EPA Proposed CO2 Performance Standards for New Coal Plants Washington Coal Club September 24, 2013

1. EPA Proposed CO2 Performance Standards for New Coal PlantsWashington Coal ClubSeptember 24, 2013 PRESENTED BY Peter Glaser Troutman Sanders LLP 401 9th Street, NW Suite 1000 Washington, DC 20004 202.274.2950 www.troutmansanders.com

2. Pres. Obama6/25/13 Speech at Georgetown “So the question is not whether we need to act.  The overwhelming judgment of science -- of chemistry and physics and millions of measurements -- has put all that to rest.  Ninety-seven percent of scientists, including, by the way, some who originally disputed the data, have now put that to rest.  They've acknowledged the planet is warming and human activity is contributing to it.  “So the question now is whether we will have the courage to act before it’s too late.  And how we answer will have a profound impact on the world that we leave behind not just to you, but to your children and to your grandchildren. “As a President, as a father, and as an American, I’m here to say we need to act. ”

3. Gina McCarthy9/18/13 Testimony Before E&P Subcom “Climate change is one of the greatest challenges of our time. Based on the evidence, more than 97% of climate scientists are convinced that human caused climate change is occurring. If our changing climate goes unchecked, it will have devastating impacts on the United States and the planet. Reducing carbon pollution is critically important to the protection of Americans’ health and the environment upon which our economy depends. “Responding to climate change is an urgent public health, safety, national security, and environmental imperative….”

4. Proposed Rules Are Step 1 for Coal in 6/25/13 Presidential Memorandum • New source standards proposal by 9/20/13. No set date for final. • Proposed standards for modified and existing sources by 6/1/14 and final by 6/1/15. • Proposed regulations and guidelines requiring States to submit plans with standards by 6/1/14; final by 6/1/15; States to submit plans by 6/1/16.

5. Proposed New Source Standards Coal Units • Includes both coal boilers and integrated gasification combined cycle units. • 1,100 lb CO2/MWh over a 12-operating month period, or • 1,000-1,050 lb CO2/MWh over an 84-operating month (7-year) period. • Asks for comment on 1,000-1,200 lb.

6. Natural Gas Units • 1,000 lb CO2/MWh for larger units (> 850 mmBtu/hr). • Asks for comment on 9,500-1,100 lb. • 1,100 lb CO2/MWh for smaller units (≤ 850 mmBtu/hr). • Asks for comment on 1,000-1,200.

7. Proposed New Source Standards The Basics • Applies to new sources only – not to modified or reconstructed. • Last year’s proposal revoked. • Does not apply to biomass (can co-fire with up to 10% coal). • Does not apply to non-CO2 GHGs, but EPA asks for comment on whether it should.

8. Rationale for Coal Standard • Partial CCS is the “best system of emission reduction.” • Technical feasibility. • Amount of emissions reductions from standard. • Reasonable cost. • Promote development of technology. • Claims broad EPA discretion.

9. Technical Feasibility • Capture: literature, industrial plants, pilot-scale EGUs, progress of Kemper and 3 others less far along than Kemper. • Transportation: CO2 pipelines in operation. • Storage: EOR + field tests for non-EOR. • But in the end, there are no commercial-scale power-sector CCS plants operating anywhere in the world.

10. Absence of Permitting System and Legal Liability Rules for CCS • This absence is potentially a fatal flaw for the feasibility of CCS where EOR is not available. • EPA addresses indirectly by making legal argument that EPA can establish standards that allow plants to be built only in certain sections of the country. • But claims only limited areas won’t be able to build new coal plants with CCS because: • Can build very long CO2 pipelines or can transmit power very long distances . • And the cost of this would be?

11. Amount of Emission Reductions • Supercritical is not enough, would not represent progress. • Full capture would not be cost-effective. • Yet EPA says existing technology for gas plants is good enough.

12. EPA: Costs Are Reasonable • Levelized cost of partial CCS is competitive with nuclear and biomass – therefore CCS is cost-effective baseload. • Partial CCS adds $18/MWh to cost of SCPC, for a total of $110/MWh, which is a reasonable additional amount. • These costs will come down in future.

13. Are EPA’s CCS Costs Reasonable? • EPA uses projected costs, assumes reduced costs as more plants built. But EPA also thinks no new plants will be built. • 2013 EIA data: CCS increase cost of new plant up to $1 billion/60% increase in capital cost. • Administration’s CCS task force: CCS increases IGCC by $400 million (25%), SCPC by $900 million (80%). • EPA’s cost figures do not include build-out of pipelines or storage. • Recognizes requirement for DOE support, but says other energy sources also depend on government support (and apparently the government is awash with cash for CCS).

14. Promote Technological Development “It is clear that identifying partial CCS as the BSER promotes the utilization of CCS because any new fossil fuel-fired utility boiler or IGCC will need to install partial capture CCS in order to meet the emission standard.”

15. Overall Cost-Benefit Analysis • No cost, because no one is building new coal. • Benefit: • Power sector is economy’s largest source of CO2 emissions. • Towards back of rule, concedes that since the rule only applies to new sources that aren’t being built anyway, there is a corresponding lack of benefit. • but claims benefit from starting the process for regulating existing sources. • though doesn’t recognize the cost of such regulations.

16. Natural Gas Standard • Utilities have real issues with feasibility of 1,000 lb. standard. • EPA concludes CCS is not BSER for IGCC: • Uncertain technical feasibility given limited precedent; • CCS may not work on gas units because of need for gas units to cycle; • Lower CO2 in flue gas stream presents technical issues; • Experience with CCS for coal may not translate to gas.

17. Comments • Due 60 days from publication in Federal Register. • EPA will not consider comments on prior proposal.

18. Thoughts on Comments • EPA will not change its mind on this rule. • Still, comments needed: • Trade associations must create record for judicial review. • Those interested in a future for coal must keep making the case to EPA – at least to influence the upcoming proposal for existing coal plants

19. Implications of Proposed Standards • Even after all the coal retirements, EPA/EIA still showing coal as 40% of power in 2040. • Given 80% by 2050 goal, this rule is not enough. • Rule is just the appetizer for the main course, the existing plant standards. • And although rule is facially all-in on natural gas, building new gas plants doesn’t get EPA to the goal. • Beyond Gas replaces Beyond Coal.

20. Existing Source Standards • EPA in pre-rulemaking process of trying to build consensus around its preferred approach. • BSER for existing coal units should be cost-effective efficiency improvements, if any, at coal plants. • EPA wants to utilize a different approach, because coal-plant efficiency improvements do not yield the amount of GHG reductions it wants.

21. EPA’s Preferred Approach • Examine BSER for the utility system in the state – as opposed to just the coal plants. • Define “cost-effective” as more renewables, gas, and DSM – which means less coal. • Offer “flexible,” “market-based” approaches as incentives for utilities to agree to greater emission reductions. • And then pretty soon you have back-door cap-and-trade, negotiating off of NRDC’s targets and timetables.

22. Going Forward • New source rulemaking is important, but don’t lose sight of activity going on beneath the surface on the existing-source standards. • States will have an important voice on the existing source standards. Need to work with state leaders; get them organized, educated, and active. • Remember: (a) power sector has already substantially reduced its GHG emissions and (b) global GHG emissions are swamping any reductions from EPA programs.