The U.S. Environmental Protection Agency proposed the first greenhouse gas emission limits applicable to new electric generating units, or "EGUs," on March 27, 2012. The proposal—described by EPA as a "Carbon Pollution Standard"—would effectively prohibit the construction of most new coal-fired generating units, unless they utilize carbon capture and storage either upon construction or no later than the 11th year following construction.

The proposed rule is in the form of a "new source performance standard" under the Clean Air Act that applies to EGUs with a base load rating of more than 73 megawatts that commence construction after April 13, 2012. Certain municipal waste combustor units, solid waste incineration units, biomass-fired units, and units in noncontinental portions of the U.S. are exempt. In addition, "transitional sources" that received Prevention of Significant Deterioration permits prior to April 13, 2012 (the date the proposed rule was formally published in the Federal Register) and start construction within the next 12 months would also be exempt from the standards. EPA estimates that there are about 15 projects that will qualify as transitional sources.

The emission standard in the proposed rule is 1,000 pounds of carbon dioxide ("CO2") per gross output in megawatt-hours ("MWh") on a 12-operating-month annual average basis. Alternatively, an EGU that uses coal or petroleum coke for fuel and is designed to allow for the future installation of carbon capture and storage may emit up to 1,800 lbs/MWh of CO2 on a 12-month annual average basis for the first 10 years of operation, but no more than 600 lbs/MWh of CO2 on a 12-month annual average basis for the next 20 years. EPA estimates that the average emission rate from a coal-fired EGU is 2,249 lbs/MWh of CO2.

EPA based the new emission limit for new EGUs on the performance of natural gas combined cycle units, which EPA believes will likely be the predominant fossil-fuel-fired technology for new EGUs, based on economic factors such as the significantly lower price of natural gas and energy industry modeling forecasts. The 1,800 lbs/MWh limit can be met, EPA claims, if a new EGU uses supercritical steam. EPA recognizes that carbon capture and storage ("CCS") technology is currently very expensive but predicts that the technology will become less costly in the future. The proposed rule does not, however, contain any proposals to modify or streamline the permitting burdens associated with CCS.

Although the proposed rule does not apply to existing or reconstructed units, EPA has requested comment on how greenhouse gas emission limits should apply to such units. Criticisms of the proposed rule include assertions that it is based on faulty predictions regarding both the price of natural gas (making natural-gas-fired EGUs economically attractive) and the development of technologically and economically viable CCS options.

EPA will accept comments on the proposed rule until June 12, 2012.

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