EPA S PROPOSED GHG RULE CHANGES AND OTHER DEVELOPMENTS. Robert W. Varney Executive Vice President Normandeau Associates, Inc.

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1 EPA S PROPOSED GHG RULE CHANGES AND OTHER DEVELOPMENTS Robert W. Varney Executive Vice President Normandeau Associates, Inc. September 9, 2014

2 EXECUTIVE ACTION APPROACH RATHER THAN LEGISLATION 2009 President issued Executive Order to create an integrated task force to formulate a Climate Change Action Plan and to recommend federal policies and programs to better prepare the nation for climate change. EPA determines Greenhouse Gas (GHG) emissions constitutes a threat to public health (the endangerment finding) EPA directs that Climate Change Adaptation be integrated into programs, policies, rules and operations. EPA issues Tailoring Rule, requiring New Source Review (NSR) for major sources of GHGs; although vacated by the SC, major new future power plants are subject to NSR 2013 President Reaffirms Climate Action Plan and announces a series of Executive Actions; directs the EPA to issue new carbon pollution standards for power plants EPA revises proposed Carbon Standards for new power plants. EPA issues proposed guidelines for states to cut carbon emissions from existing power plants; issues proposed standards for Modified and Reconstructed units with a final rule expected June 2015.

3 REDUCE CARBON POLLUTION BY: Building a 21 st century transportation sector Cutting energy waste in homes, business and factories Reducing methane and HFC s Preparing the U.S. for the impacts of climate change Leading international efforts to address global climate change Reducing carbon pollution from power plants

4 This Proposal Deals With the Largest Source of GHG Emissions in the U.S.

5 REDUCING CARBON POLLUTION FROM POWER PLANTS President s Directive to EPA: Develop carbon pollution standards, regulations, or guidelines, as appropriate, for: 1. New power plants Proposed: January 8 th, Modified and reconstructed power plants Proposal: June, 2014 Final: June, Existing power plants Proposed Guidelines: June, 2014 Final Guidelines: June, 2015 State Plans due: June, 2016

6 Proposed Implementation Timeline State submits Negative Declaration by June 30, 2016 State submits negative declaration EPA publishes FR notice State submits complete implementation Plan by June 30, 2016 by June 30, 2016 State submits plan EPA reviews plan and publishes final decision within 12 months on approval/disapproval Emission Guideline Promulgation June 1, 2015 State submits initial Plan by June 30, 2016 and request 1-year extension by June 30, 2016 State submits initial plan and request for 1-year extension EPA reviews initial plan and determines if extension is warranted by June 30, 2017 State submits complete plan EPA reviews plan and publishes final decision within 12 months on approval/disapproval Compliance period begins 2020 State submits initial multi-state Plan by June 30, 2016 and request 2-year extension By June 30, 2016 State submits initial multistate plan and request for 2- year extension EPA reviews initial plan and determines if extension is warranted by June 30, 2017 State submits progress report of plan by June 30, 2018 States submits multistate plan EPA reviews plan and publishes final decision within 12 months on approval/disapproval

7 BACKGROUND: CLEAN AIR ACT SECTION 111(d) BEST SYSTEM OF EMISSION REDUCTION (BSER) Previous EPA rules under this section of the Clean Air Act have considered add-on control technologies like scrubbers -- that are technically feasible to deploy at virtually any facility. In contrast, there are a wide variety of ways to reduce carbon pollution that are commercially available, technically feasible, and cost effective. The opportunities vary from state to state, depending on how electricity is generated, energy infrastructure, and other factors. In this proposal, EPA took an approach that viewed the Clean Air Act factors in determining Best System of Emission Reduction in light of the interconnected nature of power generation. BSER factors: Costs Size of reductions Technology Feasibility

8 REDUCING CARBON EMISSIONS FROM POWER PLANTS For New and Future Power Plants: NGCC* 850MMBtu/h or less have a BSER of 1,100 lbs CO 2 /MWh (12mo.avg) NGCC* greater than 850MMBtu get a BSER of 1,000lbs CO 2 /MWh (12mo.avg). Coal Fired Power Plants (Boilers and IGCC) would need partial Carbon Capture and Sequestration to meet 1,100 lbs of CO 2 / MWh (12mo.avg). For Modified and Reconstructed Power Plants: IGCC and Coal Boilers would need to comply with Best Practices and Equipment Upgrades but no greater than 1900 lbs to 2100 lbs CO 2 /MWh on basis of size. CCS would not be a required. BSER for NGCC would be similar to the Carbon Standard for New Future NGCC *NGCC Technology is considered BSER based on the demonstrated performance of recently constructed NGCC units. Proposed BSER for new Coal (IGCC and Boilers) is seriously contentious and will discourage new IGCC or conventional coal units unless modified in final rule. Litigation is very likely. Southern Co, Kemper has over half billion in government grants and tax credits to mitigate risk.

9 IMPLICATIONS FOR POWER PLANTS Proposed carbon standards are aggressive. Construction of new coal or oil power plants highly unlikely. Standards for new NGCC plants are easily achievable with current technology. Standards for existing coal plants are achievable for many, but not all facilities. Conversion of coal and oil plants to natural gas will continue, due to both environmental and nonenvironmental factors.

10 EPA ESTABLISHES A GOAL FOR EVERY STATE TO REDUCE CARBON EPA analyzed the practical and affordable strategies that states and utilities are already using to lower carbon pollution from the power sector. Proposed goals are based on a consistent national formula, calculated with state and regional specific information. The result of the equation is the state goal. Each state goal is a rate a statewide number for the future carbon intensity of covered existing fossil-fuel-fired power plants in a state. Encompasses the dynamic variables that ultimately determine how much carbon pollution is emitted by fossil fuel power plants. Accommodates the fact that CO 2 emissions from fossil fuel-fired power plants are influenced by how efficiently they operate and by how much they operate. The state goal rate is calculated to account for the mix of power sources in each state and the application of the building blocks that make up the best system of emission reduction. States will have flexibility to meet an interim goal and a final goal.

11 Building Block 1. Make fossil fuel-fired power plants more efficient 2. Use lower-emitting power sources more 3. Build more zero/lowemitting energy sources Strategy EPA Used to Calculate the State Goal Efficiency Improvements Dispatch changes to existing natural gas combined cycle (CC) Renewable Energy Certain Nuclear Maximum Flexibility: Examples of State Compliance Measures Efficiency improvements Co-firing or switching to natural gas Coal retirements Retrofit CCS (e.g.,wa Parish in Texas) Dispatch changes to existing natural gas CC New NGCC Renewables Nuclear (new and up-rates) New coal with CCS 4. Use electricity more efficiently Demand-side energy efficiency programs Demand-side energy efficiency programs Transmission efficiency improvements Energy storage Source: EPA

12 OTHER EPA RULES MUST BE CONSIDERED 1. Ambient Air Quality Standards (2008, 2010): NO 2, SO 2, PM 2.5, Ozone: Meeting standards is a challenge for existing coal and oil plants: NO 2 standard may be an issue for NGCC plants as well. 2. Mercury and Air Toxics Rule (2/2012): Requires big $$ for control of hazardous air pollutants. Hits smaller coal units hard b Rule (6/2014): Applies to H2O intake structures for protection of fish, larvae and eggs. If cooling towers become a common solution, EEI estimates that retirements could be increased by 25 GWs to 40 GWs.

13 OTHER EPA RULES MUST BE CONSIDERED, CONT. 4. Cross State Air Pollution Rule (CSPAR): Focused on Attainment of NAAQS for PM 2.5 and Ozone through emission reductions in upwind states. Recently restored by SC, and when implemented, may have an impact on coal fleet in Southeast, Texas and Midwest. Affects NE AQ but not NE power plants. Implementation will be post 2015 and will linger beyond Wastewater Effluent Standards: Toxic metals in waste water from FGD, cooling towers and chemical use will need treatment. 6. Coal Combustion Residual Rule: Will require that combustion residuals (ash) be treated under RCRA. Two options under consideration: -Treated as a special hazardous waste under subtitle C. -Treated as a non-hazardous waste under subtitle D.

14 THE CASE FOR NATURAL GAS AS A REPLACEMENT FOR RETIRING COAL

15 NATURAL GAS PREVAILS IN 2013

16 GENERATION PROPOSALS IN THE ISO-NE QUEUE AS OF JANUARY 2014 *55% Natural Gas *40% Wind Note: Historically, many projects in queue are not built, often for financial reasons

17 EXPECTED IMPACT OF CLIMATE POLICY AND REGIONAL ISSUES ON NE GENERATION MIX ISONE still sees multiple oil units and a coal plant available (for cold snaps and maintenance of reliability in 2020, assuming 2013 queue and announced retirements).

18 PROPOSED INTERNATIONAL CLIMATE CHANGE AGREEMENT United Nations Summit to be held in Paris, United States has a 2/3 Senate approval vote requirement for legallybinding treaties. U.S. Senate approval of a new climate change treaty is highly unlikely. A hybrid approach is under consideration which would combine legally-binding condition from a 1992 treaty with new voluntary pledges. This approach may: Require enactment of domestic climate change policies Include voluntary pledges to cut emissions for specific levels Provide financial assistance to help poor countries Require countries to report their progress towards meeting the voluntary pledges December 2014 meeting in Peru is planned to help develop a draft agreement. Concept appears to be consistent with Administration s approach of using executive authority to address climate change, recognizing that Congressional approval of climate change actions is unlikely.

19 ENERGY FACILITY SITING CHALLENGES: A FEW PERSPECTIVES I. Energy Policy and Public Education With so many voices and opinions about energy policy, and so many factors to consider, our citizens are confused. Among the many questions in their mind are: Can energy efficiency and renewables meet most of our future needs? How important is energy diversity for grid reliability and cost competiveness? Do we need more power plants and other generation facilities? How will market prices, and changes in regulations and policy, affect our energy future? How much base load vs. intermittent power do we need? Do we need more transmission? Do we need wind turbines on our ridgelines? Do we need more biomass plants and is there enough wood for them? Is offshore wind cost effective? What timeframe are we considering? (10, 20, or 50 year horizons?) How long is that energy bridge to the future and what does that future look like on the other side?

20 ENERGY FACILITY SITING CHALLENGES: A FEW PERSPECTIVES II. Changes in Communications and social media is a game changer; one click can reach hundreds or thousands of people. Negative branding and distorted or incorrect information can be distributed easily on an ongoing basis. Organizing opposition is easier. Opponents are energized; supporters are not. III. The Siting Landscape Power Plants: relatively easier to gain support of host towns/cities; often located in existing industrial or commercial areas and fewer abutters. Most receive state siting approval. Wind Farms: becoming much more contentious; mostly visual impact issue. More projects are being denied or withdrawn. Transmission: except for rebuilds of existing lines for reliability, or submarine projects, electric and natural gas transmission projects are being opposed by municipalities, abutters, environmentalists, and many elected officials.

21 ENERGY FACILITY SITING CHALLENGES: A FEW PERSPECTIVES IV. Achieving Municipal Support Educating project area communities is a huge task. Towns and cities should be consulted in the identification and evaluation of alternatives as early in the process as possible, and hopefully be convinced that the selected alternative is reasonable and the most practicable. Local officials need to be convinced of project need; this requires a significant education effort. While the items above are obvious, they need to be emphasized. Thank you!