This article appears in the Autumn 2014 issue of Cornerstone, the official journal of the World Coal Industry.

 

Using its authority under Section 111 of the Clean Air Act, the U.S. Environmental Protection Agency (EPA) is developing a series of rules to reduce carbon dioxide (CO₂) emissions in the power sector. There are separate rules for new plants, existing plants, and modified or reconstructed plants. The proposed new plant rule is relatively straightforward. Essentially, it would require new natural gas plants to be state-of-the-art combined-cycle combustion turbines and new coal plants to use carbon capture and storage (CCS) technology to capture and store roughly 40% of CO₂ emissions.¹

EPA’s proposed rule for existing power plants is much more complex. EPA evaluated the capacity of individual states to leverage each of four carbon-cutting “building blocks” in order to propose a 2030 target emission rate for each state to achieve on an electricity system-wide basis.² (In setting these target emission rates, EPA did not factor in the potential of CCS to reduce emissions in existing power plants.) Once these targets are finalized, each state will be able to meet its target however it chooses and will not have to base CO₂ cuts on EPA’s building block projections.

This article explores the extent to which the proposed new and existing source rules will advance CCS technology. Because both coal-fired and natural gas-fired generation will likely be predominant sources of electricity in the U.S. and most of the world’s other major economies for decades to come, it is essential to advance CCS to the point that its use is economical in the context of electricity generation.³

Carbon Pollution Standard for New Power Plants

EPA’s proposed Carbon Pollution Standard for New Power Plants, released on 20 September 2013, was developed under Section 111(b) of the Clean Air Act.⁴ Section 111(b) calls for a standard that “reflects the degree of emissions limitation achievable through the application of the best system of emissions 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.”⁵ The emissions limit must take the form of a standard—in the case of power plants, maximum allowable CO₂ emissions per unit of electricity—and may not prescribe a particular technology.

Section 111 ostensibly requires EPA to review the technological options available and, if appropriate, establish a new standard every eight years. In practice, standards have typically remained unexamined and unchanged for much longer, often because of resource constraints at EPA.

The proposed rules would set separate standards for power plants fueled by natural gas and coal. New, large plants (roughly 100 MW or larger) fueled by natural gas could emit no more than 1000 pounds of CO₂ per megawatt-hour of electricity produced (lbs CO₂/MWh), which is achievable with the latest combined-cycle technology. Smaller natural gas plants, which tend to be less efficient and operate less frequently, would have to achieve a less stringent rate of 1100 lbs CO₂/MWh. Coal plants would have two compliance options, either of which would require the use of CCS technology. Under one option, coal plants would have to begin using CCS soon after startup to achieve a 12-month average emission rate of 1100 lbs CO₂/MWh. Alternatively, coal plants could begin using CCS within seven years of startup to achieve a seven-year average emission rate of between 1000 and 1050 lbs CO₂/MWh, with EPA inviting comment as to the final standard within that range. CCS is not yet in use at any commercial-scale power plants, but is being built into coal plants in Kemper County, Mississippi, and Saskatchewan, Canada.⁶ CCS technology is also in place in several industrial facilities, some of which generate as much CO₂ as a commercial-scale power plant.⁷

The proposed rule for new power plants has been subject to considerable criticism. One prominent argument against the proposal is that CCS technology has not been “adequately demonstrated,” as is required by the Clean Air Act.^A,5,8 Since CCS has not yet been deployed on a commercial-scale power plant, proposal critics argue that it is not adequately demonstrated. However, the legal interpretation of “adequately demonstrated” is significantly broader than the lay definition. Courts have found Section 111(b) to be technology-forcing and have previously allowed EPA to set standards based on emissions control technologies not yet in actual routine use.⁹ Since CCS has been demonstrated at a variety of commercial-scale industrial facilities and at demonstration-scale power plants, EPA’s finding that partial CCS for new coal plants is adequately demonstrated could plausibly withstand legal challenge.

Impact on CCS

Given the cost, power companies currently have little reason to invest in CCS projects. To counter this, CCS in the power sector needs both a regulatory driver and financial support. Requiring CCS for new coal plants would send a clear regulatory signal to power companies, their investors, and utility regulators that power companies will need to invest in CCS technology to utilize the energy value of coal well into the future. Deployment of CCS at coal-fired power plants will lead to reduced technology costs, which should make it more feasible to eventually employ CCS on natural gas plants as well, which will likely be necessary to meet long-term climate goals.

While a CCS requirement is necessary to the deployment of CCS in the power sector (assuming no significant price on carbon in the market), this regulatory driver is not sufficient. Additional financial incentives are also needed. One option is selling captured CO₂ to create an additional revenue stream. The most promising market is enhanced oil recovery, or CO₂-EOR, wherein CO₂ is pumped into declining oil wells to recover additional oil, storing the CO₂ in the well once the process is complete.¹⁰ An idea with some support from coal and oil industry representatives, as well as environmental advocacy groups, is a federal tax credit to cover the difference between the cost of investing in CCS and the sales revenue received for utilizing CO₂ in EOR.¹¹

In addition to revenue from CO₂-EOR, federal support is critical to drive the development and deployment of CCS in the power sector. Tax credits for CCS developers, grants through the Clean Coal Power Initiative, and loan guarantees for CCS projects all need to continue to be used to advance CCS. A combination of these financial measures, along with CO₂-EOR agreements, have been critical in advancing CCS power projects in development, such as the Kemper plant in Mississippi, the Texas Clean Energy Project, and NRG Energy’s Petra Nova project. Less targeted funding could also be helpful. For example, a technology-neutral tax incentive that directs funding to clean energy projects based on environmental performance and stage of technology development, rather than to a specific technology, would benefit CCS deployment. Additionally, CCS projects would benefit financially by being allowed to qualify as master limited partnerships, which would reduce their tax burden.¹² Continued CCS research at the Department of Energy would also help reduce the cost of critical technologies.

CCS projects also need the support of state public service commissions (PSCs), which regulate electric utilities and to date have been reluctant to approve CCS projects because of their cost and the lack of any regulatory requirement. The PSCs of both Virginia and West Virginia, for example, denied American Electric Power’s request to have expenses for the installation of pilot-scale CCS equipment at its Mountaineer Plant reimbursed by ratepayers.¹³ The Virginia PSC had previously cited uncertainty regarding federal carbon regulations when denying a rate increase for Mountaineer.¹⁴ Requiring new coal plants to employ CCS technology could give state PSCs the necessary impetus to approve the construction of coal plants with CCS, especially as the first commercial-scale power plants become operational and provide lessons for reducing the cost of CCS. More certainty would likely make PSCs more willing to approve some ratepayer cost recovery for CCS projects, making them a more realistic option for power companies.

Some have argued that the proposed CCS requirement for new coal plants will push the power industry away from new coal plants, thus stifling CCS development.¹⁵ Since the CCS requirement will make new coal plants considerably more expensive, the argument goes, investment will shift away from new plants, which are critical for the demonstration of new CCS technologies. While the CCS requirement will make investment in new coal plants less certain, EPA’s new plant rule could, on balance, have a net positive effect on CCS deployment. Without a significant price on carbon or public financial support, there is currently little reason for power companies to invest in CCS deployment. Since CCS has been demonstrated at other types of facilities and pilot-scale power plants, the technology is ready to be deployed at a commercial scale, albeit with a high price tag. Generally, C2ES would prefer a national price on carbon to drive greenhouse gas reductions, which would spur CCS deployment, but this is politically infeasible in the near term. Through the new plant proposal, EPA is giving power companies a regulatory driver to invest in CCS while giving PSCs justification to allow power companies to recover CCS costs from ratepayers. Additionally, EPA’s proposal would not prevent the construction of demonstration-scale coal power plants for the development of new CCS technologies. While we do not agree that a CCS requirement will stifle CCS technology development, we do believe the proposal could be improved through additional flexibility measures, discussed further below.

Additional Flexibility Could Help CCS

Establishing a regulatory requirement and providing financial support for CCS would only be part of the solution. Power companies would also need time to bring CCS to the point of being cost-competitive with alternative low- and no-carbon power-generating technologies. Given the importance of this development time, EPA could explore options to allow power companies greater flexibility in installing CCS on new coal plants.³ Although we favor requiring CCS at new coal-fired power plants, we believe a more flexible compliance timeline could hasten the broad deployment of CCS in the power sector. Two possible approaches EPA might take to allow for increased flexibility in the CCS requirement are outlined below. (These options are described for illustrative purposes only.)

One method to enhance flexibility would be to allow power companies to comply with an average emission rate over an extended period of time, similar to the 30-year-average option included in EPA’s original proposal for this rule.¹⁶ As an example, EPA could require an average of 40% carbon capture over each coal plant’s first 20 years of operation. With this option, a power plant operator would be authorized to construct a new coal power plant, operate it without capture for five years while further developing CCS technology, and operate the plant with 55% capture from then on, such that in the first 20 years it captured an average of about 40% of its CO₂ emissions.^C In addition to allowing time for technology development, this option would give power plant operators a larger revenue stream to invest in CCS construction, including the pipelines and other infrastructure necessary to deliver captured carbon to CO₂-EOR fields. If a long-term average option provides too little assurance that CO₂ will ultimately be captured and sequestered, EPA could also include an interim deadline by which time some set percentage of emissions must be captured. For example, EPA could require an average of 40% capture for the first 20 years of a plant’s operation, with at least 20% capture achieved in the plant’s fifth year of existence.

As an alternative to the long-term average option, EPA could require a set percentage of capture by a set date, but allow some time for new plants to operate without CCS. The percentage requirement could be increased from that in the proposed rule to ensure little or no net increase in CO₂ emissions relative to the proposed rule. For example, EPA could require that all coal plants constructed in 2015 or later must achieve at least 50% capture by 2020.

Carbon Pollution Standard for Existing Power Plants

On 2 June 2014, EPA released its proposed Carbon Pollution Standards for Existing Power Plants (known as the Clean Power Plan), per its authority under Section 111(d) of the Clean Air Act.² The Clean Power Plan would establish different target emission rates (pounds of CO₂ per megawatt-hour) for each state due to regional variations in generation mix as well as electricity consumption, but overall is projected to achieve a 30% cut from 2005 emissions by 2030.¹⁷

The proposed Clean Power Plan would give each state a unique 2030 target emission rate based on EPA’s assessment of its capacity to achieve reductions using the following four “building blocks”:

1. Make coal power plants more efficient.
2. Increase use of existing low-emitting natural gas combined-cycle plants with excess capacity.
3. Use more zero- and low-emitting power sources such as renewables and nuclear.
4. Reduce electricity demand by using electricity more efficiently.

Each state could meet its established target however it sees fit. States would be authorized to join multistate programs to reduce emissions collectively, for example, through a regional cap-and-trade program.

Notably, EPA did not factor in the potential of CCS to reduce emissions at existing power plants when setting statewide emissions targets. EPA explored this option, but determined that retrofitting existing plants to include CCS would be considerably more expensive and complicated than including CCS in the construction of new plants. Therefore, EPA expects every state to be able to achieve its proposed 2030 target emission rate without requiring the installation of CCS at existing power plants. However, the proposed new plant rule would give states the flexibility to count CO₂ reductions from CCS on existing plants if they so choose. This could be done through a direct requirement by a state that certain existing plants must employ CCS, or could be the result of a market-based mechanism such as a carbon price. If the carbon price is high enough, CCS on existing plants may be a cost-effective way of reducing the amount of carbon fees a coal plant operator must pay.

As with the proposed rule for new power plants, EPA’s proposal for existing power plants has been met with legal criticism. Several states have joined a coal company to challenge EPA’s authority to regulate greenhouse gases from power plants using Section 111(d).¹⁸ Another argument is that EPA must restrict its proposal to measures that can be made at a power plant itself, rather than considering renewable generation and customer-side energy efficiency.¹⁹ As evidenced by several recent rulings, courts are likely to give considerable deference to EPA in its application of broad statutory provisions in specific regulatory contexts.

Outlook and Conclusion

The public comment period for EPA’s proposed new plant rule has ended, and the rule is expected to be finalized in the spring or summer of 2015. The 120-day comment period for the proposed existing plant rule will end in mid-October. This rule is expected to be finalized in June 2015, and states will have one to three years to propose plans to EPA as to how they will meet their target emission rates. It will therefore be several years before we can better understand the impact of these rules on CCS development and deployment.

At C2ES we believe that EPA’s proposed rules for new and existing power plants should have a positive impact on the development of CCS. The new plant rule will add a critical regulatory driver for CCS, which could lead utility regulators to do more to encourage new CCS projects. Although the existing plant rule does not require CCS, states may choose to require or encourage CCS on existing plants to reduce their system-wide emission rates. Of course, much more support is needed at the federal level to reduce the cost of CCS. This could include a tax credit for the use of captured carbon in CO₂-EOR projects; a qualification for CCS projects as master limited partnerships; a clean energy, technology-neutral tax incentive; direct funding; and continuing research and development at the Department of Energy. Combined with additional financial support, these carbon pollution standards are a positive development to advance critical CCS technology.

Notes

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.” 42 U.S.C. § 7411(a) (2012)
2. Since a full CO₂-EOR system is dependent on a viable oil well for storage, this opportunity is limited to power plants built close enough to such a well that a pipeline is cost-feasible as part of the overall project. Because of this, CO₂-EOR is not a valid option in all regions of the U.S.
3. This assumes the plant operates with the same capacity factor throughout. The first 20 years of operation can be summarized as: 0% capture x 5 years + 55% capture x 15 years. Averaging this capture amount over the first 20 years: 55% x 15/20 = ~40% capture over 20 years.

References

1. Center for Climate and Energy Solutions. (2013). EPA regulation of greenhouse gas emissions from new  power plants, www.c2es.org/federal/executive/epa/ghg-standards-for-new-power-plants
2. Center for Climate and Energy Solutions. (2014). EPA regulation of greenhouse gas emissions from existing power plants, www.c2es.org/federal/executive/epa/q-a-regulation-greenhouse-gases-existing-power
3. Center for Climate and Energy Solutions. (2014). Comments of the Center for Climate and Energy Solutions on standards of performance for greenhouse gas emissions from new stationary sources: Electric generating units; Proposed rule, www.c2es.org/docUploads/c2es-power-plant-ghg-nsps-comments.pdf
4. 42 U.S.C. § 7411(b) (2012)
5. 42 U.S.C. § 7411(a) (2012)
6. Carbon Capture & Sequestration Technologies @ MIT. (2013, 16 December). Power plant carbon dioxide capture and storage projects, sequestration.mit.edu/tools/projects/index_capture.html
7. Carbon Capture & Sequestration Technologies @ MIT. (2014, 27 January). Non-power plant carbon dioxide capture and storage projects, sequestration.mit.edu/tools/projects/storage_only.html
8. Vittorio, A. (2014, 12 May). Coal pushback: Carbon limits for new power plants must be ‘grounded in reality’. Bloomberg BNA, www.bloomberg.com/news/2014-05-13/coal-pushback-carbon-limits-for-new-power-plants-must-be-grounded-in-reality-.html
9. Enviro.BLR.com. (2013, 26 September). How high is the bar for ‘adequately demonstrated’?, enviro.blr.com/whitepapers/air/climate-change-greenhouse-gas-emissions/How-High-Is-the-Bar-for-Adequately-Demonstrated/
10. Brewster Weeks, A., et al. (2014, 9 May). Comments of Clean Air Task Force on standards of performance for greenhouse gas emissions from new stationary sources: Electric utility generating units, www.catf.us/resources/filings/EGU_GHG_NSPS_Rule/20140512-CATF_Carbon_NSPS_for_EGU.pdf
11. National Enhanced Oil Recovery Initiative (NEORI). (2014). About CO₂-EOR, neori.org/resources-on-co2-eor/ (accessed 25 July 2014)
12. National Enhanced Oil Recovery Initiative (NEORI). (2014). Participants, neori.org/about/participants/ (accessed 23 July 2014)
13. Coons, C. (2013, 24 April). Master Limited Partnerships Parity Act, coons.senate.gov/download/mlp-white-paper/
14. Wald, M., & Broder, J. (2011, 13 July). Utility shelves ambitious plan to limit carbon. New York Times, www.nytimes.com/2011/07/14/business/energy-environment/utility-shelves-plan-to-capture-carbon-dioxide.html?_r=0
15. Rahim, S. (2010, 21 September). States wrestle with clean coal technology, with varying results. New York Times, www.nytimes.com/cwire/2010/09/21/21climatewire-states-wrestle-with-clean-coal-technology-wi-44916.html?pagewanted=all
16. American Coalition for Clean Coal Electricity. (2014, 9 May). American Coalition for Clean Coal Electricity comments on EPA’s proposed performance standards for greenhouse gas emissions from new fossil-fueled electric utility generating units, americaspower.org/sites/default/files/ACCCE%20NSPS%20Comments%20and%20Appendix%20Final.pdf
17. U.S. Environmental Protection Agency. (2012, 13 April). Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units, www.regulations.gov/#!documentDetail;D=EPA-HQ-OAR-2011-0660-0001
18. U.S. Environmental Protection Agency. (2014, 21 June). Carbon pollution standards: Clean Power Plan proposed rule, www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule
19. Barron-Lopez, L. (2014, 1 July). Nine states join lawsuit against EPA climate rule. The Hill, thehill.com/policy/energy-environment/211124-nine-states-join-lawsuit-against-epa-climate-rule
20. Governor Sean Parnell, et al. (16 June 2014). Letter to Barack Obama regarding EPA’s proposed greenhouse gas rule for existing power plants, bipartisanpolicy.org/sites/default/files/files/9Governors.pdf

Citation: Carbon Pollution Standards for New and Existing Power Plants and Their Impact on Carbon Capture and Storage, Kyle Aarons, Cornerston Volume 2 / Issue 3, Copyright © 2014, World Coal Association.