September 20, 2013

EPA’s Authority to Impose Emissions Regulations is Clear under the Clean Air Act

This entire week, the coal industry and electric utilities have been decrying the EPA’s proposed rule, released today, limiting CO2 emissions from new coal-fired power plants. Experts predict the proposed rule will place limits on coal-fired power plants that will make them impossible to operate in the absence of carbon capture and sequestration (CCS) technology, which will significantly increase the cost of running existing plants and building new plants. These costs, as well as today’s low natural gas prices (and low wind prices in some areas), will transform coal from the low cost option for electricity generation in many parts of the country to a higher cost option. In the press, the coal industry and utilities contend that CCS technology is little more than a pipe dream. They argue that the rules will violate the Clean Air Act because CCS is not a commercially feasible technology.

How times change. Several years ago, many in the industry touted carbon capture and sequestration (CCS) as the potential savior for coal. This technology, which had been used on a much smaller scale for years in the oil and gas industry, would capture, compress, transport, and store underground for thousands of years millions of tons of CO2 emitted from coal-fired power plants and other industrial facilities. CCS had strong support in the Bush Administration and the Obama Administration, from coal-friendly members of Congress, and from industry itself.

Why was there so much support for CCS among so many diverse interests groups at that time? Back around 2006-2008, Congressional limits on GHG emission appeared imminent. In 2009, the House passed the Waxman-Markey Bill, which contained the first federal limits on GHG emissions and Senate passage of a similar bill seemed likely. There were numerous provisions in the Waxman-Markey Bill related to CCS, including free emissions allowances for coal-fired power plants that implemented the technology and tens of billions of dollars in funding for demonstration projects, research, and implementation. In other words, CCS was the silver bullet that would save the coal industry and investments in coal-fired power plants around the country.

Industry response to this predicted new regulatory scheme was promising. As only one example, American Electric Power (AEP) initiated a joint project with government and other partners for a CCS demonstration project at its Mountaineer coal-fired power plant in West Virginia, spending millions of dollars for the pilot project and committing many millions more for a larger demonstration project. The pilot project successfully operated in 2009-2010 and the U.S. government and other parties offered significant funding for the demonstration project to begin in 2011.

But then, Congressional action on GHG limits stalled due in part to significant industry pushback, including from the coal and utility industries. By 2011, Congressional efforts to place limits on GHG emissions were dead. In July 2011, AEP abruptly canceled the project. According to some sources:

AEP dropped the project because the company was not certain that state regulators would allow it to recover the additional costs for the CCS project through rate increases charged to its customers. In addition, company officials cited broader economic and policy conditions as reasons for cancelling the project. Some commentators suggested that congressional inaction on setting limits on greenhouse gas emissions, as well as the weak economy, may have diminished the incentives for a company like AEP to invest in CCS. One source concluded that “Phase 2 has been cancelled due to unknown climate policy.”

Fast forward to today. While there are a few CCS projects out there, and the Obama Administration has continued to provide significant funding for CCS, industry support is not what it once was. This, of course, is because there is no reason to invest in expensive CCS technology to capture CO2 in the absence of a carbon tax, a cap-and-trade program, or other limits on GHG emissions. If emissions of CO2 are free, why invest billions of dollars to capture them?

But now EPA is planning to impose those limits and industry is contending that the rules will violate the Clean Air Act because CCS is not a “commercially available technology.” In other words, it’s not a feasible option for compliance because the industry hasn’t continued to develop it. But the Clean Air Act only requires a technological requirement to have been demonstrated in some part of the industry, and that has occurred. The Clean Air Act does not require technological requirements to be favored by competitive advantage. CCS is expensive, but if the coal industry can reach the emission limit with other technology, the industry can do so. Controlling GHG emissions from coal-fired power plants merely internalizes the social cost of pollution instead of externalizing those costs to the greater community. If, in the current market, it is cheaper to produce the same amount of energy with natural gas and still meet GHG limits, then that is merely the workings of the market, not a violation of the Clean Air Act. 

One of the purposes of the Clean Air Act is to spur innovation to allow industry to prosper without placing an undue burden on human health and the environment. EPA’s new CO2 limits on power plants have the potential to significantly reduce GHG emissions from the power sector and, in the process, save millions of lives and billions of dollars in health-related costs by reducing overall emissions from power plants. When faced with the proper financial incentives in the past, industry has been able to adapt. Whether today’s greater abundance of natural gas coupled with EPA’s proposed GHG regulations will continue to reduce demand for coal-fired power is an open question. Low natural gas prices are also an explanation for why investment in CCS technology has waned in recent years. But what is not an open question is that EPA has authority under the Clean Air Act to impose its GHG regulations on coal-fired power plants to protect human health and the environment.

Alexandra Klass, CPR Member Scholar; Professor of Law, University of Minnesota Law School. Bio.

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