NRRI 14-09 Clean Power Plan Summary

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The purpose of this paper is to provide the state regulatory community a navigable guide to use as a tool in their understanding of the U.S. Environmental Protection Agency’s (EPA) “Clean Power Plan” (CPP) proposal issued June 18, 2014. This paper closely tracks the structure of the EPA’s Clean Power Plan as published in the U.S. Federal Register, “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units”, 79 Fed. Reg. 34830-01 (June 18, 2014). The structure of the proposal, i.e., table of contents, section headings and subheadings, is copied here to best enable the reader to track the rule, cite to provisions and more easily locate subject matter. The structure of this paper follows the Table of Contents as published in 79 Fed. Reg. 34830, 34832. All proposal citations are to the version published in the Federal Register on June 18, 2014.

This Executive Summary provides a non-exhaustive list of topics that may be of particular interest to the state regulatory community. The highlighting of these topics in no way suggests that they are the most pressing matters in the proposed rule for each or any state. These topics include: 3

(1) Stringency of the building block applications

EPA proposed state goals which reflect the best system of emission reduction (BSER) comprised of four building blocks to varying degrees of stringency. While the development of these degrees is noted in the body of this paper, the end results are noted here:

ï‚· Block 1- improving average heat rate of coal-fired steam EGUs by 6%

ï‚· Block 2 - displacing coal generation in each state by increasing generation from existing natural gas combined cycle (NGCC) capacity toward a 70% target utilization rate

 Block 3 - including projected amounts of generation achievable by completing all nuclear units currently under construction, avoiding retirement of about 6% of existing nuclear capacity, and increasing renewable capacity through state renewable generation targets consistent with renewable portfolio standards (RPS’s) of states in the same region

 Block 4 - increasing state demand- side energy efficiency (EE) efforts to reach 1.5% annual electricity savings in the 2020–2029 period. (p. 34851)

(2) Justification for all four building blocks as the BSER

According to EPA, the BSER is a combination of all four building blocks because:

ï‚· Each building block is a proven way to improve emissions rates at affected EGUs or reductions in EGU mass emissions

ï‚· Each is in widespread use and is independently capable of supporting significant CO2 reductions from affected EGUs, either on an emission rate or mass-emissions basis, at a reasonable cost consistent with ensuring system reliability

ï‚· The combination of all four building blocks can achieve greater overall CO2 emission reductions from affected EGUs, at a lower cost per unit of CO2 eliminated, than the combination of building blocks 1 and 2. (p. 34878).

(3) Attributes of CO2 and electric grid enabling a portfolio approach to compliance

The unique way in which electricity is dispatched presented the EPA an opportunity to set the BSER and establish emission guidelines in a flexible manner unavailable to it for other industries regulated under CAA §111(d). Electricity regulation is distinct due to:

the particular characteristics of carbon pollution, the interconnected nature of the power sector and the manner in which EGUs are currently operated…[s]pecifically, the operators…treat increments of generation as interchangeable between and among sources in a way that creates options for relying on varying utilization levels, lowering carbon generation, and reducing demand as components of the overall method for reducing CO2 emissions. (p. 34845).

(4) Regulation under CAA §111(d) is predicated upon CAA§111(b) application

Regulation under CAA §111(d) is predicated upon affected sources falling under CAA §111(b) were they new sources. EPA recognizes that “CAA section 111(d) applies to sources that, if they were new sources, would be covered under a CAA section 111(b) rule.” (p. 34852).

(5) Interactions between §111(d) and §111(b)

EPA proposes that an existing source that becomes subject to requirements under §111(d) will continue to be subject to those requirements even after it undertakes a modification or reconstruction; and be subject to both §111(d) requirements and modified or reconstructed source standard being promulgated under CAA §111(b). (p. 34903)

(6) Technical feasibility of increasing NGCC utilization rates to 70%

EPA examined technical capabilities of the natural gas supply and delivery system and the electric transmission system to accommodate a 70% NGCC unit utilization rate and concluded it would because:

ï‚· the natural gas pipeline system already supports NGCC utilization rates of 60% or higher during peak hours;

ï‚· even if constraints were placed on NGCC units in certain locations and hours, that would not prevent NGCC generation overall across a region in all hours;

ï‚· pipeline and transmission planners have repeatedly demonstrated the ability to relieve bottlenecks and expand capacity. (pp. 34863-34864)

(7) Resource adequacy

Referencing the Resource Adequacy and Reliability Analysis TSD, EPA’s analysis looked at the types of changes in the generation fleet that were projected to occur through retirements, additional generation and energy efficiency, and did not raise concerns over regional viii resource adequacy. The analysis also found that there would be increases in power flows that would raise significant concerns about grid congestion or grid management. (p. 34899).

(8) Distinction between inside and outside fence line approaches

EPA proposes that the distinction between “inside” and “outside” the fence measures is artificial because neither the addition of RE nor the reduction of demand directly reduces the atmospheric emission of CO2; rather, they permit fossil EGUs to reduce their output and emissions, and are therefore “at the unit.” The real issue then is whether §111(d) authorizes the EPA to require EGUs to curtail their own output to comply with this rule. (p. 34889, fn. 237).

(9) State demonstrations of infeasibility

During the comment period, a state may demonstrate that the application of one of the building blocks to it would not produce the emission reduction target specified by EPA due to technical infeasibility or costs were higher than projected. However, the feasibility of ramping up other building blocks will be considered before accepting such arguments. For example, if a state demonstrates that its coal-fired steam EGUs could only achieve an average 4% heat rate improvement, instead of the 6% that EPA has proposed in Building Block 1, EPA would not adjust the state’s goal unless the state also demonstrates that it could not get additional reductions from application of the other Building Blocks, or in related measures. (p. 34893).

(10) Federal enforceability of state plan

EPA proposes to interpret CAA §111 to allow state plans to include federally-enforceable measures that are neither standards of performance nor measures that implement or enforce those standards, provided that the measures reduce CO2 emissions from affected sources. The proposal hinges on EPA’s interpretation of the word “for,” noting that standards are reasonably considered to be ‘‘for’’ affected sources if they would have an effect on affected sources by, for example, causing reductions in affected EGUs’ CO2 emissions by decreasing the amount of generation needed from affected EGUs. (p. 34903).

(11) Remaining useful life

CAA §111(d)(1) relieves states from strictly applying a standard of performance by taking into consideration, among other factors, “the remaining useful life of the existing source to which such standard applies.” EPA proposes that the flexibility provided in the state plan development process adequately allows for consideration of remaining useful life and therefore a separate application of the provision by states is unnecessary. (p. 34925).

(12) Federalism

Under Executive Order 13132, the EPA may not issue an action that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the federal government provides the funds necessary to pay the direct compliance costs incurred by state and local governments, or the EPA consults with state and local officials early ix in the process of developing the proposed action. EPA relates its early consultation with state and local officials and notes that a detailed Federalism Summary Impact Statement (FSIS) describing the most pressing issues raised in pre- and post-proposal comments will be issued along with the final rule as required by Executive Order 13132 §6(b). (pp. 34947-34948).

As noted above, the Comprehensive Summary, which follows, closely tracks the structure and form of the CPP proposal as published in the Federal Register. While not every subsection is summarized, subsection headings are maintained for purposes of organization. Furthermore, page numbers referencing the Federal Register are provided in the body of the document for each citation and the use of citation shortcuts (i.e., “id”) is confined to the footnotes.