Market intelligence: US chemical industry slams US CO2 proposed ruling

09 June 2014 00:00 Source:ICIS Chemical Business

The US Obama administration on 2 June announced proposed rules to cut carbon emissions by the nation’s electric power industry, saying that US utilities must reduce their CO2 emissions to 30% below the 2005 level by 2030. The long-expected proposal came under immediate attack by industry groups.

In a joint release by the White House and the Environmental Protection Agency (EPA), the administration said that its massive, 626-page proposed emissions rule will “help slow climate change”, improve the health of Americans and actually reduce electric power costs by 8% when the regulations are implemented.

The proposal would allow states to choose which methods to meet the federally mandated emissions cuts, selecting from among fuel-switching, carbon trading and energy efficiency measures to effect the required CO2 reductions. If states decline to make such arrangements, EPA will step in to effect the CO2 emissions cuts with additional, state-specific regulations.

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The proposed regulation will be subject to public comment for four months, and a final rule will be issued in June 2015, the EPA said.

In September 2013, EPA issued its new source performance standard (NSPS) regarding any new electric power plants to be built in the future. Those rules, also broadly criticised by industry, effectively bar the use of coal to fuel any new generating facilities.

The most recent proposal includes a parallel set of rules to cover greenhouse gas (GHG) emissions by existing power plants.

The National Association of Manufacturers (NAM) said that if implemented, “the EPA plan could single-handedly eliminate the competitive advantage [of US manufacturers] by removing reliable and abundant sources of energy from our nation’s energy mix”.

NAM and many other industry groups, including those in the refining and petrochemicals sectors, have warned that such mandated reductions in CO2 emissions essentially will force the shutdown of all existing US coal-fired power plants.

The American Chemistry Council (ACC) cautioned that the EPA plan could lead to higher energy prices, and “that would make it more difficult for manufacturers to compete abroad and grow and hire in the US”.

“Since many chemistry processes require large amounts of electricity and natural gas, the US chemistry industry is highly attuned to how EPA’s regulations for the electricity sector could affect energy markets,” the council said.

US petrochemicals producers and downstream chemicals manufacturers are heavily dependent on natural gas as both a feedstock and energy fuel.

Many in the industry have expressed concern that the EPA emissions cuts will force coal-fired utilities to switch to natural gas, a shift that could greatly increase demand for, and prices of natural gas.

Industry officials and members of Congress have accused the administration of waging a “war on coal”.

House Energy and Commerce Committee chairman Fred Upton (Republican-Michigan) charged that President Obama is trying “to regulate where Congress refused to legislate”, referring to the administration’s failure in 2010 to get a carbon cap-and-trade bill through the Democrat majority Congress.

Upton also challenged the EPA claim that the new emissions caps would lower the cost of electric power to consumers.

“The president promised that under his plan electricity rates would ‘necessarily skyrocket’, and this is one promise he is actually delivering on”, he said.

Earlier, the ACC and the American Fuel & Petrochemical Manufacturers (AFPM) joined a dozen other industries – including steel makers, the oil and gas sectors, corn refiners, fertiliser producers and general manufacturers – in warning that EPA is treading a dangerous path, one that lies well beyond its statutory mandate.

“At the outset,” said the combined industry groups in a comment in May, “we have an overarching concern that the NSPS proposal crosses a line by expanding the EPA’s 40-year mandate as the pre-eminent regulator of the environment to become a definitive regulator of energy”.

“In this environmental regulation, the EPA is proposing to control not merely the emissions of air pollutants, but the choice of fuel and energy that a project must utilise if it is to be constructed or operated,” said ACC and AFPM in a comment to EPA with its coalition partners.

“The EPA’s approach to force one type of fuel to be switched for another [from coal to natural gas] arises out of EPA’s decision to mandate a technology for coal-fired electric generating units (“EGUs”) that is neither economically nor technologically feasible on a commercial scale,” the energy sector comments charged.

In announcing its emissions limits on any new electric power plants, EPA said that coal could be used as a fuel as long as the facility employed carbon capture and sequestration (CCS) techniques to bring the plant into compliance with the agency’s new GHG emissions limits.

But electric utilities, refiners and petrochemicals firms along with many others in turn have charged that EPA is basing its ruling on CCS technology that is as yet unproven and which has not been demonstrated on a commercial scale without federal subsidies.

Lawsuits by multiple state governments and industry sectors contend that EPA cannot legally require emissions cutbacks in power generation on the basis of unproven CCS technology.

“The EPA’s approach to force one type of fuel to be switched for another [abandoning coal for natural gas] arises out of EPA’s decision to mandate a technology for coal-fired electric generating units (“EGUs”) that is neither economically nor technologically feasible on a commercial scale,” the energy sector complaint contends.

“In doing so, the EPA is effectively dictating both fuel choice and design choice for EGUs, contrary to congressional intent and the EPA’s authority as a regulator of the environment, not energy,” the petrochemical and energy producers argue.

EPA’s overreach into the electric energy sector, they contend, “will have far-reaching consequences, not only for the EGUs themselves but also for the many other industries that depend on the energy that the EGUs provide”.

“In addition, by forcing an over-reliance on a single fuel source [natural gas], the EPA is decreasing the reliability of the electric system,” the challengers argue.

US petrochemicals producers and downstream chemical manufacturers are particularly vulnerable to the consequences of fuel-switching among electric utilities because they use natural gas as both a feedstock and an on-site energy fuel.

In addition, chemicals producers are among the most intense industrial users of electric power, so EPA’s efforts to limit use of coal poses a triple threat to the petrochemical process industry.

By Joe Kamalick