CLEAN AIR ACT REGULATION. Ben T. Keller Wyatt Tarrant & Combs, LLP Lexington, KY

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2 CLEAN AIR ACT REGULATION Ben T. Keller Wyatt Tarrant & Combs, LLP Lexington, KY

3 Overview (1) EPA s Proposed CO2 Regulations (2) Cross-State Air Pollution Rule (CSAPR) (3) Mercury and Air Toxics Standards (MATS)

4 EPA s Proposed Carbon Regulations New Sources EPA Proposed Rule January 2014 Proposed different rule in 2012 Single standard for all EGUs, regardless of type Withdrew in September 20, 2013 Authority under Section 111(b) of Clean Air Act ( CAA ) Rule only applicable to new fossil-fuel electric units. Not applicable to existing, to-be-modified, or under construction plants

5 Standard for Gas Units: Larger units -- 1,000 lbs CO2/MWh Smaller units 1,100 lbs CO2/MWh Gas units can meet standard now Standard for Coal/Fossil Fuel-Fired and Integrated Gasification Combined Cycle Units: 1,100 lbs CO2/MWh over 12 months, or 1,000 to 1,050 lbs CO2/MWh over 84 months Coal units cannot meet standard without carbon capture Average US coal unit produces 1,768 lbs CO2/MWh

6 Performance Standard Requirements: CAA defines standard of performance Standard must apply best system of emission reduction ( BSER ), which takes into account cost of achieving reduction and other factors EPA must determine that BSER is adequately demonstrated Standard for Adequately Demonstrated EPA Position: Technology is adequately demonstrated if reasonably projected to exist in the near future. Carbon Capture and Storage/Sequestration Adequately demonstrated? Impact: New coal-fired units very unlikely without carbon capture and storage/sequestration.

7 Existing Sources Clean Power Plan Proposed Rule June 2, 2014; Final Rule due June 2015 EPA can regulate existing sources under Section 111(b) if major modification made that: Increases emissions; Changes production method; or Replaces significant portion of components After the date EPA proposed to issue emissions standards But EPA said 2014 Proposed Rule for New Sources will not apply to Existing Sources

8 EPA s Primary Regulatory Authority -- Section 111(d) of CAA Authority Questionable; Challenges Certain to follow 1990 CAA Amendments House and Senate versions conflict House version EPA cannot regulate facilities already regulated under Section 112 concerning hazardous air pollutants EPA already regulates hazardous air pollutants from plants (see Mercury and Air Toxics Standard)

9 Section 111(d) requires combined Federal and State action States prepare plans within EPA guidelines to establish standards of performance EPA must approve state plan States have 9 months after final rule publication to submit plan, unless different time set by EPA. 40 CFR Section 60.23(a) States have flexibility State can adopt mix of emissions limitations it deems best, so long as emissions limitations are met

10 States can use economic incentives such as fees, permits, and auctions of emissions rights. If state fails to timely submit a plan, or EPA disapproves of plan submitted, EPA must prepare plan for state within 6 months.

11 Summary of EPA s Plan Rate-based standard Caps ratio of CO2/Energy Generated in MWhs No limit set on CO2 Standard does not account for conservation, but EPA allowing estimates of conservation Cut carbon emissions by 30% nationwide below 2005 level Reduce particle pollution by 25% as added benefit Projected climate and health benefits totaling $55 to $93 billion

12 EPA set state goals based on 4 factors: Strategies state already has in place to lower carbon emissions Plant efficiency and ability to use natural gas Ability to use renewables with no or low CO2 emission Consumer/Demand-side efficiency EPA Goal for Kentucky 18% Kentucky s 2012 average 2074 lbs CO2/MWh EPA s interim goal 1844 lbs CO2/MWh EPA s final goal lbs CO2/MWH

13 Criticisms Rate-based standard not affected by energy conservation EPA allowing states to estimate conservation Conservation efforts not as effective as estimated (e.g. newer homes more energy intensive than older) Additional clean generation can theoretically bring compliance, without reducing CO2 emissions Impact in declining economic conditions Electric generation decreases, requiring CO2 emissions to decrease even faster Impact on Kentucky -- No additional coal plants expected to close, but 11 coal boilers closing b/c other rules.

14 Cross-State Air Pollution Rule (CSAPR) EPA V. EME Homer City Generation, L.P., 134 S.Ct (2014) A/K/A Transport Rule and Good Neighbor Rule Finalized July 6, 2011

15 CSAPR Required 28 States in Eastern U.S. to Reduce Annual SO 2 and NO X Emissions from EGUs that Prevent Neighboring States from Meeting Ambient Air Quality Standards August 21, 2012 D.C. Circuit Court of Appeals Vacated the Rule June 24, 2013 U.S. Supreme Court Granted Certiorari

16 CSAPR April 29, 2014 U.S. Supreme Court Upheld CSAPR Finding: States May Not Implement Their Own Reduction Plans as They Previously Failed to Do So EPA s Cost Effective Allocation of Emission Reductions for Upwind States is Permissible June 26, 2014 EPA Filed a Motion with Court of Appeals to Lift Stay of CSAPR October 23, The U.S. Court of Appeals for the D.C. Circuit ordered that EPA's motion to lift the stay of the CSAPR be granted

17 Mercury and Air Toxics Standards (MATS) White Stallion Energy Ctr., LLC v. EPA, 748 F.3d 1222 (D.C. Cir. 2014) A/K/A Utility MACT Rule April 24, 2013, Effective Date Designed to Reduce Emissions of Hazardous Air Pollutants ( HAPS ) from New and Existing Power Plants Targets 1,100 Existing Coal Fired Units and 300 Oil Fired Units at 600 Powers Plants

18 MATS Specifically Designed to Reduce: Mercury Emissions by 90% Heavy Metals Requires Maximum Achievable Control Technology ( MACT ) Challenged by a Broad Coalition of Trade Groups, States and Associations

19 MATS April 15, 2014, U.S. Court of Appeals for District of Columbia Upheld the Rule Filed July 14, 2014, Petition for Certiorari Impacts

20 Ben T. Keller