On January 8, the Environmental Protection Agency issued a revised proposed new source performance standard (NSPS) regulating carbon dioxide (CO2) emissions from new electric utility generating units. 79 Fed. Reg. 1430 (January 8, 2014). The proposal, if finalized, would mark the first NSPS for greenhouse gas (GHG) emissions established by EPA, and if it survives review on a number of fronts, could open the door for broad regulation of these emissions from a host of source categories already regulated under the NSPS provisions, including those in the petrochemical and manufacturing industries.

The proposed rule replaces an earlier proposal issued by EPA in April 2012, 77 Fed. Reg. 22392, which generated more than 2.5 million comments, according to the Agency. It was withdrawn in conjunction with the issuance of the revised proposed rule. 77 Fed. Reg. 1352. The rule would regulate new fossil fuel-fired electric steam generating units and natural gas-fired stationary combustion turbines, setting separate limits for each. The setting of separate limits is one of the primary deviations from the previous proposal, which sought to establish a single limit for all types of units.

For utility boilers and integrated gasification combined cycle (IGCC) units, the Agency proposes an emission limit of 1,100 lbs CO2/MWh, based on partial implementation of carbon capture and storage technology. For natural gas-fired stationary combustion turbines, the proposal sets a limit of 1,000 lbs CO2/MWh for units with a heat-input rating greater than 850 MMBtu/h, and a limit of 1,100 lbs CO2/MWh for units with ratings below 850 MMBtu/h. These limits are based on the use of natural gas combined cycle (NGCC) technology. The proposal would not regulate existing or modified units, nor does it regulate units that sell less than one-third of their electric output to the grid.

Supreme Court Review

The fate of the proposed NSPS, however, remains tied to a challenge in the U.S. Supreme Court, as the Court agreed to review a D.C. Circuit ruling upholding a key 2009 EPA endangerment finding. Coalition for Responsible Regulation, et al. v. EPA, 684 F.3d 102 (D.C. Cir. 2012). In CRR, the D.C. Circuit upheld EPA’s determination that GHG emissions from mobile sources may reasonably be anticipated to endanger public health and welfare, a prerequisite to regulating these emissions under CAA § 202. The Court also upheld EPA’s determination that its endangerment finding with respect to mobile sources applied equally to GHG emissions from stationary sources, thus compelling the Agency to subject stationary sources of these emissions to PSD and Title V permitting requirements. It is this narrow issue – whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases – that is the subject of Supreme Court review. The case is set for argument on February 24, 2014.

Under the Clean Air Act, EPA is required to establish an NSPS for any source category that the agency determines “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.” CAA § 111(b)(1)(A). EPA contends that it is not required to make an endangerment finding with respect to a particular pollutant for a source category, but rather must consider the air pollution impacts of the source as a whole. 77 Fed. Reg. 1453. Because the agency has already established performance standards for EGUs, therefore, it contends it need not undertake a new endangerment finding with respect to GHG emissions. However, even if it were required to make such a finding, EPA contends its 2009 endangerment finding, coupled with its denial of petitions to reconsider that finding and the D.C. Circuit’s ruling in CRR, provides a rational basis for setting an NSPS for CO2 emissions from EGUs. 77 Fed. Reg. at 1445.

Wide-Ranging Impacts on Sources Subject to NSPS

Should EPA’s proposed NSPS become final, and survive judicial review, it could open the door for wide-ranging regulation of GHG emissions from sources already subject to an NSPS. As noted, EPA does not believe it is required to make an endangerment finding with respect to GHG emissions from particular source categories under CAA § 111. As the Agency contends, “this provision requires that the EPA make the listing decision on a category, and not a pollutant-by-pollutant basis. That is, this provision does not require that the EPA establish separate lists of source categories, with each list covering a different pollutant.” 79 Fed. Reg. at 1454. In addition, if the Supreme Court finds the Agency’s 2009 endangerment finding is sufficient to justify regulation of GHG emissions from stationary sources, EPA will have authority to set performance standards for GHG emissions from any source categories currently regulated under the NSPS provisions, and, of course, could establish new source categories for those not already regulated.

PSD Implications?

Several commenters on the initial proposal raised concerns regarding its potential implications for determinations regarding best available control technology (BACT) under the PSD program. Under the Clean Air Act’s PSD provisions, entities are required to apply BACT to any new or modified major source as part of the PSD permitting process. CAA §165(a)(4). The definition of BACT, meanwhile, provides that “[i]n no event shall application of [BACT] result in emissions of any pollutants which will exceed the emissions allowed by an applicable standard established pursuant to section 111 or 112 of the Act.” CAA § 169(3). EPA has historically interpreted this to require that any existing NSPS applicable to a source category sets the floor for BACT determinations with respect to sources in that source category.

Accordingly, EPA’s proposed NSPS would establish BACT for new fossil-fuel fired electricity generating units and natural gas-fired steam turbines covered by the standard. However, it also could be interpreted to establish BACT for existing units that are modified, which could present significant challenges for some facilities. EPA’s proposal seeks to avoid this outcome, stating that since the proposed rule would not apply to modified or reconstructed sources, “this NSPS would not establish a BACT floor for sources that are modifying an existing EGU, for example, by adding new steam tubes in an existing boiler or replacing blades in their existing combustion turbine with a more efficient design.” 79 Fed. Reg. at 1489.

Since an NSPS only establishes the floor for BACT, however, EPA’s statement that the rule does not set a floor for modified or reconstructed units does not prevent parties from relying on it as a basis for determining BACT in these scenarios. In other words, a permitting authority or third parties could still argue that the use of partial CCS or NGCC technology – as contemplated by the NSPS – is appropriate BACT for sources subject to PSD permitting.

Recent developments suggest that such challenges to PSD permits for GHG are more than a remote possibility. The Sierra Club, for instance, recently filed two petitions with the Environmental Appeals Board seeking review of BACT determinations for GHG emissions. The first seeks review of a PSD permit for a proposed natural gas fired electric generating station in Texas. In the matter of La Paloma Energy Center, LLC, PSD-TX-1288-GHG. Sierra Club contends that the permitting agency (EPA Region 6) erred in allowing the permittee to select from a range of possible options for improving efficiency, and further erred in not requiring the use of additional solar technologies.

In a second petition, Sierra Club is challenging a permit issued for purposes of adding an ethylene production unit to an olefins plant owned and operated by ExxonMobil. In the matter of ExxonMobil Chemical Company Baytown Olefins Plant, PSD-TX-102982-GHG. This petition is significant in part because Sierra Club is challenging the EPA Region 6 decision to reject that carbon capture and sequestration as a possible control alternative. These two matters likely represent only the tip of the iceberg when it comes to potential challenges to PSD permits for GHG emissions. Similar challenges to future permits can be expected.

EPA is accepting comments on the proposed NSPS through March 10, 2014. For more information on the NSPS and other regulatory developments related to GHG emissions, contact Alec C. Zacaroli, 202.824.1418, or Julie R. Domike, 202.824.1412.

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