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EPA Proposes Emission Limits for Fossil Fuel-Fired Power Plants – Is Industry Up for the Challenge?

EPA Proposes Emission Limits for Fossil Fuel-Fired Power Plants – Is Industry Up for the Challenge?

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EPA Proposes Emission Limits for Fossil Fuel-Fired Power Plants – Is Industry Up for the Challenge?


by: Noah Gannon | August 16, 2023


Boyertown, Pennsylvania (August 17, 2023) –
On August 8, 2023, the public comment period ended for the Environmental Protection Agency (EPA) proposed Clean Air Act emissions limits and decarbonization technology guidance for fossil fuel-fired power plants in the United States. The proposed rule considers how different Electricity Generating Units (EGUs) are used, including the resource type and load capacity, and prescribes control technologies such as Carbon Capture and Storage (CCS) and Hydrogen co-firing to reduce emissions.

Scientists estimate the proposal, if enacted, will reduce 617 million tonnes of CO2 emissions by 2042. Additionally, economists value potential associated benefits at $64-$85 billion, including health benefits, such as 1,300 avoided premature deaths and 300,000+ cases of asthma symptoms.

In anticipation of potential legal challenges, the EPA structured the current proposal within the context of the recent 2022 West Virginia vs. EPA decision in which the Supreme Court limited the EPA’s rule-making authority.

Client Impacts

The proposed rule presents both challenges and opportunities for the energy industry. Challenges include extensive capital expenditure costs, limited CCS and hydrogen supply and infrastructure, a volatile regulatory climate, and a lack of regulatory frameworks to enable use and large-scale deployment of these projects.

However, CCS and low-GHG hydrogen offer asset owners the opportunity to entrench their existing infrastructure investments within the energy landscape and provide a dispatchable low-carbon energy resource to utilities looking to balance daily and seasonal renewable energy fluctuations.

Alternatively, some asset owners may consider reducing capacity to under 20% to avoid implementing any controls or under 50% to qualify as an intermediate load with less stringent standards. There will be impacts on grid reliability if a mass shutdown of gas-powered resources occurs before the buildout of batteries and other forms of energy storage.

Proposed Technology-Based Standards

The proposal consists of Technology-Based Standards designed to allow the power sector continued resource and operational flexibility, facilitate long-term planning, and consider the cost-effectiveness of emissions controls. Specifically, the proposal requires CO2 emissions control at fossil fuel-fired power plants starting in 2030 and phases in increasingly stringent CO2 control requirements over time. The proposed requirements vary by:

  • The type of unit rather than fuel type (i.e., new or existing, combustion turbine or utility boiler, coal-fired or natural gas-fired)
  • How frequently it operates (base load, intermediate load, or low load (peaking), and
  • Its operating horizon (i.e., planned operation after certain future dates).

These variations hope to achieve the Standard’s goals of cost-effectiveness and operational flexibility. For example, the installation of controls such as CCS for coal and gas plants and low-GHG hydrogen co-firing for gas plants are more cost-effective for power plants that operate at a greater capacity, more frequently, or over extended periods. The table below outlines the Best System of Emissions Reduction (BSER) by phase and unit type.

Low-GHG Hydrogen Pathway

As shown above, the low-GHG hydrogen pathway offers an incremental approach through hydrogen co-firing to reduce emissions with increasing volume as hydrogen supply networks are developed. The proposed carbon intensity of low-GHG hydrogen at 0.45 kgCO2e/kgH2, “well-to-gate,” is exceptionally aggressive and much lower than all international Low Carbon Standards, as shown in the graphic below.  As a result, this standard may be met with blue (coal/natural gas feedstock) and green (renewable energy feedstock) hydrogen, as well as pink (nuclear-powered) hydrogen.

The International Energy Agency predicts total hydrogen production will need to be 180 MMT by 2030, up from 90 MMT today, to reach net zero emissions by 2050. Currently, low-GHG hydrogen production represents only 1% of total hydrogen production, challenging project developers to increase product while greening their hydrogen process with renewable resources to meet new regulatory requirements, like the EPA’s proposed standards.

At current U.S. power demand and portfolio, about 1.5 trillion kWh is produced annually by gas turbines subject to this ruling [1]. Assuming a standard combined cycle unit has a 60% overall efficiency, 30% hydrogen co-firing would require 747 billion kWh of raw energy, almost 10X current hydrogen production levels. In creating this rule, the EPA attempts to dramatically scale hydrogen demand in the U.S.

The energy needed to produce hydrogen leads to as much or more energy used to produce hydrogen as is recovered when the hydrogen burns.

If project developers can create a supply, hydrogen transportation will present another hurdle. Hydrogen can be transported by pipeline, tanker, rail, and truck, but ammonia and liquefication are the best delivery methods for longer distances and have the biggest impact on costs. Approximately 1,600 miles of hydrogen pipelines are currently operating in the U.S., primarily in the Gulf Coast region, in support of petroleum refineries and chemical plants [2]. Converting the nations existing natural gas pipeline to carry a blend of hydrogen would only require modest upgrades compared to more substantial modifications for pure hydrogen. Industry initiatives and the DOE H2Hubs program take a grassroots approach to increasing regional engagement.

Importantly, the Inflation Reduction Act (IRA) includes Hydrogen Production Tax Credits, which offer producers $3/ kg H2 for ten years for low-GHG carbon intensity for projects that begin construction by 2033 with retrofit facilities eligible. While direct pay and transferability allow revenue streams for companies with low tax liabilities, the credit cannot be stacked with the Carbon Capture and Sequestration Credit (45Q), which may disincentive co-locating CCS and low-GHG hydrogen controls.

Using electricity to produce hydrogen, only to be re-converted into electricity through co-firing, results in as much or more energy being lost than is recovered for grid use. This makes hydrogen co-firing for electricity a much less efficient process than traditional electricity transmission. We believe hydrogen is better applied in the transportation industry given its quick refueling, easy adoption, and decent conversion efficiency for fuel cells and hydrogen-compatible ICEs. This leaves CCS as the most practical and economically viable control technology for fossil fuel-fired power plants in the U.S.

Carbon Capture and Sequestration (CCS) Pathway

According to the IEA, Carbon Capture and Sequestration projects capture more than 45 million tCO2 annually from 40 facilities globally. Although CCS deployment has increased with over 500 projects in various stages, the IEA estimates that deployment remains substantially below the level required to achieve net zero emissions by 2050. Similar to low-GHG hydrogen, project developers face a handful of challenges in meeting CCS demand generated from new regulatory requirements:

First, CO2 lacks national pipeline infrastructure but has a history of industrial uses, primarily enhanced oil recovery (EOR). This infrastructure is primarily in the Gulf Region and the Dakotas. Last month, Exxon Mobile bought Denbury, the largest CO2 pipeline network in the country, in a bid to accelerate Exxon’s carbon capture goals.

The Department of Energy has also prioritized CO2 transportation and sequestration, with $8.5B earmarked for CCS in the infrastructure package. The bill envisions four regional direct air capture hubs, prioritizing localized networks over a nationwide pipeline.

The IRA included a Carbon Capture and Sequestration Credit (45Q), which offers up to $85 per tonne for storage of CO2 in deep saline geologic formations. For other uses, such as low-carbon fuels, chemicals, building materials, or enhanced oil recovery (EOR), the credit falls to $60 per tonne, with direct pay for the first five years after the equipment is placed in service.

Implementation

States will have 24 months to submit plans establishing performance standards and transparency requirements for power plants within their state borders if the proposed rule is enacted, as shown in the timeline below. Plans must include an environmental justice analysis of impacted communities and meaningful engagement with affected stakeholders. States are encouraged, but not required, to develop emissions trading and averaging schemes. A less stringent standard may be requested for facilities with long-remaining useful lives.

The future of this legislation is not certain. Four major grid operations — PJM Interconnection, Midcontinent Independent System Operator, Southwest Power Pool, and the Electric Reliability Council of Texas — have filed joint comments that grid reliability will “dwindle to concerning levels.” A coalition of 21 states, led by West Virginia, have also filed comments warning about the legal implications of the rule. With the 2024 presidential election approaching, a Republican administration could repeal this rule before the enforcement period begins. Individual states and joint ISOs/RTOs must decide if they will proactively plan for controls or wait and see, hoping external players derail technology implementation and CO2 standards.


[1]  Regional Clean Hydrogen Hubs | Department of Energy
[2]  Electricity data browser – Net generation for all sectors (eia.gov)

About ClimeCo

Over the last 14 years, ClimeCo has supported corporates in hard-to-abate sectors and energy asset owners in decarbonizing their operations by evaluating policy updates and incentives, supporting decarbonization project implementation, leveraging environmental markets, and becoming trusted decarbonization technology experts. Please inquire with the ClimeCo team to learn more about our case studies and service offerings.

Contact us at +1 484.415.0501info@climeco.com, or through our website climeco.com to learn more. Be sure to follow us on LinkedIn, Facebook, Instagram, and Twitter using our handle, @ClimeCo.

State Climate Policy Trends: Action Amidst Federal Inaction

State Climate Policy Trends: Action Amidst Federal Inaction

State Climate Policy Trends: Action Amidst Federal Inaction


by: Wilson Fong and Braeden Larson | July 28, 2022

 


On June 30th, the Supreme Court ruled in the case of West Virginia vs. the U.S. Environmental Protection Agency that federal agencies, including the Environmental Protection Agency (EPA), have limited regulatory powers unless they have the explicit authority from Congress, otherwise known as the “major questions doctrine.” This decision limits the executive branch’s power to allow federal agencies to regulate significant economic and political issues. In this case, it limits the EPA’s power to regulate emissions reductions from power plants under the Clean Air Act. However, the decision made on the premises of the “major questions doctrine” will trickle down to all federal agencies’ regulatory operations that have been granted through executive power. Concerning climate change policy, this means the EPA is paralyzed from taking country-wide actions on emissions reductions until Congress gives the EPA regulatory authority. While some states have already been implementing emissions reduction regulations, this Supreme Court decision will necessitate states taking their own leadership roles in climate change policy.


States Are Taking the Lead

At the time of this writing, the U.S. Congress is split on how to address climate change: it’s either through Congress-approved regulatory action or through a neutral approach, where emissions reductions are driven by industry-led initiatives. As a result, the onus falls on the individual states to develop emission reduction frameworks that align with their political, economic, and environmental realities. There have always been states, like California, that have been at the forefront of climate action in the U.S., though there has been a recent uptick in new, state-level climate action, despite the mosaic of political and environmental positions existing throughout the U.S.

The emerging state-level approaches vary from general, all-encompassing, state-wide environmental climate action plans to more focused actions, such as those that singularly promote the build-out of carbon capture and storage (CCS). State-level climate action, through differing approaches, attempts to fill the holes in climate policy and abdication of regulatory authority at the federal level. At a high level, the key actions being taken can be broken down into four policy categories: State Action Plans, Carbon Pricing Systems, Low Carbon Products, and CCS and Class VI Well Primacy.


State Policy Categories: A Primer

To better understand the actions being taken and the implications they may have on your business, we will walk through the four policy categories below.

1. State-Wide Environmental Action Plans: State-wide environmental action plans are the overarching climate policy and strategy toolkits that can be used to reduce emissions and achieve sustainable environmental outcomes. Within these plans, states often include their climate goals, emissions reduction targets, and emissions baselines to ensure the policy and strategy toolkit is utilized to meet these targets. A typical toolkit may include a state’s environmental action plan, along with policies such as carbon pricing systems, greenhouse gas (GHG) reporting regulations, clean fuel standards, low carbon product bid-preference, energy efficiency requirements, and carbon capture and storage (CCS) deployment regulations. Multiple states have committed to environmental action plans with mid-century emissions reduction targets. Most recently, Maryland passed an environmental action plan under the Climate Solutions Now Act of 2022. Maryland has committed to being carbon neutral by 2045, with an interim goal of reducing GHG emissions by 60% by 2030, compared to 2006 emissions levels. Maryland’s Department of the Environment is required to submit a draft environmental action plan by June 30, 2023, along with the policy and strategy toolkit the state will be using to meet the 2030 and 2045 targets.

2. Carbon Pricing Systems: Carbon pricing systems are one of the most effective and efficient emissions reduction policies within the policy and strategy toolkit that are available to states. Carbon pricing systems internalize the economic cost of pollution and provide incentives to industries, governments, and individuals to reduce their carbon emissions. The two most popular systems are a carbon tax and a cap-and-trade system. A carbon tax sets a price per tonne of CO2 emitted that is paid by all participants of the economy. A cap-and-trade system sets a cap on emissions for industries and businesses within covered sectors but allows for individual flexibility through the development of emission trading schemes. Washington state is currently finalizing its rulemaking processes for the Climate Commitment Act, which requires the enactment of a cap-and-trade program (known as cap-and-invest) on January 2023. The rulemaking includes provisions for setting the emissions cap, setting price floors and ceilings on allowances, GHG reporting, establishing emissions-intensive-trade-exposed criteria for industries vulnerable to international and inter-state trading, and establishing carbon offset usage rules.


3. Low Carbon Products
: In an attempt to incentivize new technological innovation, some states have introduced and passed low carbon product procurement policies. These types of policies provide a bid preference for businesses that have reduced the embodied carbon emissions associated with producing the product. Other policies include the promotion of industrial recycling through regulation. The state of California is currently in the process of passing Senate Bill 1297 (SB 1297), which requires public agencies in the state to provide preference to low-embodied carbon building materials where feasible and cost-effective for public projects.

4. Carbon Capture and Storage, and Class VI Well Primacy: While perhaps the most inequitable policy category due to the availability of geological storage in different states, CCS regulations have the potential to lead to the greatest emissions reductions through the geological storage or utilization of industrial CO2. Storing CO2 in the Earth is predicated by the need for a Class VI well permit, which is issued by the EPA (federal jurisdiction). Class VI wells are used to inject CO2 into deep rock formations. In an effort to support the build out of CCS in the U.S., the EPA has created a process to transfer permitting authority to states, thereby reducing administrative burden and improving efficiency. The current Class VI well landscape across the U.S. is fragmented due to the varied control over carbon sequestration rights, or ‘primacy’ over Class VI wells. Primacy identifies whether the Federal or State Government has enforcement authority over Class VI wells permitting. The vast majority of Class VI wells are under the direction of the U.S. EPA and follow a lengthy application process. As companies increasingly discuss and mobilize resources for CCS, the administrative burden on the U.S. EPA grows in parallel. The U.S. EPA lacks the staff and resource capacity necessary to take on a large number of Class VI well applications, which are necessary to sequester CO2 in deep saline aquifers. For this reason, while states are developing regulations and action plans for CCS deployment and sequestration, they are also active in the primary enforcement application process with the U.S. EPA to take primacy over regulating Class VI wells within their state. To receive primacy over Class VI wells, the state must align its standards with the EPA. Class VI primacy is an enabling action that will support the rapid and widespread deployment of CCS throughout the United States.


Conclusion

In the absence of federal authority on climate change regulation, 24 states and the District of Columbia are establishing emissions reduction targets and implementing a plethora of emission reduction initiatives. While one of the most effective policies for reducing emissions is a carbon pricing system, the adoption of regulated carbon markets in the U.S. has been slow.

As states contemplate policy action to reduce the effects of climate change, it elevates the growing need for support of different technological, industrial, and nature-based policy solutions. With properly designed policies, states can support the deployment of CCS solutions and increase acceptance and demand for low carbon products, both of which have significant emission reduction potential.

ClimeCo has vast experience in a wide array of emission reduction initiatives and actively monitors developments throughout the U.S. Please contact us if you want to learn more about our Policy Team’s complete range of services that help companies improve readiness and resilience in the ever-changing regulatory environment.

Update Note: On July 27th, Senator Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY) announced a deal to pass a budget reconciliation bill that would include $369 billion in spending towards climate and energy policies. Most of the incentives from this package are long-term tax credits, which include relief for clean hydrogen fuel development, direct-air-capture deployment, and advanced nuclear projects for heavy industry. Other tax credits are provided for renewable projects in the energy economy, new EV purchases, and residential retrofits for heating, cooling, and power. However, this announcement, as it stands, continues a federal trend to take a bottom-up approach to climate change, which leaves the states taking the regulatory lead on climate change.

 


About the Authors

Wilson Fong is an Associate on ClimeCo’s Sustainability, Policy, and Advisory team, based in Calgary, Alberta. Wilson collaborates with corporate clients to navigate the complexities of carbon markets, model their carbon position, and advise them on emission reduction strategies. He holds a Master of Global Business and Master of Science in International Business from the University of Victoria and Montpellier Business School.

Braeden Larson is a Policy Analyst on ClimeCo’s Sustainability, Policy, and Advisory team, based in Calgary, Alberta. Braeden supports the tracking and analysis of carbon policies throughout North America. He holds a Master of Public Policy from the University of Calgary and a Bachelor of Arts (Honours) with a major in Politics from Acadia University.