White House may rethink carbon caps for new coal-fired utilities

WASHINGTON (ICIS)–The Obama administration may be rethinking plans to impose tough carbon emission limits on any new electric power plants, sources said Tuesday, because those rules likely would be overturned in federal court and could undermine the entire carbon cap proposal.

The question of Environmental Protection Agency (EPA) restrictions on US electric utilities is a matter of considerable concern to the nation’s petrochemicals producers and downstream chemical manufacturers because they are high-volume consumers of electric power. If the EPA imposes sharp caps, projected power cost increases would consequently raise costs for chemical manufacturers.

According to analysts at ClearView Energy Partners, after the EPA sent its carbon cap emissions rule on new power plants to the White House Office of Management and Budget (OMB) in early May, officials began to have second thoughts. The OMB must review all major regulations proposed by the EPA or other federal agencies.

In rules proposed in September 2013 and in June 2014 imposing limits on carbon dioxide (CO2) emissions by new and existing electric power plants respectively, the EPA said it will set a limit of 1,100 lb (499 kg) of CO2 per megawatt hour (MWh) for electric utilities under authority of the Clean Air Act.

The proposed rules are part of what the agency calls its “Clean Power Plan.”.

Critics in industry and state government charge that limiting CO2 emissions to 1,100 pounds/MWh essentially bars construction of any new coal-fired electric utility. Even the most energy and emissions efficient current coal-fired plants vent CO2 at levels well above 1,100 lb per MWh.

It is the proposed cap limiting 1,100 lb of CO2 per MWh for any new power plant that EPA and OMB are calling into question.  That is because EPA has determined that any new coal-fired power plant could easily meet its 1,100 lb per MWh cap if a new facility made use of available carbon capture and sequestration (CCS) technologies.

ClearView analysts note that the Clean Air Act does not permit EPA to set a “technology forcing requirement” on electric utilities by relying on technologies that are not yet commercial.

To qualify as a commercial technology under the Clean Air Act, a carbon capture and sequestration process must be “adequately demonstrated”.

But the “demonstrated” carbon capture and sequestration projects cited by EPA as proof of currently available technology are three federally funded power projects that are under various stages of development. They are not yet fully operational or at commercial or “adequately demonstrated” levels.

In addition, and more importantly, critics note that the 2005 Energy Policy Act specifically bars EPA from setting utility performance standards under the Clean Air Act for commercial power plants based on the use of technology being tested at projects funded by the Department of Energy (DOE) under its clean coal power initiative (CCPI).

That 2005 statute “specifically prohibits EPA from considering technology used at a facility receiving assistance under the [DOE] CCPI, or at a facility that is receiving an advanced coal project tax credit, as being ‘adequately demonstrated’ for purposes of the [Clean Air Act]”, according to earlier testimony in Congress.

Jeff Olmstead, an attorney at Bracewell & Giuliani in Washington, DC, representing the Electric Reliability Coordinating Council (ERCC), says EPA’s reliance on the three DOE-funded carbon capture development projects as “adequately demonstrated” technology “will surely be challenged in court and there’s a pretty good chance that it would be struck down”.

If that were to happen, Olmstead said, “then EPA’s Clean Power Plan would automatically be suspended until EPA goes back through the regulatory process and comes up with a standard that is not based on [carbon capture and sequestration]”.

That could well mean that the entire Obama administration drive to limit CO2 emissions at both new and existing electric utilities would be still-born because of the upcoming 2016 US presidential elections.

Olmstead, who previously served as an assistant administrator for air quality at EPA, said that if EPA were obliged by a court to fall back and rewrite its carbon emissions cap rules for power plants, “it is unlikely that the administration would have time to go back and issue a new rule before they leave office” in January 2017.

Olmstead noted that even some allies of the EPA clean power plan have warned publicly that holding new power plants to a non-existent carbon capture technology could ultimately torpedo the whole clean power plan rules package.

Consequently, sources say EPA may soon scrap the carbon capture and sequestration mandate and raise the emissions caps above the current target of 1,100 lb of CO2 per MWh, perhaps to a level that can be achieved by current, high-efficiency coal-fired plants.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy