Blog Post

Small Changes, But an Important Signal in New Power Plant GHG Proposal

Sep 20, 2013 | Nathan Richardson

Update: I've revised my understanding of EPA's proposal and this post is no longer correct. See the update here.

EPA released a major and long-awaited proposed regulation today, but the most important news might be something it didn't do, and how that affects the next major step in regulating carbon under the Clean Air Act.

Today's release is a revised proposal for performance standards applying to new fossil-fuel power plants (new source performance standards, or NSPS). As widely expected, the proposal includes separate standards for coal and gas plants - 1100 lbs of CO2 per megawatt-hour for the former, and 800 1000 lbs/mWh for most some of the latter. This division into two standards is the biggest change from the proposal the agency released last year, which would have set a single standard of 1000 lbs/mWh for both.

This is not a big change, at least for purposes of this rule. It superficially appears to give coal a bit more leeway, but new coal is still extremely unlikely to be able to meet the standard without carbon capture and storage technology—which EPA and others are  aggressively promoting when they talk about the rule, though it is not yet commercially available. EPA administrator Gina McCarthy called the new proposal "flexible" in a speech this morning because of its separate standards for coal and gas, but that's not really flexibility. Each new plant, whether coal or gas, still has to meet the applicable standard. This isn't due to any conservatism or lack of creativity on EPA's part, however—the Clean Air Act requires each new source to meet the standard. In other words, NSPS can't really be flexible (though existing source standards, or ESPS, probably can—more on that below).

In short, this new proposal appears pretty similar to the one released last year. The most important difference may be that it's limited to plants supplying more than one-third of their potential electric output to the grid, which excludes many gas turbines and other "peaking" plants. The proposal's headline implication is the same—new coal without CCS will not be built under this rule (though it probably wouldn't be anyway given other regulations and market trends).

There is, however, one big move (or, rather, non-move) worth noting in today's proposal. The loudest criticism of the previous proposal was that it required coal and gas plants to meet the same standard. Critics called this "unprecedented" and threatened litigation. To make a uniform standard easier, EPA grouped steam plants (which can be coal- or gas-fired) together with gas turbines in a new "source category," designated "TTTT."  I've never bought the argument that EPA lacks legal authority to issue a single standard across all fossil power, though there may be good policy reasons not to do so.

As noted above, EPA is now moving away from a common standard for coal and gas in its new proposal. But most (and maybe all) coal and gas will remain in the same source category. It's true that the new proposal would revert to EPA's past approach of separating steam plants, including natural gas combined cycle plants (category "Da"),  and pure gas turbines (category "KKKK" —the names of these categories can be safely ignored by non-lawyers), but that longstanding approach does keep most coal and gas generation in the same category. Moreover, EPA offers its "kitchen-sink" TTTT category approach from the 2012 proposal as an alternative.

Keeping coal and gas all or mostly in the same category is important because it makes flexibility (i.e. trading) possible, or at least much simpler, under the ESPS that EPA and the states will issue in the near future. These rules are likely to be much more important in emissions and economic terms. They will also probably use the same source category definitions as the new source rules (they may be legally required to do so). Moreover, trading within categories is much easier legally than trading across categories.

There are some opportunities for efficiency improvements at coal plants, but the greatest opportunity for emissions reductions in the fossil fleet is switching from coal to gas. Only a rule that allows trading between the two can promote this. To be more specific, most of the switching that would take place under a tradable standard would be from coal to natural gas combined cycle plants, which remain in the same source category. If EPA again decides to include turbines, even more opportunities for trading emerge. ESPS might still mirror today's NSPS proposal and have different standards for coal and gas, but retaining the possibility of trading between the two is crucial.

States will make the final decision on trading and other issues, but if EPA had split coal and gas completely today, it would have effectively blocked coal-gas trading (or EPA would have had to clumsily revert that decision next year). That the agency didn't do so, despite the loud criticism of its previous proposal, is an important signal in favor of future flexibility.