Pursuant to new source performance standards proposed by the Environmental Protection Agency ("EPA") on January 8, any new fossil fuel-fired power plants commencing construction after that date will be required to meet new carbon emissions standards. The agency proposed one set of standards for gas-fired units and second pair of alternative standards for coal-fired units. Most new combined cycle gas-fired units already meet the proposed standard. By contrast, neither recently built nor recently proposed coal-fired units can meet the EPA's proposed standard without using carbon capture and sequestration ("CCS"), a technology that some electric utilities are likely to assert has not yet been deployed cost-effectively on a commercial basis.

The agency's proposed rule has met significant resistance within the administration, Congress, industry, and the public at large. Central to the critiques of the agency's proposed regulation is the charge that the agency has improperly concluded that CCS is "adequately demonstrated." Although EPA relied on literature reviews, pilot projects, and projects under construction to justify its finding, groups like EPA's Scientific Advisory Board have questioned whether peer review of the literature reviews was sufficient. While the Scientific Advisory Board has distanced itself from its initial critiques, other agencies have voiced skepticism about the merits of EPA's determination and the need for the regulation in an interagency review drafted by the Office of Management and Budget ("OMB").

Recently, the state of Nebraska filed suit against EPA alleging that the proposed regulation violated the Energy Policy Act of 2005. Under the Energy Policy Act, EPA may not consider CCS projects funded by the act when determining whether a technology is "adequately demonstrated." Nebraska alleges that three of the four projects cited by EPA received more than $2.5 billion in funding under the Energy Policy Act. Others question whether these facilities meet the Data Quality Act's requirement that the data that forms the basis of a regulation be "substantially reproducible."

In response to OMB's interagency review, EPA explained that it was issuing the rule despite EPA's prediction that no new coal plants will be built in the future because "in order to issue emission standards for existing sources, the Agency must first propose standards of performance for new sources." EPA plans to issue proposed guidance for existing sources no later than June 1. Such a move will require states to develop and implement emissions reduction plans for sources already regulated by hazardous air pollutant standards. However, conflicting statutory language in the Clean Air Act suggests that these sources may not be dually regulated unless there is change to the statute.

Comments to the proposed New Source Pollution Standard can be submitted online or via email, mail, or fax until March 10.

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