On September 20, 2013, EPA, under the authority of section 111(b) of the Clean Air Act (CAA), re-proposed its New Source Performance Standards (NSPS) for CO₂ emissions from coal-fired utility boilers and integrated gasification combined cycle (IGCC) electric generating units. The proposed limits for these facilities are based on the use of partial carbon capture and storage (CCS).

The proposed rule raises many questions, and two threshold issues are (1) whether EPA can effectively preclude the use of coal for electric generation in places where the use of CCS is not feasible, and (2) whether EPA can impose a technology based standard on projects in planning or still in development, or must CCS be demonstrated on a working, existing system. This Reed Smith Client Alert examines these issues.

Just one year ago, James Wood, the Deputy Assistant Secretary in the Department of Energy’s Office of Clean Coal, speaking at the Third International Advanced Coal Technologies, had this to say about the status of CCS technologies.

Unlike the cost-effective advanced technologies that were developed to reduce emissions of nitrogen, sulfur, mercury and particulates, technologies to capture and store carbon emissions from electric power plants are elusive, expensive and, although there are CO₂ separation technologies in use in the natural gas and chemical processing industries, there has not yet been widespread deployment in the electric power industry, and there is little history of the integration of these technologies with electric generation in reliable or cost-effective modes.

The electric-generating industry has vigorously attacked the proposed EPA’s NSPS, because, as one of the nation’s largest electricity generators said in its August 8, 2013, comments to the original rule (also relying on CCS):

No adequately demonstrated technology makes it possible for coal-fired power plants to comply because the only feasible means of complying with the proposed performance standards is through the use of natural combined cycle technologies.

Moreover, in June of this year, the CEO of Southern Company told the GHG Monitor that it may have "missed this one" when referring to the company’s $2 billion cost overruns for the yet-to-be-completed Kemper County gasification plant in Mississippi. This plant is one of the two facilities under construction that EPA points to as the basis for its finding that CO₂ NSPS for coal-fired, electric-generating units are achievable and adequately demonstrated.

Notwithstanding these strong comments and the murky future for CCS, EPA has trumpeted its NSPS for coal-fired, electric-generating units as a "path forward" for the future use of coal, and as bringing certainty to the circumstances where coal can be used for electric generation.

Section 111 of the CAA provides the following definition regarding the standard of performance for new sources covered by section 111 of the CAA:

The term "standard of performance" means a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which . . . Administrator determines has been adequately demonstrated.

What is required to show that the best system of emission reduction has been adequately demonstrated?

In its 500-page proposed rulemaking, EPA builds its case for requiring CCS on the following:

• Existing and anticipated economic conditions mean that few, if any, coal-fired, electric-generating units will be built in the future
• Electricity generators are expected to choose new generation technologies (primarily natural gas combined cycles) that would meet the proposed standards without CCS
• It can legally consider "technological innovations" in determining whether a standard of performance is achievable, and that one purpose of section 111 of the CAA is to force the development of improved technology
• NSPS may be valid even if it precludes new sources from locating in certain parts of the country, and, even if certain types of new sources would not be able to be constructed because they could not meet the standard

With the price of producing electricity by burning natural gas projected by EPA to be below the cost of producing electricity-burning coal, the argument that few new coal-fired electric-generating units will be built is likely true, but only if one accepts the premise that CCS is part of the equation and that the price of gas will remain low. If CCS is removed from EPA’s proposed NSPS as a requirement, and the price of gas rises, new coal-fired plants could return to the list of generating alternatives. The industry does not seem to have abandoned coal; it has just anticipated that the so-called war against coal is not likely to subside in the near term. In the rulemaking process, it is unlikely industry will give in to EPA’s position that few, if any, new coal plants will be built, and we can expect industry will vigorously contest the proposed NSPS as not being achievable or adequately demonstrated.

Technology-forcing arguments have been successfully advanced in the past by EPA to establish controls for fossil-fuel, electric-generating units, but the lack of any commercial operating facilities supporting EPA’s decision to require partial CCS appears to be unprecedented. The 1971 SO2 NSPS were promulgated at a time when there was only one flue-gas desulfurization ("FGD") vendor and only three commercial FGD units in operation, and industry attacked those proposed rules as not being adequately demonstrated. Court challenges to the 1971 SO2 NSPS were not successful, and today, new coal-fired electric generators incorporate very complex flue-gas desulfurization in their design. However, compared with CCS, the record supporting FGDs as being commercially available was overflowing. EPA’s proposed NSPS using CCS systems is based on only two CCS systems and separation techniques that are still under construction and/or development; the aforementioned Kemper plant and SaskPower’s Boundary Dam CCS project CCS systems. They might not appear to constitute a legally adequate demonstration.

The battle lines on EPA’s use of CCS are thus clearly drawn on two fronts: (1) can EPA effectively preclude the use of coal for electric generation in places where CCS cannot be feasibly used; and (2) can EPA force technology based on projects in planning or still under construction, or must CCS be demonstrated based on a working CCS system in existence today.

These questions will ultimately be answered by the courts. How successful EPA will be in defending the proposed NSPS could depend on how well it can demonstrate that it is possible to extrapolate the ability to use CCS from plants under construction or being planned to their projected commercial operation and maintenance. EPA will rely on the argument that under Chevron¹, its decision on this issue is entitled to deference. Industry will argue that EPA cannot demonstrate that CCS is adequately demonstrated today, even if EPA is allowed to do some technology forcing. Electricity generators will also argue that apart from the lack of an adequate demonstration of CCS, EPA does not have the power to limit, through technology-forcing principles or otherwise, the use of coal as a fuel.

While EPA will not likely change the proposed NSPS, it is important to submit comments on this re-proposal, as the courts will not allow challenges based on arguments not first raised with EPA. Moreover, since Members of Congress – especially those Members from coal-producing states – have expressed deep concerns with EPA’s proposed NSPS, persons affected by the proposed rule may also wish to consider reaching out to those Members to help amplify their message while they consider legislative action limiting or clarifying the scope of EPA’s authority to promulgate rules dealing with Greenhouse Gas emissions.

Comments are due 60 days after the date of publication of the proposed NSPS in the Federal Register.

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1. Chevron U.S.A. v. NRDC, 467 U.S. 837 (1984)

Client Alert 2013-259