COAL COMPANY HEADS SAY EPA PERFORMANCE STANDARDS WILL DISINCENTIVIZE CCS

Tamar Hallerman
GHG Monitor
07/20/12

Coal company and utility executives testifying at a House Energy and Power Subcommittee field hearing this week said that proposed Environmental Protection Agency performance standards for new fossil fuel-fired units will disincentivize companies from investing in carbon capture and storage because the technology is not yet developed enough to be cost-competitive with natural gas. At the hearing, held in Abingdon, Va., the heart of Virginia coal country, the coal executives argued that the proposed rulemaking could have the opposite intended political effect on the power sector—with companies instead choosing to invest in other technologies due to CCS’ current high costs. “Simply put, performance standards will not succeed at forcing the adoption of CCS technologies,” said Dominion CEO Thomas Farrell in his testimony. “The CCS requirement will create an insurmountable hurdle to obtaining financing and securing public utility commission approval for new coal stations.”

Alpha Natural Resources President Paul Vining said that the rule, if finalized in its current form, could “inhibit and preclude any large-scale attempts to pursue coal-with-CCS in the first place” because the technological standards are too tight. With the CO2 emissions level currently proposed under the standard, utilities will likely opt to go for cheaper, more proven technologies like natural gas combined cycle over ones that have not been commercially demonstrated like CCS, he said. “EPA’s proposed NSPS for greenhouse gases has arguably created, for no environmental benefit, the biggest single hurdle that CCS development has faced to date,” he said.

Standard Sets 1,000 Lbs/MWh Limit for Fossil Units

Proposed in late March under a settlement agreement, EPA’s New Source Performance Standards (NSPS) set a limit on the amount of carbon dioxide that can be emitted by new fossil fuel-fired units larger than 25 MW. The proposal calls for an emissions limit of 1,000 pounds of CO2 per megawatt hour—similar to the emissions rate of an uncontrolled natural gas combined cycle unit—and would essentially bar any unmitigated coal units from being built. In order to comply, utilities could switch to higher-efficiency natural gas, install CCS technology or move towards adopting renewable and other low-carbon generation that meet the emissions standard, EPA said.

In order to help incentivize the development CCS, EPA said operators could choose to average the emissions of a unit over a 30-year period. Under that pathway, for example, operators could build a new unmitigated coal unit and emit up to 1,800 lbs CO2/MWh during the first decade of operation and later add CCS and emit less—roughly 600 lbs CO2/MWh—for the remaining 20 years, as long as the emissions average 1,000 lbs of CO2 over the 30-year period. At the time of the rule’s release, EPA Administrator Lisa Jackson said that the averaging pathway allows a pathway for CCS commercialization and that utilities could install it as a way to comply with the standard. “CCS is on the path to being viable,” Jackson said at the time. “It is being permitted and built and demonstrated today, and it will become increasingly used.”

Farrell: EPA ‘Forcing’ CCS into the Marketplace

Farrell said that EPA is trying to erroneously “force” CCS into the marketplace. “Even though EPA acknowledges that CCS technology is not commercially available at this time, it seems clear that the Agency’s intent is to use this new rule to force CCS into the marketplace,” he said. “However, this so-called alternative compliance is not a viable option, nor does it meet the requirements of the Clean Air Act which provides that any performance standard must be shown to be achievable.” The Dominion chief cited a recently released Congressional Budget Office report that says that current U.S. investments in CCS are not enough to deploy the technology on a widespread and cost-competitive basis. 

Vining said that even with the NSPS in place, companies will likely shy away from investing in CCS until the risk declines enough and equipment manufacturers can start offering technology guarantees to utilities. “EPA’s 30-year averaging provision doesn’t adequately address this investment risk, particularly without manufacturer guarantees for the yet-to-be-deployed technology,” he said. Farrell and John Voyles Jr., vice president for Transmission and Generation at LG&E and KU Energy, said they expect that under the currently proposed standard companies will likely move away from coal and look to gas, not CCS, to fill their power generation gaps.

Company Leaders Request Coal-Only Standard

During the hearing, the executives also faulted EPA for crafting performance standards that are technologically neutral. Under the NSPS as proposed, all fossil capacity will have to meet the 1,000 lbs/MWh standard—not just coal units. They argued that the policy breaks from Clean Air Act precedent and that they worry that it could set a bad trend for future EPA regulations. “It is important to note that in the history of Clean Air Act implementation, EPA has never set a single standard for all power plants based on an emissions limit that can be achieved by one fuel only and by one technology with the lowest emissions rate,” Farrell said. “This well-established regulatory approach should be followed in setting standards for CO2 limits at new, modified and existing facilities.”

Voyles said that the performance standard is set low enough so that the only commercially available compliance technology is natural gas combined cycle (NGCC). He said the standard, then, is the equivalent of EPA advocating for a single energy technology, which he said is unlawful. “The Clean Air Act does not allow EPA to mandate a particular fuel and generation technology, which is exactly what the agency has done in requiring coal-fired generation to comply with a standard based on new natural gas combined cycle plants using a specified technology,” he said. Farrell said that a technology neutral standard that pushes generators towards NGCC technology will threaten the diversity of the country’s electricity generating fleet. He recommended that the final NSPS be revised to incorporate a separate standard for coal-fired generation—one that at least doubles the performance standard to 2,000 lbs/MWh. He also suggested that EPA widen the performance standard for gas to 1,100 lbs/MWh to help provide flexibility during unit startups and shutdowns, he said.

Third NSPS Hearing This Summer

The field hearing, which included none of the subcommittee’s Democratic members or testimony from any EPA officials, was the Energy and Power panel’s third on EPA’s NSPS this summer. Critics of the regulations speaking at earlier hearings also argued similar points about the rulemaking and its impacts on CCS and the coal industry. Subcommittee Chairman Ed Whitfield (R-Ky.) said that it was important to hold a hearing on the topic in a coal-bearing region in order to highlight the troubles that coal country would face under the standards. “In this part of Virginia, a number of people make their living directly from coal and they are justifiably worried. But what many don’t understand is that a coal mine is often the major employer in its community and that the rest of the local economy depends on it,” Whitfield said during his opening statement. “The same is true for coal-fired power plants and manufacturers that rely on coal. Thus, when EPA decides to close a mine or enact rules and regulations that make it prohibitively expensive to continue using coal, the impacts reverberate all across the region.”