By Mary Ellen Ternes
The going continues to get rougher for coal-fired power plants, and everyone in the regulated community needs to pay attention. The challenges faced by the coal power industry right now are a good lesson for us all. The regulatory landscape has become rocky and uncertain, making future long-term investment a tricky business.
On May 30, 2008, in response to the U.S. Supreme Court’s rejection of Duke Energy’s argument that New Source Review (NSR) is only triggered by an increase in hourly emissions (Environmental Defense v. Duke Energy Corp., 127 S.Ct. 1423 (April 2, 2008)), EPA has stopped using this method to screen NSR enforcement cases and has reverted back to the annual emissions increase analysis.
However, run of the mill NSR is not the only issue creating uncertainty for coal plants these days. Environmental advocacy groups are making headway in their appeals of power plant permits. The EPA Environmental Appeals Board continues to review the Deseret Power PSD Permit in response to arguments by Sierra Club that the CAA requires consideration of greenhouses gases in evaluating Best Available Control Technology (BACT) pursuant to the CAA Prevention of Significant Deterioration Program (PSD), with briefing extended through September 2008. EPA has argued that the CAA’s PSD program only requires consideration of “air pollutants” that are “regulated” by the CAA, narrowly defining “regulation” to mean “control,” and that carbon dioxide is not “controlled” by 40 C.F.R. pt. 75, which merely requires monitoring and reporting. Watch EAB Appeal No. PSD 07-03/Docket No. OU-0002-04.
Beyond greenhouse gas emissions, one of the most significant recent rulemakings for large stationary sources of criteria pollutants was just vacated. On July 11, 2008 the D.C. circuit Court of Appeals vacated the Clean Air Interstate Rule. The ruling was a big surprise, creating major ripples in industry and environmental advocacy groups alike with neither side happy with the decision. However, the court found such significant and fundamental flaws in the rule as promulgated the court found no option but to vacate the rule in its entirety. The court stated “[w]e must vacate CAIR because very little will survive remand in anything approaching recognizable form.” The court focused on EPA’s region-wide caps that had no state-specific quantitative contribution determinations or emissions requirements, EPA’s identification of participating states with no consideration of the phrase “interfere with maintenance” in section CAA 110(a)(2)(D), EPA’s trading program the court deemed unlawful because it did not connect states’ emissions reductions to any measure of their own significant contributions and interfered with the Title IV acid rain program, and EPA’s allocation of state NOx budgets which the court characterized as completely arbitrary. This vacature will create issues for states which have already revised their State Implementation Plans relying on reductions expected from CAIR, while industry is reevaluating future investment in pollution control technology as well as participation in emission trading programs.
Recall that the Clean Air Mercury Rule was also recently vacated for other reasons. New Jersey v. EPA, (D.C. Cir. 2008) (Feb. 8, 2008) (vacating EPA’s decision to simply remove coal and oil-fired Electric Generating Units or “EGUs” from CAA § 112(c)(1)’s list of source categories without first satisfying delisting requirements imposed by CAA § 112(c)(9)). On May 6, 2008, Sierra Club announced its submittal of “notice of intent to sue” letters under the CAA to power plants based on the failure of the plants to control mercury emissions and suing to enforce the CAA’s “MACT Hammer,” i.e., Section 112(g)(2) mandating site specific Maximum Achieve Control Technology to control mercury emissions.
With such unfortunate results in recent EPA rulemaking efforts, industry is left with great uncertainty with regard to prudent future investment, as well as some doubt in EPA’s ability to promulgate a rule that will withstanding judicial scrutiny – just in time for EPA’s Advance Notice of Proposed Rulemaking addressing CAA application to greenhouse gas emissions and EPA’s proposed rule regarding underground injection wells used for carbon sequestration.
On July 11, 2008, EPA released its long awaited Advance Notice of Proposed Rulemaking for Regulating Greenhouse Gas Emissions Under the Clean Air Act, 73 Fed. Reg. 44353 (July 30, 2008). Over 570 page document was released in an unprecedented manner with previously prepared criticism of the proposal by the U.S. Departments of Agriculture, Commerce, Transportation, and Energy with an introduction by EPA’s Administrator Johnson condemning the proposal and concluding that the CAA is not the appropriate mechanism for regulating greenhouse gas emissions. The proposal itself diligently walks through the various provisions of the CAA, elements of EPA’s endangerment analysis, mobile, and stationary source issues, and stratospheric ozone protection issues, providing EPA staff’s analysis of CAA application to greenhouse gas emissions. Stationary sources will note the consistency in EPA’s arguments in the Deseret briefing and the text of the July 11, 2008 notice discussing PSD application to greenhouse gas emissions.
On July 25, 2008, EPA issued its proposed rule addressing carbon sequestration. See Federal Requirements Under the Underground Injection Control (UIC) Program for Carbon Dioxide (CO2) Geologic Sequestration (GS) Wells, 73 Fed. Reg. 43491 (July 25, 2008). With this proposal, EPA seeks comment on a new class of well and minimum technical criteria for the geologic site characterization, fluid movement, area of review (AoR) and corrective action, well construction, operation, mechanical integrity testing, monitoring, well plugging, postinjection site care, and site closure for the purpose of protecting underground sources of drinking water (USDWs). EPA’s proposal is based on EPA’s existing Underground Injection Control (UIC) regulatory framework, with modifications to address the unique nature of CO2 injection for GS. Significantly, EPA addressed the distinction between utilizing CO2 for enhanced recovery of oil and gas currently permitted as Class II wells, defined as those wells which inject fluids in connection with conventional oil or natural gas production, enhanced oil and gas production, and the storage of hydrocarbons which are liquid at standard temperature and pressure. EPA’s proposed rules would not, if finalized, specifically apply to Class II injection wells as long as any production is occurring, but would only apply to injection wells specifically permitted for the purpose of GS. EPA is seeking comment on this approach given that owners or operators of some Class II wells may wish to use wells for the purposes of production and GS prior to the field being completely depleted.