EPA's greenhouse gas rule is costly to chemical industry

Gas rules panned

25 May 2010 00:00  [Source: ICB]

The EPA's greenhouse gas rule will bring big challenges to US chemical companies

INDUSTRY GROUPS and trade organizations are gearing up for a fight, as the day nears when the US Environmental Protection Agency (EPA) will implement a greenhouse gas (GHG) rule for stationary sources, under the Clean Air Act (CAA).

Rex Features/Chris Eyles

Issued on May 13, this Tailoring Rule will require facilities to obtain New Source Review (NSR) and operating permits based on their GHG emissions. NSR is a pre-construction review for environmental controls of new or existing facilities that may create a significant increase of a regulated pollutant.

From July 1, 2011, new projects that release GHG emissions of at least 100,000 short tons/year (90,718 tonnes/year) and modifications at existing facilities that increase GHG emissions by at least 75,000 tons/year will be required to obtain construction and/or operating permits from state agencies.

The permit also requires facilities to apply best-available control technology (BACT), which is determined on a case-by-case basis, taking into account, among other factors, the cost and effectiveness of the control.

The CAA's current default emissions thresholds for criteria pollutants such as lead, sulfur dioxide and nitrogen dioxide are 100 and 250 tons/year, which the EPA said are not feasible for GHG emissions that include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.

The new emissions thresholds were driven by the prospect of having to regulate thousands of small facilities. Opponents of the proposed rule claim the EPA lacks a legal basis to exempt emissions sources that exceed the CAA's 100 ton/year major source threshold.

"It's the job of federal agencies like the EPA to regulate, not legislate," says Gregory Scott, vice president and general counsel for the National Petrochemical & Refiners Association (NPRA). "If the EPA wants changes in the Clean Air Act, it should propose them to Congress, not unlawfully take on the role of Congress."

CHEMICAL REACTIONS
The greatest challenge right now for chemical companies is uncertainty as to how the EPA intends to regulate GHG emissions, or how individual states will implement the requirement, says Mike Walls, senior vice president of the American Chemistry Council (ACC).

"There is currently no guidance from the EPA on what's the best achievable technology required to control GHG emissions. Various states, which issue the permit, will also have to change their own regulations. All of these increase the uncertainty that chemical companies, as well as various industries, have to face if this regulation will be implemented," Walls adds.

Jim Bero, senior vice president of environment, health and safety (EHS) for Germany-based producer BASF's, expects tremendous subsequent delays in planned construction projects because of permit backlogs coming from state agencies if the GHG regulation is implemented.

"Capital projects for new plants and the expansion of existing plants are timed to meet a market opportunity, so the time to acquire a permit is a critical path for such projects. We believe the EPA action will negatively impact both schedule and scope for major projects," says Bero. "We also don't know what the economic impact will be, given that the BACT requirement is still undefined," he adds.

Since the CAA does not yet consider the cost/benefit scenario for the BACT requirement, Bero notes that this could lower the return on investment (ROI) for specific projects, and could even prevent projects from going through.

US producer Dow Chemical says the GHG regulation will definitely impose increased cost burdens on US manufacturers, especially in the chemical industry.

"A command-and-control-regulated approach will cause lengthy and burdensome permitting processes, adding complexity and difficulty to manufacturer's efforts to expand existing plants or construct new facilities. The EPA regulation will stifle the innovative solutions that would come about through a statutory, market-based system," notes Peter Molinaro, Dow vice president of federal and state government affairs.

As a member of the US Climate Action Partnership (USCAP), a cooperative of businesses and organizations, Dow says it has long been an advocate for a market-based system that establishes a price on carbon, whereas the GHG rule will lack the flexibility inherent in a market-based approach.

"We believe that an economy-wide, market-based approach to carbon encourages technological innovation, increases jobs and enhanced our global manufacturing competitiveness, while ensuring that short-and long-term emissions targets are met," says Molinaro.

"A command-and-control-regulated approach will cause lengthy and burdensome permitting processes" Peter Molinaro, vice president of federal and state governmental affairs, Dow Chemical

US-based trade group the Society of Chemical Manufacturers and Affiliates (SOCMA) says the majority of its members will not be affected by the rule based on the EPA's proposed threshold of GHG emissions.

Still, SOCMA's vice president of government relations, Bill Allmond, says they will closely monitor the situation as EPA will look at regulating smaller emitters beginning in 2015. The EPA has stated that it will not require permits for smaller sources until at least April 30, 2016.

"Depending on the threshold levels set in future regulations, SOCMA members, many of whom are small and medium-sized manufacturers, could face challenges ranging from increased capital costs to difficulty meeting compliance deadlines with limited staff," Allmond adds.

THE COST OF GREEN
While the chemical industry confirms that the EPA's GHG regulation under CAA will be a huge financial burden, the specific cost impact is still being determined.

According to the US Department of Commerce's Carbon Dioxide Emissions report published in April, the chemical industry was the second-largest CO₂ emitter within the manufacturing sector as of 2006, accounting for 20% of the total. Petroleum products are the largest, at 21%. Total CO₂ emissions from the US manufacturing sector in 2006 were 1.5bn tonnes.

The chemical industry, however, has been highly successful in reducing its CO₂ intensity between 1998 and 2006, the Department of Commerce reports. "The dramatic shift in emissions intensity could have been driven by a number of factors, including technology improvements, along with shift in product mixes toward less carbon-intense products, while at the same time shifting the production of carbon-intense inputs abroad."

The Tailoring Rule would cover about 67% of total national stationary source GHG emissions, which will cost permitting authorities about $105m/year (€85m/year) in total, according to the EPA. Next year, the agency estimates about 550 sources, mostly solid waste landfills and industrial manufacturers, will require operating permits for the first time due to their GHG emissions.

The ACC and other industry groups are working with several members of congress toward a national climate policy proposal that will override the EPA's GHG regulation under the CAA.

In March, Democratic Senator Jay Rockefeller of West Virginia introduced a bill that would postpone the EPA GHG rule for two years. The Kerry-Lieberman climate bill, entitled the American Power Act and introduced on May 12 in the senate, precludes the EPA and the states from regulating GHGs. Many industry sources, however, doubt the chance of any national climate legislation passing this year.

"We've also been engaging the EPA and the Office of Management and Budget to try and reinforce to the administration that there is a train wreck coming in January 2011," says ACC's Walls. "This rule is going to put a significant burden on the US economy at a time when we are trying to create and maintain jobs, and help revive the economy."

Read Doris de Guzman's Green Chemicals blog

By: Doris de Guzman
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly