The Kansas Department of Health and Environment recently sparked controversy around the country when it denied a permit for the expansion of a coal-fired power plant in its state. The plant, being proposed by Sunflower Electric Power, was denied because of carbon dioxide emissions concerns. During today's OnPoint, Jeff Holmstead, the former chief air official at the U.S. EPA and currently head of the environmental strategies group at Bracewell & Giuliani, explains why he believes the Kansas Department of Health and Environment had no legal basis for turning down the proposal for the permit. He also discusses why he thinks denying this project will negatively impact consumers and will have no significant impact in reducing greenhouse gas emissions.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jeff Holmstead, former chief air official at the U.S. EPA and currently heading up the Environmental Strategies Group at Bracewell & Giuliani. Jeff, thanks for coming back on the show.
Jeff Holmstead: My pleasure. Thanks for having me.
Monica Trauzzi: Jeff, recently the Kansas Department of Health and Environment denied permits for a proposed expansion of a coal-fired power plant being built by Sunflower Electric Power. What's your take on their reasoning in this decision? Does their stance hold up when you put it up against the Clean Air Act or Massachusetts v. EPA?
Jeff Holmstead: Well, it's clear that there's no legal basis under the Clean Air Act for what they did, but I'm not sure they really tried to tie it to the Clean Air Act. As I understand, with what little I've been able to see about it, they kind of point to Massachusetts v. EPA and they seem to rely on a local state law. But as a matter of Clean Air Act law there's certainly no basis for denying a permit like this.
Monica Trauzzi: So why isn't this justified by Mass v. EPA? Isn't this sort of what that decision was trying to do?
Jeff Holmstead: Eventually it's certainly true that because of Massachusetts v. EPA there could be authority to deal with CO2 in a permit like this, but there's many steps that have to take place before that could happen. But even if that were the case, let's say, and again I'm happy to walk through the various steps, but all that would happen in that case is that they would have to consider the best available control technology for CO2. But there's no basis under the Clean Air Act for simply denying a permit because it's going to emit a certain pollutant unless it's a non-attainment area for that pollutant. I mean there would have to be many, many other steps, but in the immediate future at least there's an argument that people would have to do so-called BACT, best available control technology for CO2. The Kansas Department of Health and the Environment didn't talk about that. It didn't consider what the BACT might be for CO2. I think most people think that if that were to happen at this point, BACT is probably what this company is doing, which is highly efficient boilers. But they just denied outright. And it's kind of a strange decision as a matter of sort of just the way environmental law tends to deal with these things.
Monica Trauzzi: So in your eyes it wasn't a just decision?
Jeff Holmstead: Well, I'm not an expert on Kansas law. As far as I can tell there's like a two-page Attorney General's opinion that refers to a state statute that talks about substantial endangerment. And the head of the department relied on that somehow, saying, well, CO2 presents a substantial endangerment to the environment. But no one has ever tried to use a statute like that before to address an issue like this. I mean there's certainly no endangerment whatsoever to people around the plant because of CO2. CO2 is a global issue and a much more long-term issue. So basically to say, well, you can't have any coal-fired power plant because the CO2 emissions are going to present a substantial endangerment is a pretty big stretch beyond what's ever been done under environmental law that I'm aware of.
Monica Trauzzi: Sunflower has indicated that they plan to take legal action and appeal the decision. What do you think will happen when they appeal and how should they be challenging the decision?
Jeff Holmstead: Well, again, I should make it clear that I'm not representing them and haven't really been involved, so I'm kind of an outside observer here. I would be surprised they didn't win on their appeal. I mean I just don't see a legal basis for the decision that was made. I mean I look at the decisions that are made on one most other kinds of permit applications and there's a record prepared. In this case is literally a two-page letter from the Attorney General and a one paragraph statement that talks about the need for sort of dealing with climate change. That doesn't, at least to my mind, seem like it's even close to being a sustainable legal basis for denying a permit that meets all of the applicable requirements and that the career folks at the department there recommended that the permit be approved. So I think they have a very good chance of prevailing on appeal. And I would assume most of the environmental community understands that. What they seem to care about here is sort of the political statement as opposed to whether there's any legal basis for the denial.
Monica Trauzzi: And maybe the Kansas Department of Health was also trying to make a political statement here?
Jeff Holmstead: Well, at least at a career level they recommended approving the permit. They drafted the permit, everything. I mean there's years of work that goes into a permit like this. But at least at the head of that department he was clearly, in fact, his statement makes that quite clear. He talks about wanting to be part of a broader solution and work with legislature to have a climate change program. And I want to make it clear, I do think there needs to be serious policy response to address climate change, but to do that in the context of a permit, or even half a dozen permits, this is a global issue. And in the meantime there needs to be a way to continue to satisfy the demand for energy that we have in this country. But this has become a very emotional issue. So there are people in Kansas, there are people elsewhere that are opposing every single coal-fired power plant, no matter how new they are or no matter how efficient or no matter how clean.
Monica Trauzzi: It's a global issue, yes, but one power plant equals more pollution. So if you have one fewer isn't that less pollution?
Jeff Holmstead: Not necessarily. I mean the demand for that power is going to come from someplace. And you have to understand much more about how power is supplied and where that will come from if it doesn't come from that plant. I know the environmental community has said that they really want to see aggressive use of wind power and solar power. And that can satisfy a portion of demand, but for reasons that I think you and probably most of your viewers understand, it has a lot of limitations and there needs to be kind of baseload power. So anyway, as I think you understand, it's a lot more complicated than just saying, oh, let's stop this plant. That means less pollution.
Monica Trauzzi: If the decision were to hold, what impact could that have on electric markets and utilities?
Jeff Holmstead: Well, this will simply be a matter of Kansas law. So as a legal matter it's not clear that it really makes any difference. More broadly though, you probably saw there was this recent report that came out from NAERC, the North American Electric Reliability Corporation that really is in charge of maintaining the reliability of the U.S. electrical system. And they've raised some real red flags about the fact that demand is continuing to grow at a much faster rate than supply is growing. And they warn of not only substantial price increases, but actual -- you know, we don't really think of shortages of electricity, but the possibility for brownouts and blackouts. And it's not clear to me that that really helps the environmental debate because I think if all of these actions lead to brownouts or blackouts, and we've seen what kind of response that people have when that happens, I don't think that's really in anyone's interest, and certainly not the interests of people who care about environmental issues. So I'm hopeful that there will be a more rational discussion of all of these issues.
Monica Trauzzi: And you mentioned that this was sort of a political statement. Do you think that this is going to be the first in a string of permit denials? Do you think that this will sort of lead the way and other states will begin to do the same thing?
Jeff Holmstead: You know, I know this has been reported as sort of the first of its kind. It's not really true. You know, something happened in Florida recently where, although they couched their decision in another way that's probably more legally defensible, it's pretty clear that the governor didn't want a coal-fired power plant there. In Oklahoma we've seen a similar action. Again, I think that was much more to do with satisfying a local constituency that cared about having more gas-fired plants. I think that there is likely to be, in fact we are already seeing new, modern coal-fired power plants being permitted in several different places. I think that will continue to happen. But I think there's likely to be a stretch of time here where environmental advocacy groups are doing everything they can on every application and that could affect the overall market.
Monica Trauzzi: Well, because big picture the face of the coal industry is going to be changing. They're doing certain things now to make plants cleaner, but down the line they're hoping to develop more technologies that will make them even cleaner. So things will be changing for the coal industry.
Jeff Holmstead: Oh, I think they're already changing. I mean the generation of plants that people are permitting now and building now are much more efficient. They're much cleaner. And so we are already seeing that. I guess my big concern, as a person who thinks about this environmental and energy policy is if we have these policy responses that are more optimistic than the technology can deliver we have a real problem. I mean people are -- if you look at some of the bills in the Congress today and they're enormously expensive. The Lieberman Warner bill that I know you guys have been paying attention to is --
Monica Trauzzi: And it's been getting a lot of support.
Jeff Holmstead: It's been getting a lot of support, but you're talking about a bill that is in the neighborhood of $500 billion to a trillion dollars a year in cost and people are not really focusing on what that means. And for a lot of people increases in electricity bills are not going to be that big of a deal, but for the manufacturing sector at an enormous issue, for people who are on lower incomes it's an enormous issue. And I just think that this whole idea of addressing energy policy by challenging individual permits is not a very sensible way of doing things. And I assume and I hope that Congress will adopt a more sophisticated and more realistic approach to dealing with it.
Monica Trauzzi: So a decision like this isn't necessarily going to have an impact on the push for a mission's legislation in Congress?
Jeff Holmstead: I don't think so. I think there's already a lot of momentum there you're seeing, so in some ways I feel badly for the people who invested probably millions of dollars to try to comply with a law and do this permit right and all of the sudden, for purely political reasons, it gets rejected at the last minute. It obviously affects them. It affects their workers. It potentially affects people who need electricity in that part of the country because this appeal will take a little while longer. But the markets tend to be fairly responsive and if the plant isn't built there, it will be built somewhere else. You know there may be some more gas built, but that's problematic too just because just because of the prices of natural gas. So we still have, I think, a long way to go before we solve -- before we even have kind of a better handle on what to do. But I think there's going to be a lot of to-ing and fro-ing between now and then.
Monica Trauzzi: OK. Well, we'll continue to follow this story and thanks for coming on the show.
Jeff Holmstead: Oh, my pleasure. Thanks for having me.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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