On August 30, 2012, President Obama issued an Executive Order designed to encourage investments in industrial energy efficiency projects, including the expanded use of Combined Heat and Power (CHP) technology. CHP generally uses the heat generated from a boiler or other device to provide an industrial facility with thermal power (e.g. steam) while simultaneously generating electric power. By product heat from a CHP unit can also be used in absorption chillers for purposes of cooling. CHP technology is generally more efficient than “stand alone” thermal power or electric generation units.

CHP is a relatively common practice in many industrial sectors including petroleum refineries and pulp/paper mills. Nonetheless, the Executive Order references independent studies documenting numerous barriers to widespread implementation of CHP within the United States. These barriers have resulted in an under investment in the technology.

The Executive Order establishes a goal of deploying 40 gigawatts of industrial CHP in the United States by the end of 2020. To that end, federal agencies are directed to work with stakeholders to “identify, develop, and encourage the adoption of investment models and State best practice policies for industrial energy efficiency and CHP; provide technical assistance to states and manufacturers to encourage investment in industrial energy efficiency and CHP; provide public information on the benefits of investment in industrial energy efficiency and CHP; and use existing Federal authorities, programs, and policies to support investment in industrial energy efficiency and CHP.”

More specifically, the Environmental Protection Agency (EPA) is directed to assist states in accounting for the potential emission reduction benefits of CHP units when developing state implementation plans for demonstrating compliance with national ambient air quality standards. The EPA is also directed to incent CHP by establishing “set asides” when developing emission allowance trading programs, as well as grant and loan programs.

Notably, the EPA is encouraged to employ “output-based” emission limitations when developing standards for industrial facilities. Output based limits express a maximum allowable emission rate in terms of the product being produced by a stationary source (e.g., one ton of emissions per 1,000 widgets produced). These limits have the practical effect of encouraging CHP units by accounting for the technology’s inherently more efficient utilization of energy. The EPA recently proposed “output based” limits as a means to reduce Greenhouse Gas emissions from the utility sector.

The Executive Order is issued at a time when industrial manufacturing operations are experiencing converging pressures of increasing electric rates and the need to re-power their own industrial boilers. Regulated electric utilities are incurring substantial expenses to comply with Clean Air Act requirements which will mostly be passed through to their industrial customers in the form of increased rates. Simultaneously, industrial facilities are being forced to incur their own expenses to upgrade or replace boilers to comply with Clean Air Act obligations. These pressures, combined with low natural gas prices, have encouraged industrial facilities to consider self generating their own electricity using CHP technology.