By: Chris M. Hunter
On August 21, 2018, the U.S. Environmental Protection Agency (“EPA”) proposed the Affordable Clean Energy rule (“ACE”) as a replacement for the Obama Administration’s controversial 2015 Clean Power Plan (“CPP”), which EPA proposed to repeal because it exceeded the agency’s authority. On August 31, 2018, EPA officially published the proposed rule for public comment. See Fed. 83 Reg. 44746 (Aug. 31, 2018). The ACE rules depart from the CPP’s approach of mandating GHG emissions reductions on a regional basis and, instead, focus on improved efficiencies at individual electric generating units. Additionally, the ACE rules alter the test for triggering New Source Performance Review in a way that actually encourages efficiency modifications.
The Clean Power Plan
Under the Obama Administration, EPA first released a draft version of the Clean Power Plan rules for existing coal-fired electric generating plants in June of 2014. A coalition of industry and states immediately filed suit in the D.C. Circuit Court of Appeals (the Clean Air Act provides for direct review of rules in that appeals court) to block implementation of the rule, but that initial challenge was denied as premature.
The Clean Power Plan (“CPP”) created a CO2 budget for states that could not be met by existing coal-fired units. Instead, the rule depended on widespread “trading” by which states could have met their budgets only if coal-fired units are not run and power was generated by gas or renewable sources. Thus, the CPP would have required nearly every State to alter dramatically its electric generation or the source of its power. Soon after the Clean Power Plan was finalized, a group of states (led by West Virginia) and industry representatives obtained a stay from the U.S. Supreme Court.
Moving Away from the CPP
In early 2017, President Trump signed an Executive Order, “Promoting Energy Independence and Economic Growth,” § 1(c), (82 Fed. Reg. 16,093 (Mar. 28, 2017)), which required federal agencies to immediately suspend, revise, or rescind existing regulations that unduly burden domestic energy production. Although the text of the Clean Air Act (“CAA”) does not reflect an explicit intent by Congress to regulate atmospheric GHGs, in light of the U.S. Supreme Court’s decision in Massachusetts v. EPA (holding that greenhouse gases fit the CAA’s definition of “air pollutants”) and EPA’s December 2009 CAA § 202(a) “endangerment finding” regarding GHGs, EPA is nonetheless required to regulate GHGs. Thus, it could not simply rescind the CPP without putting forth an alternative. So the President’s next step was to direct the Justice Department to ask the D.C. Circuit Court to forego or postpone consideration of the challenges to the CPP in order to allow it to propose alternative rulemaking.
ACE’s Approach to GHG Reduction
Rather than attempting to regulate the entire energy sector, EPA’s new rules acknowledge that EPA lacks both the authority and expertise to regulate the entire energy sector by dictating which resources power plants may use to generate electricity. Instead, ACE returns EPA to its traditional approach of regulating emissions sources under Section 111 of the CAA. To that end, ACE defines the “best system of emission reduction” (“BSER”) for existing power plants as on-site, heat-rate efficiency improvements. ACE provides states with a list of candidate technologies that can be used to establish standards of performance, which take into account unit-specific factors, such as remaining useful life. States can then be incorporate the selected candidate technologies into their state plans. For fossil-fuel burning power plants other than existing natural gas-fired stationary combustion turbines, EPA has identified heat rate improvements, which are essentially efficiency improvements, as the BSER. EPA has confirmed that, under ACE, these upgrades will be focused on improved efficiencies at individual sources, as opposed to the CPP’s approach of regulating GHG reductions on a regional basis.
ACE’s Improvements to New Source Review
ACE also updates the New Source Review (“NSR”) permitting program to avoid triggering that review when upgrades are made to comply with the ACE rule. NSR historically was triggered by anything considered a “major modification”, which ironically could include increases in pollution control efficiency—thereby discouraging the upgrades. This is because the old method of determining whether NSR was triggered looked at whether a facility’s net annual emissions would be predicted to increase after the upgrade/modification.
While it sounds counter-intuitive that an increase in efficiency could actually result in increased emissions, efficiency improvements often result in less pollution being emitted per unit of electric generated because a more efficient unit is generally able to produce the same amount of electricity as the older, less efficient unit while burning less fuel. At the same time, however, the more efficient a unit is, the more likely it is to be called upon to operate more. As a result, even though the more efficient unit is displacing a dirtier one, it is possible that the more efficient unit would be predicted to actually increase the net annual emissions at a facility, thereby prompting authorities to treat the upgrade as a major modification triggering the whole NSR process.
The ACE rules propose to alter the NSR applicability test by changing the way an emissions increase is calculated. Rather than a net annual increase in emissions, the ACE proposals focus on whether the upgrade will result in an increase in hourly emissions rate of the electric generating unit. Under ACE, States would have the option of adopting the new hourly test as part of its federally-approved NSR provisions.
The comment period on the new ACE rules runs through October 30, 2018.