Answers to 4 Major Questions: EPA Proposes Power Plant GHG Rule After West Virginia v. EPA

The U.S. Environmental Protection Agency (EPA or Agency) on May 23, 2023, published a new suite of proposed standards for coal- and gas-fired power plants that will limit greenhouse gas (GHG) emissions. The proposed rule would eventually require most affected power plants to meet emissions standards equivalent to the reductions achieved by using two technologies that to date have not been widely implemented: carbon capture and sequestration (CCS) and co-firing with low-GHG hydrogen.

Under Section 111 of the Clean Air Act, the EPA sets standards of performance for new, modified and reconstructed stationary sources. Section 111 defines the term "standard of performance" to "mean[] 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." Thus, pursuant to Section 111, the EPA must first identify the "best system of emissions reduction" (BSER) for a stationary emissions source, then set a standard of performance based on emissions achievable by sources employing that BSER.

The EPA's latest proposal is premised on the eventual use of CCS and low-GHG hydrogen, which EPA contends fit within the framework of West Virginia v. EPA as "add-on controls and clean fuels." The EPA asserts that its proposal relies on investments and advancements spurred by the Inflation Reduction Act (IRA), the Infrastructure Investment and Jobs Act (IIJA) and Creating Helpful Incentives to Produce Semiconductors and Science (CHIPS) Act to underwrite the costs and development of both CCS and low-GHG hydrogen under the BSER criteria.

In its announcement, the EPA asserts that the rule could deliver up to $85 billion in climate and public health benefits through 2042, including avoiding up to 617 million metric tons of carbon dioxide emissions and 1,300 premature deaths. The Agency committed to completing additional modeling before finalizing the rule to align methodologies and consider real-world scenarios.

In light of the U.S. Supreme Court's decision on the proposed rule's predecessor, the Clean Power Plan, and a currently pending Supreme Court challenge to the Chevron deference doctrine, the fate of the EPA's proposed rule is uncertain even if ultimately finalized.

Who Will Be Affected?

The proposed rule would impact new and reconstructed gas-fired combustion turbines, existing coal-, oil- and gas-fired steam generating units, and certain existing gas-fired combustion turbines. If the rule is finalized, any new or reconstructed plant beginning construction after May 23, 2023, would be impacted.

What Does the Proposed Rule Do?

1. The proposed rule sets new source performance standards for fossil fuel-fired combustion turbine power plants and fossil fuel-fired steam generating units.
2. The proposed rule establishes GHG emissions guidelines for existing fossil fuel-fired steam generating power plants and large, frequently used combustion turbines. States must adopt plans consistent with these guidelines and engage with stakeholders and affected communities to develop their plans.
3. The rule proposal requests comment on the GHG emissions guidelines for combustion turbine power plants generating less than 300 megawatts (MW).
4. The proposed rule repeals the Affordable Clean Energy rule.

What Are the Proposed Standards?

For new and reconstructed gas power plants, the EPA has divided electric generating units into subcategories based on the units' capacity factor. For new and reconstructed natural gas-fired units, the EPA is proposing to determine that Phase 1 (at promulgation) BSER for base load units (based on plant design, so not a specific number, but expected to be a capacity factor greater than approximately 50 percent) is the use of highly efficient combined cycle technology in combination with best maintenance and operating practices; for intermediate load (with a capacity factor between 20 percent and about 50 percent) units, Phase 1 BSER is proposed to be the use of highly efficient simple cycle technology in combination with best maintenance and operating practices (EPA notes that these units are almost always simple cycle units); and for low load or "peaking" units, Phase 1 BSER is proposed to be the use of lower-emitting fuels.

For base load and intermediate load plants, the EPA is also proposing Phase 2 standards based on implementation of hydrogen co-firing and CCS. Phase 2 BSER for intermediate load plants is proposed to be highly efficient simple cycle technology coupled with co-firing 30 percent (by volume) low-GHG hydrogen. Phase 2 BSER for base load plants is proposed to be either 1) highly efficient combined cycle technology coupled with 90 percent CCS; or 2) highly efficient combined cycle technology coupled with co-firing 30 percent ramping up to 96 percent (by volume) low-GHG hydrogen.

Based on these BSER determinations, EPA proposes the following standards:

Because existing combustion turbines are similar to new stationary combustion turbines, the EPA is proposing a BSER similar to that for new base load combustion turbines for these units. The analysis supporting the standards for existing natural gas generating units in the proposal is noticeably anemic compared to the analysis supporting the proposed standards for new and reconstructed gas units. This suggested to many experts that these standards were a late addition to the proposal. Documents released on May 24, 2023, confirm these standards were added to the proposal after White House review. Whether and how the courts will view addition of these standards resulting from political pressure remains to be seen and will likely depend on the extent to which EPA can bolster its analysis before finalizing the rule. The proposed emission standards for existing base load units is as follows:

There is no proposed BSER for new or reconstructed coal-fired power plants because none is expected to come online. For modified units, the EPA is proposing that the BSER is CCS with 90 percent capture of CO2 as modified based on the operating time horizon of the individual power plant in order to amortize the capital costs of the CCS facility.

What's Next?

The EPA is holding public webinars on June 6-7, 2023, that will provide an overview of the proposed rule, information on how to participate in the regulatory process and an opportunity for a Q&A session. The EPA will accept comments on the proposed rule until July 24, 2023, and will also hold virtual public hearings on the proposed rule on June 13-14, 2023.

As part of this rulemaking process, the EPA is also soliciting comment on how the Agency should approach emission guidelines for the remaining existing fossil fuel-fired combustion turbines not covered by this proposal, including smaller frequently used and less frequently used combustion turbines.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.