Originally published as a Schiff Hardin Environmental Update newsletter

On Tuesday, March 27, 2012, the U.S. Environmental Protection Agency (“USEPA”) announced its long-awaited New Source Performance Standard (Section 111(b) of the Clean Air Act) for carbon dioxide emitted by new power plants. The proposal would set the first national limits on greenhouse gas emissions from fossil-fuel-fired electric generating units (“EGUs”) constructed in the future, effectively making natural gas the most economical fuel source for generating electricity.

The proposed rule would require new EGUs of any technology to meet the same output-based standard of 1,000 pounds of CO2 per megawatt-hour (lb CO2/MWh gross), regardless of the fuel type they combust. Specifically, for purposes of this rule, new EGUs include fossil-fuel-fired boilers, integrated gasification combined cycle units and stationary combined cycle turbine units that generate electricity for sale and are larger than 25 megawatts (“MW”). The proposal reflects USEPA’s belief that the industry is moving toward lower-carbon technologies even without agency regulation.

Significantly, the proposal would not apply to:

  • Existing EGUs, including those that are “modified” or “reconstructed”;
  • New EGUs that have permits and start construction within 12 months of this proposal, or units looking to renew permits that are part of a Department of Energy demonstration project, provided that these units start construction within 12 months of this proposal;
  • New units located in non-continental areas, which include Hawaii and the territories; or
  • New units that do not burn fossil fuels (e.g., burn biomass only).

These exceptions provide much needed regulatory relief to the existing power plant base and provide a specified planning target for power companies as they consider modernizations and diversification of their power generation fleets.

New plants that fall under the proposed rule could burn any fossil fuel to generate electricity, including natural gas, coal, and petroleum coke. For naturally high-emitting fuels like coal that have an uncontrolled emission rate of about 2250 lb CO2/MWh, meeting the proposed standard would require the use of technologies that reduce carbon emissions, such as carbon capture and storage (“CCS”). The proposal includes an alternative compliance provision that would allow coal-fired power plants to average their CO2-equivalent emissions over 30 years in order to meet the standard. This provision would provide some flexibility by allowing plants to delay adding CCS for the first 10 years, in exchange for a more drastic cut in emissions in the last 20 years, provided the average emissions across the entire 30-year span meets the standard.

USEPA will accept comment on the proposal for 60 days after publication in the Federal Register. Comments should be identified by Docket ID No. EPAHQ-OAR-2011-0660. USEPA will also hold public hearings on the proposal. The dates, times, and locations should be available soon in the Federal Register and on www.epa.gov/carbonpollutionstandard.