REGULATION

New power plant emission rules, the first big step of Obama's climate plan, will emerge this week

U.S. EPA will unveil standards for new power plants this week, the first step in a three-year rollout of regulations to address the largest stationary sources of greenhouse gas emissions in the United States.

The new power plant proposal will give a sense of how carbon capture and storage (CCS) -- the promising but controversial practice of removing carbon dioxide from smokestacks and storing it underground or using it for industrial purposes -- will feature in a rule on existing plants.

"If EPA is sending the signal that they want [CCS] to be developed," said Ann Weeks, senior counsel for the Clean Air Task Force, "that could be true for new and existing sources."

The proposal is set to be released Friday but could appear earlier. Because the economic stakes involved are high, it will also mark the beginning of lobbying, public comment and litigating, which could take a considerable amount of time. This first step is a rewrite of a rule proposed last year, which set the limit at 1,000 pounds per megawatt-hour -- a standard that could easily be achieved for a combined cycle natural gas plant but would require a typical coal plant to slash its emissions by about half.

Coal industry groups immediately lashed out at the proposal, saying that a 1,000-pound limit was unrealistic. It was not right for EPA to create a single standard for all fuels, they said, or to mandate the use of CCS before it is commercially available.

Since, EPA has worked to retool the proposal. A source who was briefed in July said that coal plants would be capped at 1,100 pounds per megawatt-hour, a slightly more relaxed standard than last year's 1,000 pounds per megawatt-hour. Combined cycle natural gas plants would remain at 1,000 pounds per megawatt-hour. There will be a third category, said the source, for single cycle natural gas plants, which are about 40 percent less efficient than combined cycle plants.

It is possible that the numbers have been changed since July. Media reports have indicated that coal plant emissions may be as high as 1,300 or 1,400 pounds per megawatt-hour.

Despite eliminating the single category and creating two separate standards for coal and gas, early reports indicate that there are no effective changes from last year's proposal, said Luke Popovich, a spokesman for the National Mining Association.

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EPA is using the fact that CCS is a tested technology to justify its use, said Popovich. Under the Clean Air Act, technology must be reasonably demonstrated to be considered a option, he said.

"It all leads us to the conclusion that EPA is playing a weak hand here," said Popovich. "The precedent that EPA is setting is basically requiring an arbitrary standard."

Can coal-fired power plants remain competitive?

Popovich pointed to commercially available lower-carbon coal uses, like supercritical pulverized coal plants, as a commercially available technology that cuts emissions. A supercritical coal facility emits about 1,700 pounds of carbon per megawatt-hour.

Environmental Defense Fund attorney Megan Ceronsky does see CCS as a demonstrated technology at a small scale. It needs the incentive created by regulation to make it mainstream.

"What we need is a regulatory framework for it to make sense," she said. "This part of the Clean Air Act was meant to be technology-forcing."

The EPA rules may provide a boost for the technology but can only go so far in overcoming the existing barriers for new coal plants, particularly low natural gas prices and the high cost of carbon capture. Even though the estimated cost of capture on coal has fallen by more than half since the 1990s, to about $60 a ton of carbon dioxide, it is prohibitively high for most utilities, according to analysts at an event last week.

Gas prices would need to rise to $14 per million British thermal units for carbon capture on coal generators to be cost-competitive with new natural gas plants, or about triple the current U.S. level, Bloomberg New Energy Finance said in an analysis earlier this summer.

"The EPA regs help balance the situation, but it's really the broader economics that are going to drive CCS," said Kurt Waltzer, managing director of the Clean Air Task Force. If gas prices remain low, new coal plants are not going to be an attractive option, with or without regulations, he said.

Other CCS experts note that an unusual financial circumstance -- Obama's 2009 stimulus package -- was a driver of many of the U.S. coal CCS projects that are still moving forward on paper, such as FutureGen 2.0, a $1.65 billion planned coal project in Illinois. Others say that additional incentives may be as important as EPA rules.

"You need a carrot and a stick," said Victor Der, general manager for North America of the Global CCS Institute, at an event in Washington, D.C., last week, when asked about the EPA regulations.

Rules for existing power plants come later (perhaps much later)

The National Enhanced Oil Recovery (EOR) Initiative, for example, has been pushing for changes in Congress to the 45Q tax credit, which provides $10 per metric ton for CO2 stored through EOR operations and $20 per metric ton stored in deep saline formations.

Coal does have one advantage over natural gas, said Rick Smead, director of the energy practice at Navigant. It can be stockpiled to buffer against scarcity and potentially shield ratepayers from blackouts.

"From a utility perspective, it's really nice to be able to look out of the window and see a pile of coal," he said. "If gas stops flowing through the pipeline, there isn't any storage."

Larger utilities, like Southern Co., value fuel diversity for this reason, added Smead. They are the companies most likely to build more coal capacity and invest the money in CCS.

EPA is expected to drop the rule this week, keeping in line with the deadlines set by president Obama as part of his Climate Action Plan. While this week's proposal is important, it won't address the biggest source of carbon in the country: the nation's fleet of aging existing coal-fired power plants.

"It will set an outer bound for what is done with existing sources," said Thomas Lorenzen, a partner with law firm Dorset and Whitney and former assistant chief in the Justice Department's Environment and Natural Resources Division.

Under Administrator Gina McCarthy's leadership, the agency is likely to stay on track, releasing a proposed rule for existing plants next year and a final rule for those in 2015, said Jeff Holmstead, an industry attorney with Bracewell & Giuliani and former EPA assistant administrator.

But the comments and potential litigation over regulating greenhouse gas emissions of existing power plants could extend into the administration of the next president, who could overturn the process with a new regulation. Under the Obama timetable, states are expected to devise plans on how to comply with the existing plant rules by the summer of 2016.

"I can say that I've done many, many state implementation plans over the years: It's unrealistic," said Holmstead. "There's just no way that can be done in 50 states in a year's time."

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