United States: EPA Releases Proposed Affordable Clean Energy Rule To Replace Clean Power Plan

Isabel C Lane is a Public Affairs Advisor in our Washington Dc office.

Aaron S Heishman is an Associate in Washington DC office.

Beth A Viola is a Senior Policy Advisor in our Washington DC office.

HIGHLIGHTS:

  • The U.S. Environmental Protection Agency (EPA) has issued a proposed rule to reduce greenhouse gas (GHG) emissions from existing coal-fired power plants, a replacement for the Clean Power Plan (CPP) finalized by the Obama Administration in October 2015.
  • The Affordable Clean Energy (ACE) Rule maintains some structural elements of the CPP, including the requirement for states to submit individual State Implementation Plans (SIPs). Unlike the CPP, however, ACE aims to increase flexibility for states by avoiding mandating "presumptive" standards of performance.
  • The Regulatory Impact Analysis (RIA) accompanying the rule shows modest potential net benefits for the coal industry, though results on human health and subsequent economic impacts in transition to ACE are less encouraging.
  • The EPA will accept comment on the proposed rule for 60 days following the publication of the rule in the Federal Register.

The U.S. Environmental Protection Agency (EPA) on Aug. 21, 2018, issued a proposed rule to reduce greenhouse gas (GHG) emissions from existing coal-fired power plants, a replacement for the Clean Power Plan (CPP) finalized by the Obama Administration in October 2015.

The Affordable Clean Energy (ACE) Rule maintains some structural elements of the CPP, including the requirement for states to submit individual State Implementation Plans (SIPs). Unlike the CPP, however, ACE aims to increase flexibility for states by avoiding mandating "presumptive" standards of performance, instead allowing states to self-determine standards of performance achievable through the "best system of emissions reductions" (BSER) outlined in Section 111 of the Clean Air Act (CAA).

Notably, the EPA's interpretation of Section 111(d) in the proposed rule does not walk back the Agency's determination that it has authority under the CAA to limit GHG emissions as they represent an ongoing risk to public health and the environment. Some conservative groups had called on EPA in its rollback of the CPP to challenge the 2009 "endangerment finding" that called carbon dioxide a threat to public health and provides the legal basis for the EPA to regulate GHGs.

What the Rule Accomplishes

The ACE Rule contains the following components:

  1. A revised determination of BSER for GHG emissions limiting emission standards only to heat rate improvement (HRI) technologies
  2. A list of candidate HRI technologies that states can use in developing their SIPs
  3. A revised applicability test determining whether New Source Review (NSR) is necessary

BSER

As expected, the Trump Administration's EPA interpretation of the foundational BSER under Section 111(d) of the Clean Air Act differs significantly from the BSER utilized by the Obama Administration's EPA in the CPP.

The CPP interpreted Section 111(d) to include four potential carbon reduction "building blocks" that include emissions reductions practices "beyond the fence line," i.e., replacing coal-fired power plants with renewables, switching to natural gas and implementing energy demand reduction strategies. ACE proposes to read the CAA more narrowly, limiting emissions reduction measures to practices that can be applied to or at an individual stationary source. Of the CPP's "building blocks," ACE leaves only on-site efficiency upgrades, or "heat rate improvements."

Unlike the CPP, ACE does not provide states with specific emissions reductions standards but instead gives the state flexibility to develop its own standard of performance. Additionally, states are permitted to consider case-by-case each individual source's age/remaining useful life in determining costs associated with upgrades when developing their states' standards of performance. In essence, this allows states to apply to exempt specific sources when developing their respective standards. Electricity Generating Units (EGUs) no longer in production by the compliance deadline are also exempt from the proposal.

EPA is also soliciting comment on whether trading between coal plants to achieve standards of performance should be permissible under the rule and on whether states should be able to average emissions among EGUs within the same facility. While EPA acknowledges that both such approaches could make the program more cost-effective and effective in delivering results, the Agency asks for comment on whether either should be legally permissible within its narrow reading of Section 111(d) under the CAA.

Candidate HRI Technologies

In the proposed rule, EPA specifically enumerates what it finds to be the most impactful HRI measures for states to use in establishing performance standards. The rule also provides expected HRI potential for each technology based on EGU size, ranging from a minimum of 0.1 percent to a maximum of 2.9 percent for any one specific HRI measure. Under ACE, candidate technologies for HRI include:

  • neural network/intelligent sootblowers
  • boiler feed pumps
  • air heater and duct leakage control
  • variable frequency drives
  • blade path upgrade (steam turbine)
  • redesign/replace economizer
  • improved operating and maintenance practices

Although these technologies are specifically enumerated in the rule and must be considered by individual states to establish performance standards, ACE would also permit affected sources to use both BSER and non-BSER measures to achieve compliance with its self-proposed standard, though non-BSER measures must still be "inside the fence line" to qualify. The proposal lists examples that include HRI technologies not included as candidate technologies, such as carbon capture and sequestration (CCS) and fuel co-firing. While EPA recognizes that non-candidate technologies may be useful to certain EGUs, the agency found that they generally have narrow applicability or will achieve only negligible HRI. Accordingly, EPA believes it would be "overly burdensome" for states to evaluate all possible HRI measures for each EGU within their borders.

The rule takes into consideration that "cost, suitability, and potential improvement" for the technologies above depend on factors such as the size, age, fuel use, and operating and maintenance history of the unit. EPA asserts that certain HRI technologies that are more expensive may not be appropriate for individual EGUs with limited remaining useful life, as the cost cannot be amortized over a period sufficient to recoup expenses adequately.

Under ACE, the BSER applies only to fossil fuel-fired electric utility steam generating units. ACE does not identify a BSER for stationary combustion turbines and integrated gasification combined cycle (IGCC) units, for which the CPP provided only BSERs "outside the fence line."

New Source Review Standards

Currently, the NSR process is triggered when a new EGU is constructed or an existing EGU is modified in a manner that causes a "significant net increase in a facility's actual annual emissions." Utilities have argued that this standard is flawed, as it can disincentivize efficiency upgrades that result in objectively more emissions from an individual EGU by decreasing the rate of emissions per kilowatt-hour (kWh) produced and/or displacing EGUs causing greater emissions.

The proposed rule would allow for flexibility in NSR, allowing coal plants to select whether to use the annual emissions standard or an hourly emissions rate standard. Under the latter, NSR would be triggered when changes made to an EGU would result in an increase in that EGU's hourly emissions rate. EPA asserts that this change will mean that fewer sources will trigger major NSR requirements, making it easier and more cost-effective for sources to install HRI and other efficiency upgrades.

Projected Impacts and Comparison to the CPP

The Regulatory Impact Analysis (RIA) accompanying the rule shows modest potential net benefits for the coal industry, though results on human health and subsequent economic impacts in transition to ACE are less encouraging.

Worth noting is that the RIA estimates assume that full implementation of the ACE rule would impact approximately 600 coal-fired EGUs at 300 facilities. The rule does not take into consideration the potential that states have to exempt specific units based on their remaining useful life or other factors, as EPA states it does not have sufficient resources to anticipate the potential HRI improvements for each specific unit.

Environmental Impacts

Emissions are expected to be higher under ACE; compared with the CPP, ACE would result in CO2 emissions increases of 3 percent by 2035 under all scenarios. Compared with a base case wherein the CPP is not implemented, CO2 emissions would be reduced between 0.7 percent and 1.5 percent. Similarly, emissions of sulfur dioxide, nitrogen oxides and mercury would be higher than the CPP baseline but reduced compared with a no-CPP scenario.

Compared with 2005 levels, EPA estimates the rule could ultimately result in emissions reductions of approximately 34 percent. Although the CPP would have required a 32 percent reduction goal by 2030 compared with 2005 levels, ACE omits a timeframe for the projected reductions.

Compliance Costs and Impacts on Electricity Prices

The RIA finds that by 2037, the present value of compliance costs under the ACE scenario could be reduced up to 6.2 percent when compared with the CPP, but that ACE may also increase costs up to 2.9 percent depending on the cost of the HRI improvements. EPA states that, in total, the compliance burden could be reduced by up to $400 million per year when compared with the CPP.

EPA's analysis projects that replacing the CPP with ACE will result in the following:

  • reduced retail electricity prices, beginning at a reduction of 0.5 percent in 2025 and gradually declining to a 0.1 percent or less reduction by 2035
  • reduced average price of coal delivered to the power sector, beginning at a reduction of 0.1 percent in 2025 and gradually increasing to 0.4 percent by 2035
  • increased coal production for power sector use, beginning at a 6.1 percent increase by 2025 and reaching a 9.5 percent increase by 2035
  • no change in total electric generating capacity

Economic and Human Health Impacts

The RIA projects employment impacts under ACE to be "relatively small," though jobs in the natural gas or renewable energy sectors may decline while coal-sector jobs grow.

According to the RIA, premature deaths due to fine particulate matter emissions under ACE compared with CPP could increase anywhere from 400 to 1,400 annually. The baseline scenario without either ACE or CPP is projected to range from 540 to 1,600 premature deaths annually.

Overall, EPA projects that ACE could provide $400 million in annual net benefits. However, the RIA also projects the costs associated with lung and heart disease caused by additional pollution compared with levels under the CPP would likely outweigh the economic benefits of ACE. Even taking away consideration of the ancillary health co-benefits afforded by the CPP's reduction in soot and ozone pollution, the net benefit could be negative. Taking these ancillary benefits into account, ACE could impose between $12.8 billion and $72 billion in new costs by 2037. Without these ancillary benefits, ACE could lead to benefits as high as $3 billion or could cost as much as $5.4 billion compared with the CPP.

Timing

Perhaps the starkest difference between the two proposals is in their respective implementation speeds. ACE would afford states three years to submit state plans and give EPA an additional year to act on submitted proposals. It would also grant EPA an additional two years to issue a federal plan in the event a state plan fails to pass muster, meaning that any enforcement under ACE could easily take more than six years after the rule is finalized. The RIA assumes full EGU-level implementation of the rule by 2025 in its projections.

Under the CPP, implementation was fast-tracked to take 19 months with the potential for a year-long extension for individual states to submit plans and a two-year extension for states engaging in multi-state planning processes. States had begun submitting SIPs and the rule was scheduled to take effect until the U.S. Supreme Court voted 5-4 to stay the rule in early 2016 as legal challenges to the CPP were resolved. The stay has remained in effect since that time, preventing further implementation of the original rule.

Public Comment Period

The EPA will accept comment on the proposed rule for 60 days following the publication of the rule in the Federal Register. The draft rule invites comment on approximately 75 specific aspects of the proposal.

The Agency will offer at least one public hearing, though details have not yet been announced.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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