Later this summer, the US Environmental Protection Agency (EPA) will release its final Clean Power Plan, setting carbon emissions goals for existing power plants. This is the fifth post of ten in a series—What to Watch For in EPA’s Final Clean Power Plan—in which RFF experts address what to look for when the final regulations are released.
Before the Clean Power Plan, there was the new source rule, or as EPA has called it, the Carbon Pollution Standard for New Power Plants. This regulation, first proposed in 2012 then revised in 2013, will set carbon emissions limits for new fossil-fuel power plants. EPA is set to issue its final rule at the same time as the final Clean Power Plan later this summer.
While controversial in its own right, the new source rule has largely been overshadowed by the Clean Power Plan. That’s not unreasonable—the economic costs and environmental benefits of the Clean Power Plan are far greater than the new source rule, in large part because the new source rule probably won’t change anything in practice. But the two rules are legally connected, and the final new source rule may have some surprises in store—it could be the dark horse of EPA’s carbon regulations.
The new source rule is far simpler than the Clean Power Plan. Instead of a complex system with state-by-state targets based on four building blocks that span the US energy sector, it sets a single, national standard enforced by EPA. New fossil-fuel power plants will have to meet the standard, or they simply can’t be built. In practice, the proposed rule’s standard would make it impossible to build new coal plants without technology for carbon capture and storage (CCS). This sounds like a big deal for coal, America’s largest power source, and the headlines write themselves—Obama EPA Issues Coal-Killing Rules. But in reality, almost all analysts agree that no new coal plants are likely to be built anyway, with or without the rule. Falling natural gas prices, other environmental regulations, rapid evolution in technology, industry structure, and the prospect of future carbon restrictions simply make coal uneconomic, and this appears likely to hold true for the foreseeable future.
This hasn’t stopped critics from attacking the new source rule, however. New source performance standards under the Clean Air Act, such as the new source rule, must be based on “adequately demonstrated” technology. Critics claim that CCS, deployed in only a few small projects to date, doesn’t meet this standard. Moreover, critics point out, the few CCS programs under development are backed by federal government funding. Congressional approval of this funding in the 2005 Energy Policy Act may forbid resulting projects from being considered by EPA as proof of demonstrated availability. These arguments create legal risk for the new source rule.
This risk matters, even if the rule’s practical effect is negligible. EPA can only impose standards on existing sources under Section 111(d) of the Clean Air Act—as under the Clean Power Plan—if similar new sources are subject to performance standards. That means that if the new source rule is struck down by courts, EPA may lose the legal prerequisite for the much more important Clean Power Plan. EPA has tried to circumvent this problem by proposing separate standards for sources that undergo modification (the statute treats these as a kind of new source). But it’s not clear whether those modified source standards alone are a sufficient legal basis for the Clean Power Plan.
Given this risk, EPA may change the final new source rule so as not to rely on CCS. One option is to return to the agency’s approach in its original 2012 proposal, in which it pointed to new natural gas plants as the basis for its standard. Because coal could never beat the emissions performance of gas without CCS, the practical result of the rule was the same. Critics at the time claimed EPA’s unprecedented combination of coal and gas into a single category was illegal, but the legal risk of such a move appears to be much less than the 2013 proposal’s claim that CCS is “adequately demonstrated.” This approach would let EPA keep the same stringent standards for new sources.
Another option that has received even less attention would be for EPA to drop its reliance on CCS and instead point to ultra-supercritical coal plants as the basis for the new source standards. Such plants operate at higher pressures and higher efficiencies than traditional coal plants. While they are almost unknown in the United States, they are being built more widely elsewhere, especially in China. There is little question that the technology is “adequately demonstrated,” unlike CCS.
The drawback of this approach is that it would require EPA to weaken the new source rule’s standards—even ultra-supercritical coal plants cannot reach the emissions performance of natural gas plants or coal plants with CCS. But this loss of stringency only matters if new coal plants are actually built. If not, then any standard will do. And even if predictions are wrong and a few coal plants are built, at least they will have somewhat lower emissions than they would have otherwise.
Most importantly, changing the basis for the new source rule away from CCS would put it—and therefore the much more important Clean Power Plan—on much surer legal footing, with likely no practical difference in terms of the construction of new plants over the next decade. This shift in the new source rule is not one that has been widely suggested, but it would not surprise us.
Read the other posts in the series, What to Watch For in EPA’s Final Clean Power Plan:
- Timing: An Easy Concession for EPA?
- Inside the Fence: Keep an Eye on Cofiring under the Clean Power Plan
- What Will EPA Do If States Won’t Play Ball?
- The Promises of Multi-State Compatibility
- More Guidance from EPA on “Outside the Fence” Measures
- Protecting Electricity Reliability
- Can EPA Head Off Legal Challenges?
- Trading
- When Do New Plants "Exist"?
