How should industry be collaborating with and engaging the government on power plant emissions standards for new and existing sources? During today's OnPoint, Thomas Lorenzen, a partner at Dorsey & Whitney, gives his recommendations for how utilities should be weighing in on President Obama's Climate Action Plan. Lorenzen, who as assistant chief in the Environment and Natural Resources Division at the Department of Justice for the past decade was in charge of the defense of every U.S. EPA rule, discusses the potential legal challenges facing EPA as it moves forward with the power plant performance standards.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Thomas Lorenzen, a partner at Dorsey & Whitney and the former assistant chief in the Environment and Natural Resources Division of the Department of Justice. Thomas, thanks for coming on the show.
Thomas Lorenzen: Thank you so much for having me, Monica.
Monica Trauzzi: Thomas, for the past 10 years at DOJ you were essentially in charge of the defense of every EPA rule. There's talk about EPA's intention to move forward and treat natural gas and coal separately in their existing rule for power plants. EPA has sent a proposal over to the White House; we still don't quite know the details of that. Is this the obvious direction for the agency to go in at this point?
Thomas Lorenzen: I think it is. I think that with the volume of comments that were filed on the rule, they had to reassess whether it made sense to do what they had proposed last April of 2012, which was to treat coal and natural gas as being essentially the same for purposes of the New Source Performance Standards. I think there are probably concerns about the viability of carbon capture and sequestration as a technology for the coal-fired units within the 11 years they had allowed, and I think they're revisiting that and splitting the two apart.
Monica Trauzzi: Why was there such resistance initially, though, to separating the sources, to separating natural gas? We knew that there would be legal challenges, so why was there resistance to that?
Thomas Lorenzen: Well, I think that EPA desires simplicity, desires something that everyone can comply with, and felt that there really was a path forward. Now I can't comment too much about that because I don't know the details of why they chose one rather than two, but I think that if the word on the street is correct, that they are going to split this up into two, it probably makes sense.
Monica Trauzzi: So at the time there was a lot of talk, like I said, about these legal challenges. So what were you doing at your position at DOJ to sort of prepare yourself for what may come once that role was finalized?
Thomas Lorenzen: Again, I don't want to talk about attorney/client confidences when I was there, but there is always an effort to ensure that the rules have a solid record basis, that the legal theories underlying them are sound, and that the agency will be prepared for challenges. What I think perhaps surprised everyone was that there was a challenge actually to the proposed rule from the Las Brisas Energy Center. The Department of Justice filed a motion to dismiss that, saying there was no final agency action, and the D.C. Circuit granted that motion, and thus we find ourselves where we are right now where we have a proposal that is still on the books, we expect a re-proposal in September, and then there will be a challenge to that once it is finalized. I don't think we'll see another challenge to a proposed NSPS.
Monica Trauzzi: So if this is in fact true about separating natural gas and coal, how much more can we expect EPA to give industry on the specific rule?
Thomas Lorenzen: Well, I think we are getting into a little bit of guesswork here, but I think perhaps one of the things that's driving this is a realization that carbon caption and sequestration may not be available in the timeline that they were anticipating, which was 11 years after finalization of the rule. This is a 30-year average emissions rate. If you see CCS put off for more years, then the average emissions rate for coal-fired plants will be higher over the 30 years, so perhaps we're looking at going from 1,000 to 1,400 or 1,500 pounds of CO2 per megawatt-hour instead of the current 1,000. Gas may go, or at least there is some speculation that gas may go the other way, but without coal in the mix, they might be a bit lower.
Monica Trauzzi: So you're working with folks in the industry right now. How are you advising them? What needs to be happening behind the scenes as we start seeing these rules coming out?
Thomas Lorenzen: Part of this really is dependent on the schedule. What I anticipate is going to happen is that the New Source Performance Standards for new sources will be proposed September 20th or thereabouts. And I don't think we will see EPA directly engaging with industry and other stakeholders until after that proposal is out, because that's going to provide the framework for whatever happens with existing sources. What industry needs to be doing right now, and what other stakeholders need to be doing, is putting their thoughts together about what they think appropriate federal emissions guidelines should look like. And what they think that the particular state standards should look like. Because remember, for existing sources, the federal government doesn't set the specific standards; they set overarching guidelines, and then the states will deliver standards that are based on their own fuel mixes, their own desires for how they want to achieve the goals the federal government sets. So right now is the time to be preparing, to think of creative ways to meet the goals in the Climate Change Action Plan, and engage with the agency when the time comes for that outreach.
Monica Trauzzi: The president has really laid out an aggressive plan here for getting these two rules out. What are the potential legal challenges that stand in the way of hitting all of those markers?
Thomas Lorenzen: Well, there are a number. I think at each stage of this, there is the potential for litigation. The New Source Performance Standards will be proposed and then finalized. They must be finalized within a year. They absolutely must be finalized before EPA can finalize an existing source standard. Thus a challenge to the New Source Performance Standards that is effective could forestall the finalization of the existing source standards. By the same token, a challenge to the emissions guidelines and a stay of those by the courts could forestall the states from actually promulgating their own emission standards. So there are a number of steps along the way where there will be challenges; any one of those could derail this. But I think that the president's overall goal and the EPA's overall goal is to have the federal emissions guidelines on the books and court-tested, and that's a critical part, court-tested before this administration leaves at the end of 2016.
Monica Trauzzi: So then how should EPA sort of be managing and anticipating these legal challenges so that they are able to hit that final marker?
Thomas Lorenzen: I think the best way for them to do this -- and this is something that I always thought when I was within the government -- is that the best way is for all the stakeholders to engage with the agency so that the rule reflects as much of a consensus view as is possible in this highly controversial and complex area. That limits the amount of litigation risk for the ultimate rule, limits the number of challengers, and thus makes the rule more likely to stand up to judicial challenge. I point to the light-duty motor vehicle greenhouse gas rule as an example of that where EPA did engage with the stakeholders, the state of California, the auto manufacturers, the National Highway and Traffic Safety Administration, to build something that worked for all the players.
Monica Trauzzi: All right, interesting stuff, we're going to end it right there. Thank you for coming on the show.
Thomas Lorenzen: Thank you for having me.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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