowlan said, but he would not say what is next if the steel company cannot get the permits on time.
With the Obama administration moving forward with several new air pollution standards at once, the permitting process is starting to feel like a "hamster wheel," Rowlan said.
It is getting harder to meet federal and state pollution rules and requirements, said one industry source who recently got approval to build a biofuel refinery in the southeastern United States.
The plant was the first of three planned facilities, all of which would need air pollution permits, the source said. But after spending about $100,000 more than usual on engineering and consulting fees to navigate the permitting process and agreeing to spend more money on the pollution controls demanded by state regulators, the company may look to build its next project outside the United States.
The next plants could be built in the Dominican Republic or another location in the Caribbean or Central America, where there might be better economic opportunities and fewer restrictions on projects.
The source, whose future projects will be affected by EPA's greenhouse gas regulations, said he doubted that the new rules will stop regulators from issuing permits. But the new rules are making it so expensive and burdensome that businesses do not want to apply in the first place, he said.
"As long as you permit something in accordance with the law, you should be able to get the permit," he said. "But agreeing to what they want you to agree to these days -- it just pushes you over the cliff."
'What was all the fuss about?'
Inside the Beltway, lobbyists have sought to frame the new rules as a battle between the Obama administration and industry. But though the rules are coming from Washington, they will be implemented largely by state and local agencies, which have entirely different interests.
Many of those officials are under intense pressure to avoid hurting the economy in their own backyard, said Susan Tierney, a consultant who was assistant energy secretary during the Clinton administration after a stint as Massachusetts' environment secretary.
"I have never seen a state that didn't come forth with permits on a timely basis when push came to shove," said Tierney, who is now a managing principal at the Analysis Group in Boston. "I could imagine this will take a little more time as people get familiar with the use of a particular technology, but that is absolutely not the same as a moratorium."
The states are scrambling to overhaul their permitting rules, and with the notable exception of Texas -- which has refused to change its rules in line with EPA's orders -- states are not predicting that they won't be able to issue permits next year. That includes South Dakota and more than a dozen other states that are challenging the rules in court.
By early next year, EPA says, businesses should be able to get permits in every state but Texas, where Gov. Rick Perry (R) and his appointees have refused to follow the Obama administration's commands. EPA is readying a last-minute rule to make sure Texas companies will also be able to start their projects, air chief Gina McCarthy said earlier this month.
In a recent analysis of the correspondence between the states and EPA, the National Association of Clean Air Agencies concluded that all states but Texas will be able to put rules in place by Jan. 2 or, in the case of a few states, shortly thereafter.
"I've not talked to a single state permitting authority who has said, 'My God, the avalanche of permit applications that is falling upon us is so severe that it is paralyzing our ability to issue permits in a timely fashion,'" said Becker, the group's executive director. "States are very sensitive to any interest in economic development within their community, and they will do everything within the law to accelerate the process."
The Obama administration had originally thought about having the greenhouse gas regulations take effect this year, but state and local governments asked to wait until 2011, worried that there might have been tie-ups in the permitting process. Now, the agencies are just about ready to go, despite the claims from industry groups, Becker said.
The U.S. Circuit Court of Appeals for the District of Columbia decided Friday that it would not stop the climate program from taking effect, though it could be quite a while before the court decides whether the regulations are legal under the Clean Air Act. In their efforts to sway the court, attorneys on both sides have examined the updates from the states and reached vastly different conclusions about their readiness to handle greenhouse gases.
Becker, who helped craft the 1990 amendments to the Clean Air Act that started the cap-and-trade program for acid rain, said he has seen this type of situation before.
"This is an organized campaign to bring down the entire program before it even begins," he said. "The opponents are unwilling to give it a chance to succeed. If they gave it time, we would look back after a few months and ask ourselves, 'What was all the fuss about?'"
Correction: An earlier version of this story said that the developers of the Hyperion Energy Center intended to obtain their crude oil from the Keystone XL pipeline. The project does not yet have a supply agreement, but the Keystone XL pipeline is not considered a likely option.