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Obama Climate Plan Rests on EPA’s Ability to Force Technology Improvements

Posted in Renewable Energy

Coal Power PlantCan the Clean Air Act be used to force technological improvements, even if that technology is at best under construction but not actually in existence in any place? With the Obama Administration’s climate control plans, the EPA asserts the answer is yes.

On September 20, 2013, the U.S. Environmental Protection Agency (EPA) announced its first steps under President Barack Obama’s Climate Action Plan to reduce carbon pollution from power plants by reproposing the greenhouse gas new source performance standards for power plants. Under the proposal, new large natural gas-fired turbines (larger than 850 megawatts) would need to meet a limit of 1,000 pounds of CO2 per megawatt-hour, while new small natural gas-fired turbines (less than 850 megawatts) and new coal-fired units would need to meet a limit of 1,100 pounds of CO2 per megawatt-hour. The proposed regulation of coal-fired units has specifically drawn intense criticism.

Opposition to the proposal has been based on both economic and technical grounds. Typical of the response was that of Tennessee Senator Lamar Alexander:

The Obama Administration must think our country, which uses 20 to 25 percent of all the electricity in the world, can operate on windmills. For most power plants there is no proven, commercially viable way to capture and store or reuse carbon emissions. This regulation, therefore, will drive up prices and drive down job growth. It is one more big, wet blanket on the American economy.

Coal industry supporters describe the new regulations as setting an impossible standard. The EPA asserts these standards are in line with its policy of furthering investments in clean energy technologies, but many charge the new proposal is a de facto ban on new coal power plants. The American Coalition for Clean Coal Electricity, a coal industry trade group, stated the proposal is tantamount to “taking away the option to build efficient new coal-fueled power plants” and “mak[ing] sure no new coal plants are ever built again in the United States.”

The charges revolve around the industry’s ability to meet the new standards. Advanced new coal plants currently produce more than 1,600 pounds of CO2 per megawatt hour—well over the proposed 1,100 pounds per megawatt hour. To meet the proposed benchmark, new coal plants would have to separate and segregate carbon from their other emissions using a process called “carbon capture and storage” (CCS).  This process is widely viewed as cumbersome, prohibitively expensive, and potentially dangerous, with many observers noting that this technology may not be economically viable for some time. Last year the Congressional Budget Office (CBO) concluded it was unlikely the CCS technology would be cost-competitive anytime soon. Power plants that can capture and store their carbon are initially expected to cost about 75 percent more than regular coal plants. And those costs will not fall unless there is either a huge technological breakthrough or substantial new investment. Neither appears imminent. 

Setting aside the economics of the proposal, experts point out that though the technology has been used in certain cases, it is unproven on a commercially large scale. Currently there are no facilities in the United States that would meet the proposed standard and there are only a handful of facilities under construction or on the drawing board. The under-construction 524 MW Kemper County power plant—the first commercial scale power project utilizing CCS technology in the United States—illustrates both parties’ arguments. The EPA says the Kemper plant, due to come online in 2014, shows that the technology is close to being commercially viable. However, industry groups respond that Kemper demonstrates just the opposite as it is over budget by 40 percent, with costs expected to total $2.8 billion, and has received Department of Energy financial support of roughly $270 million.]

The EPA’s proposal sets up a potential legal showdown between the EPA and the coal industry. There are a number of potential legal bases for such a challenge, including the endangerment determination, the data relied on by the EPA in formulating the standard, and the way the standard is applied, but one of the most significant theories will be based on the Clean Air Act’s requirement that the EPA set its rules based on the “best system of emission reduction . . . adequately demonstrated.” Key factors the EPA must consider in this analysis are “feasibility, costs, size of emission reductions and technology.” The issue boils down to whether the EPA satisfies this standard given that CCS technology is not currently in use at commercial-scale facilities.

It is impossible to predict how these arguments would be resolved, but the outcome is likely to play a significant role in U.S. energy policy for the long term.  Observers point out that the EPA is ready for the fight and tailored its proposal knowing it would be challenged in court. Moreover, these types of challenges are typically hard to win given the level of deference afforded to agencies. However, as some analyses point out, federal regulations have been thrown out by courts for much less.

The EPA is seeking comment and information on the proposal as it completes the rulemaking process. The EPA’s comment period will be open for 60 days following publication in the Federal Register.

 

Frank Sciremammano is an associate in the Business Litigation Practice at Hodgson Russ LLP. You can reach him at FScirema@hodgsonruss.com.