CLIMATE

New power plant rule running late, with major changes possible

It's looking increasingly likely that U.S. EPA will miss its April 13 deadline to finalize its carbon dioxide rule for new power.

For one thing, the agency has yet to sign off on the rule internally and send it to the Office of Management and Budget to begin a review process that would typically take 90 days or longer to complete. And the administration might hold off on issuing the rule until Obama's pick for EPA, Gina McCarthy, makes it safely through the Senate confirmation process.

The question appears to be not whether EPA is holding the rule, but why. Agency officials including McCarthy have said EPA is doing its best to wade through the more than 2 million comments on the rule. The EPA air and radiation chief said recently that the rule would progress at a "deliberative" pace (E&E Daily, March 1).

But some observers say EPA's delay may hint that it is rethinking a rule that industry claims is unworkable.

Specifically, the agency said in its proposal that the new source performance standard, which would cap new plants' carbon emissions at 1,000 pounds per megawatt-hour, would be easily achievable by plants that run on natural gas but would require coal plants to eventually phase in carbon capture and storage technology. But Jeff Holmstead of the legal and lobbying firm Bracewell and Giuliani, which has advocated for separate standards for coal and natural gas units, said that in reviewing its rule EPA had realized it would also bar the construction of some smaller natural-gas-fired plants.

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In its comments to EPA on the rule, the Edison Electric Institute made the same point. "Moreover, the proposed rule's 1,000 lb-CO2/MWh standard is not achievable by many [natural gas combined cycle] units under normal, real-world operating conditions."

This realization on the part of EPA may bolster utilities' chances of seeing EPA scrap the one-size-fits-all rule, Holmstead said.

"Of course, if you start to make separate categories for natural gas, it looks very odd not to do something different for coal," he said.

"I know those kind of issues are being discussed," he said, adding that the agency appeared to be left with the choice of how, not whether, to rewrite its rule.

William Bumpers, who heads the climate practice at the law firm Baker Botts, said that he had not heard EPA might be rethinking its proposal but that agency officials should.

"It's a high-risk, sort of swing-for-the-fence strategy in which they were trying to be very aggressive and set a standard that would almost certainly prohibit new coal-fired power plants," he said.

But Bumpers said EPA was courting litigation by setting only one standard for coal- and gas-fired plants.

"I think they were at significant risk of losing that rule in the D.C. Circuit," he said. "And if that happens, they're four years out and back at the drawing board."

But environmentalists said natural gas units would be able to meet the standard set forth in the proposed NSPS, and they expected the final rule to retain the single standard.

They say they aren't happy about the likelihood that EPA will delay finalization of the rule, but they seem to accept the agency's explanation for why that might happen.

"I think that it is becoming increasingly clear that they are going to miss that deadline, and the question is by how much," Frank O'Donnell, president of Clean Air Watch, said Friday. He said EPA's concern was that its final rule would hold up in court.

EPA was dealt a blow last year when the U.S. Court of Appeals for the District of Columbia Circuit remanded a standard for smog- and soot-forming emissions that cross state lines, undoing years of work by regulators. O'Donnell said the experience appeared to have made the agency "gun-shy."

David Doniger of the Natural Resources Defense Council, part of a coalition that sued EPA to promulgate carbon rules for power plants, said there was "no evidence" that EPA was contemplating revising its proposal to include a less stringent requirement for coal-fired units, as Holmstead suggested.

"There are reasons for delays that have to do with getting the work done," he said. "We're concerned about any potential delay, but it doesn't necessarily mean a change in the direction of the proposal."

But while the new power plant rule is a source of controversy, it is expected to have little or no real effect in the short term. Natural gas prices and a lack of demand for more power capacity mean that few utilities are planning to build new coal-fired power plants anyway.

Of much greater concern to industry and environmentalists are the existing power plant rules EPA has promised to promulgate next under the terms of a 2010 settlement agreement with plaintiffs including NRDC.

The agency has engaged in talks with a wide variety of stakeholders on the rules, which would cover a sector that is now responsible for 35 percent of U.S. greenhouse gas emissions. At the same time, administration personnel have been shy about discussing the standard in public and have declined to say when it might be proposed.

The '40-year-old virgin'

While they wait, stakeholders are busy trying to define what EPA can do with the much-anticipated rule.

The agency will write the rule under Section 111(d) of the Clean Air Act, which has rarely been used in the more than 40 years since the law was enacted. Doniger has called it "the 40-year-old virgin," though it has been used to limit emissions from landfills, among other things.

Environmentalists and Clean Air Act lawyers say the statutory language grants the agency the authority to set stringent emissions limits and to ask states to weigh in on meeting them. EPA would then have a responsibility to approve or reject a state implementation plan based on whether it can achieve EPA's reduction target, they say.

"EPA has to be evaluating them against a metric, and it's the administrator's responsibility to come up with the metric," said Ann Weeks, senior counsel for the Clean Air Task Force.

But Holmstead of Bracewell and Giuliani said EPA would be limited to looking at reductions that can be achieved at a specific existing power plant, rather than requiring a standard reduction across the entire fleet, which might require investment in technology that is not widely deployed today.

NRDC has proposed that EPA set a carbon intensity standard for today's power plants that would require utilities to limit or offset the greenhouse gas content of their power by choosing from a variety of options, including investment in renewable energy or efficiency efforts or participation in a carbon trading program like California's or the Regional Greenhouse Gas Initiative in the Northeast.

But Holmstead said this kind of proposal would fall outside EPA's statutory authority, because it would require reductions beyond what a designated power plant could achieve taking into account other factors mentioned in the statute, including cost.

He and Bumpers said the Clean Air Act actually assigns EPA a more modest role than environmentalists envision in providing a guideline that states may choose to use in crafting their implementation plans. States are allowed more discretion in deciding how to implement the rules, and EPA has only a limited ability to decide whether that rule was "arbitrary and capricious."

Weeks rejected this interpretation.

"I think that of course there are some folks who have clients out there who would like there to be different standards in Alabama from the standards in Illinois from the standards in Massachusetts from the standards in California," she said. "But it's our perspective that there has to be a national minimum standard floor and that states that submit their plans are going to have to show why specific units within their state don't meet that floor."

Michael Livermore of the Institute for Policy Integrity at New York University said there was no disagreement that states have great discretion in structuring the rules.

NRDC's proposal also would allow states to set their own approach if it achieves the reductions required by EPA's guidelines. But Livermore said the issue that would remain a bone of contention would be EPA's role in setting the metric for the rule. It is likely that EPA will interpret the statute to mean that it has the right to set the broad stringency requirements for greenhouse gas reduction across the fleet and leave it up to the states how those requirements should be met.

And courts should uphold it, he said.

"What courts are supposed to do is defer to any reasonable interpretation that the agency wants," Livermore said. So if industry challenges EPA's likely interpretation of its role in setting the rules, it will have to prove that the agency is relying on an unreasonable interpretation of the statute, he added.

"It's really the burden on someone who wants to say, 'The agency can't do this, this is impermissible,'" he said.

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