On August 31, 2018, the US Environmental Protection Agency (US EPA) published its proposed rule providing a replacement to the Clean Power Plan (CPP).  The proposed rule, named the  Affordable Clean Energy (ACE) rule, outlines revised emissions guidelines and the process for states to submit plans for the reduction of greenhouse gas (GHG) emissions from affected electric utility generating units (EGUs).  Key components include a shift to “inside-the-fenceline” emission reduction measures at individual sources for the best system of emission reduction (BSER) and proposed changes to applicability requirements for EGUs under the New Source Review (NSR) program.  Comments on the proposed rule are currently due on October 31, 2018, and the only public hearing thus far was held in Chicago on October 1, 2018.  The Agency is taking steps to organize the comments by indexing each comment solicitation and directing commenters to “include the corresponding identifier” when providing relevant comments.

The CPP remains subject to a stay in the D.C. Circuit Court of Appeals since February 9, 2016.  On September 4, 2018, a group of petitioners including seventeen states filed a response and motion requesting the court lift the abeyance and issue a ruling.  The basis for the motion included that US EPA does not have sufficient grounds to continue the stay and is unduly prolonging the abeyance.  The petition noted that such a decision would not prevent US EPA from pursuing this proposed rulemaking. Additionally, the Agency published an advanced notice of proposed rulemaking on December 28, 2017 seeking comments as to a proposed replacement rule. For a detailed overview of these background events, see this article.

Applicability and Timing

An affected EGU is proposed to be defined in 40 CFR § 60.5775a as a steam generating unit that meets the following conditions and is not otherwise exempted:  An affected EGU “[s]erves a generator connected to a utility power distribution system with a nameplate capacity greater than 25 MW-net” and has a “base load rating…greater than 260 GJ/hr (250 MMBtu/hr) heat input of fossil fuel…”  In regards to timing, such EGUs include any that began construction on or before August 31, 2018.  There are nine proposed exempted units under § 60.5780a, including stationary combustion turbines and IGCCs that the CPP rule included as affected units.

US EPA also proposed revisions to implementing regulations for emission guidelines under 40 CFR Part 60 (Standards of Performance for New Stationary Sources). Specifically, for the timing of state implementation plans (SIPs), US EPA extended the submission of state plans to three years after promulgation of a final emission guideline instead of nine months.  The Agency would then have a period of a year to evaluate submitted state plans.  In the event a state fails to submit a plan or US EPA rejects a state’s plan, the Agency would have two years instead of six months to promulgate federal implementation plans.

Proposed Best System of Emission Reduction

In ACE, US EPA limited BSER to source-specific heat-rate improvements (HRI) associated with more efficient EGUs consistent with the Agency’s reasoning in the proposed repeal of the CPP.  Heat rate, as defined in the rule, is “the amount of energy input, measured in [BTU], required to generate one kilowatt-hour (kWh) of electricity.”  This proposal would limit BSER to “emission reduction measures that can be applied to or at an individual stationary source,” taking into consideration that each emitting unit has difference performance and HRI capabilities. The Agency has taken the position that the application of emission reduction measures at the source is consistent with US EPA’s “historical practice under CAA [Clean Air Act] section 111” and reading of the statutory text and legislative history.

Instead of having national GHG limits, ACE directs states to establish standards of performance in their SIPs for EGU’s based on a proposed list of candidate technologies to achieve BSER.  The list of candidate technologies includes items such as boiler feed pumps, neural networks/intelligent sootblowers; and operation & maintenance practices.  The Agency expressly stated it did not consider several technologies as constituting BSER such as fuel co-firing and carbon capture and storage.  Even though U.S. EPA provided the list of candidate technologies for BSER, the proposed rule still provided room for states to permit EGUs to use other technologies to meet compliance requirements.

US EPA justified this structure based upon an interpretation of the Clean Air Act’s § 111(d) that U.S. EPA determines BSER and then states submit plans with standards of performance that “reflect the degree of emission limitation achievable through the application of the BSER.”  When establishing specific standards of performance, U.S. EPA expects states to “evaluate each of the BSER HRI measures,” but states are permitted to consider other factors including a source’s remaining useful life.  US EPA also provided expected ranges of HRI potential percentages for the proposed candidate technologies for states to consider.  The performance standard would take the form of an allowable emission rate, and the rule provides as an example a rate-based standard such as CO2/MWh-gross.  This would create “continuity across states” and simplify plans, but US EPA expressly invites comment on this recommendation.

Coordination with and Proposed Changes to New Source Review  

A key component of ACE involves proposed changes to the New Source Review (NSR) regulations. NSR is a preconstruction air permitting program that requires new and existing units to obtain permits prior to new construction and modifications depending on the potential increase in emissions of regulated NSR pollutants. Commenters to the 2017 ANPRM expressed concerns that construction projects to achieve BSER could trigger NSR permitting requirements.  For example, units that experience “greater unit availability and reliability” due to HRI projects could experience increased generation and utility (and thus an increase in emissions on an annual basis that could lead to permitting under NSR).

Recognizing this concern, U.S. EPA is proposing replacing the annual test with an hourly emission increase test for EGUs in order to determine whether a major modification occurred.  This would be part of a four-step applicability process under NSR that determines if major modification occurred and if such modification led to a significant increase in emissions.  The practical implication is that only projects that lead to an increase in a plant’s hourly rate of pollutant emissions would require an analysis under NSR. The NSR hourly test for applicability would not be mandatory for states with their own programs, but states under delegation agreements with US EPA would “be required to apply the NSR hourly emissions test…since they would follow the Federal NSR program.”

Costs/Benefits

As part of the cost and benefit analysis in the regulatory impact analysis, US EPA analyzed four illustrative scenarios in comparison to a base case with the CPP in place and a case without the CPP in place. Generally, US EPA acknowledged that there would be modest increases in several criteria pollutants as compared to the CPP. However, the Agency still projected significant reductions in emissions as compared to no CPP plan, potential benefits of $3.4 billion, and potential compliance costs reductions of up to $6.4 billion.

Next Steps

The next step for US EPA is to review comments submitted on the proposed rule.  The rule could be finalized by early 2019. Affected industry participants may want to consider submitting comments by the October 31st deadline.