Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
EPA’s proposed “Carbon Pollution Standard” requires new fossil-fuel electric generating units (EGUs) to emit no more than 1,000 lbs of carbon dioxide (CO2) per megawatt hour. About 95% of all natural gas combined cycle (NGCC) power plants already meet the standard (p. 115). No existing coal power plants come close; even the most efficient, on average, emit 1,800 lbs CO2/MWh (p. 134).
A coal power plant equipped with carbon capture and storage (CCS) technology could meet the standard, but the levelized cost of new coal plants already exceeds that of new natural gas plants, and “today’s CCS technologies would add around 80% to the cost of electricity for a new pulverized coal (PC) plant, and around 35% to the cost of electricity for a new advanced gasification-based (IGCC) plant” (p. 124).
In short, EPA has proposed a standard that no commercially-viable coal plant can meet. This is not surprising given President Obama’s longstanding ambition to “bankrupt” coal and his vow to find other ways of “skinning the cat” after the election-day “slaughter” of cap-and-trade Democrats. What is surprising is the rule’s weirdness – the contortions EPA performs to make the proposal seem reasonable.
(1) EPA tries to palm off natural gas combined cycle — a type of power plant — as a “control option” or “system of emission reduction” for coal-fired power plants.
EPA picked 1,000 lb CO2/MWh as the “standard of performance” for new fossil-fuel EGUs because that is the “degree of emission limitation achievable through natural gas combined cycle generation” (pp. 35-36). But consider how the Clean Air Act (CAA) defines “standard of performance” [Sec. 111(a)(1)]:
“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 (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.”
Performance standards are supposed to reflect the best “system of emission reduction.” But natural gas combined cycle is not a system of emission reduction. It is a type of power plant. EPA is not proposing that new coal power plants install emission reduction systems that have been “adequately demonstrated.” Rather, EPA is proposing that new coal power plants be new natural gas plants. EPA is saying with a straight face that natural gas combined cycle is an emission reduction system that has been adequately demonstrated for coal power plants.
To my knowledge, this is the first time EPA has ever defined a performance standard such that one type of facility can comply only by being something other than what it is.
(2) EPA lumps coal boilers and natural gas turbines together in a newly-minted industrial source category (fossil-fuel EGUs) — but only for CO2 emissions, not for conventional air pollutants.
EPA sets performance standards for specific categories of industrial sources. A coal boiler is different from a gas turbine, and up to now EPA reasonably regulated them as different source categories, under different parts of the Code of Federal Regulations (Subpart Da for coal boilers, Subpart KKKK for gas turbines). EPA now proposes to regulate them as a single source category — fossil-fuel EGUs — under a new subpart numbered TTTT. But only for CO2! Coal boilers and natural gas turbines will continue to be regulated separately for criteria and toxic pollutants under Subparts Da and KKKK (p. 71).
Why hold coal boilers and gas turbines to different standards for those pollutants? EPA’s answer:
“This is because although coal-fired EGUs have an array of control options for criteria and air toxic air pollutants to choose from, those controls generally do not reduce their criteria and air toxic emissions to the level of conventional emissions from natural gas-fired EGUs” (p. 102).
The same logic argues against imposing a single CO2 standard on coal boilers and natural gas turbines. Coal plants have no “adequately demonstrated” options for reducing CO2 emissions to the level of emissions from natural gas plants. CCS may qualify in the future but it is too costly now (p. 100).
So we’re back to EPA’s contortion of classifying natural gas combined cycle as an emission-reduction system adequately demonstrated for coal power plants.
(3) The proposed rule exempts modified coal power plants from the CO2 performance standard even though CAA Sec. 111 requires modified sources to be regulated as “new” sources.
CAA Sec. 111(a) defines “new source” as “any stationary source, the construction or modification of which is commenced after the publication of regulations (or, if earlier, proposed regulations) prescribing a standard of performance under this section which will be applicable to such source” (emphasis added). The provision defines “modification” as “any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.” These definitions clearly imply that, once EPA promulgates CO2 performance standards for power plants, a coal-fired EGU that increases its CO2 emissions due to a physical change or change in operation is a “new” source. Yet under EPA’s proposal, modified coal-fired EGUs will not be treated as new sources.
Why? EPA claims it does “not have adequate information as to the types of physical or operational changes sources may undertake or the amount of increase in CO2 emissions from those changes” (p. 151). That’s odd. EPA has been collecting data on power plant CO2 emissions since the 1990 Clean Air Act Amendments (Sec. 821) and on power plant modifications for much longer. EPA also says it lacks “adequate information as to the types of control actions sources could take to reduce emissions, including the types of controls that may be available or the cost or effectiveness of those controls” (p. 151). More plausibly, EPA knows full well that the only available control options are to install CCS or re-power with natural gas, and that imposition of such requirements would shutter coal plants, drive up electric rates, jeopardize power plant safety and grid reliability, and provoke an angry political backlash. Is EPA again “tailoring” (amending) the CAA to avoid a regulatory debacle of its own making?
(4) The proposed rule has no monetized costs or benefits.
EPA says the rule will not “add costs” to the electric power sector, ratepayers, or the economy, because EPA “does not project construction of any new coal-fired EGUs” between now and 2030. Rather, EPA expects power companies “to build new EGUs that comply with the regulatory requirements of this proposal even in the absence of the proposal, due to existing and expected market conditions” (p. 200), namely, the superior economics of natural gas (p. 36).
The rule won’t “add costs” because it ratifies where the market is already going. By the same token, however, the rule has no estimated benefits. EPA does “not anticipate any notable CO2 emissions changes resulting from the rule,” hence “there are no monetized climate benefits in terms of CO2 emission reductions associated with this rulemaking” (p. 202).
So what’s the point – why propose a “carbon pollution standard” that won’t reduce CO2 emissions and has no estimated climate benefits?
Because the rule expands EPA’s control over electric utilities and creates a powerful new tool for “skinning the cat.” It puts fossil-fuel EGUs squarely under EPA’s regulatory thumb with respect to their inescapable and principal byproduct, CO2. It sets the precedent for EPA to promulgate CO2 performance standards for other industrial source categories. Most importantly, it tees up EPA to put the regulatory squeeze on modified and existing coal power plants in a second Obama administration. In EPA’s words:
“Although modified sources would not be subject to the 1,000 lb CO2/MWh standard for new sources, the EPA anticipates that modified sources would become subject to the requirements the EPA would promulgate at the appropriate time, for existing sources under 111(d)” (p. 153). “The proposed rule will also serve as a necessary predicate for the regulation of existing sources within this source category under CAA Section 111(d)” (p. 201).
The proposal is EPA’s first — not last — action to fulfill the agency’s December 2010 settlement agreement with state attorneys general and environmental groups. The agreement requires EPA to set CO2 performance standards for both new and modified EGUs plus emission guidelines for non-modified EGUs (p. 64). By creating the framework for limiting CO2 emissions, the “carbon pollution standard” puts coal generation in an ever-tightening regulatory noose.
Like the rest of EPA’s greenhouse agenda, the proposed rule is an affront to the Constitution’s separation of powers. Congress never voted to prohibit construction of new coal power plants. Indeed, Congress declined to impose less onerous constraints on new coal generation when Senate leaders pulled the plug on cap-in-trade. Congress should reassert its constitutional authority, overturn the rule, and rein in this rogue agency.