The turn of the year always allows time to reflect on what has transpired over the past year and what is to come during the next. This month’s newsletter provides a high-level overview of what to expect on the federal and state regulatory level affecting the domestic energy industry.
EPA Clean Power Plan (CPP) – While the CPP has been one of the highest profile federal regulations of the last few years, the November 8, 2016 election significantly diminished its outlook of ever becoming a reality. Nonetheless, while many in the industry see the rule “as good as dead”, the CPP is officially still on the books and under litigation. Amid awaiting the decision from the US Court of Appeals, supporters of the CPP urged the incoming administration to not completely abandon the CPP and the CO2 New Source Performance Standards (NSPS, see below). The first half of 2017 will show if abandoning the CPP is high on the Trump administration’s priority list headed by (likely) EPA administrator Scott Pruitt.
CO2 NSPS – Is in tandem quandary with the CPP. In August 2015 the EPA finalized NSPS for new power plants for CO2 at 1,400 lbs/MWh, requiring partial carbon capture and sequestration (CCS) for new coal units (New gas-fired units are able to meet this limits without any CCS application). The EPA administration under President Obama denied six petitions for reconsiderations and was subsequently sued by a number of states and industry advocates. The case is awaiting oral arguments in front of the US Court of Appeals during the upcoming months. Petitioners argue that EPA’s technical basis of partial CCS is not adequately demonstrated, incurs excessive cost and energy, and is not commercially achievable.
Social Cost of Carbon (SCC) – Since 2010, the executive branch has used an estimate for the social cost of carbon in its rulemakings. Currently set at around $36/ton, the SCC value is often revised and depends on a few assumptions (e.g. carbon life cycle, damage functions) and assumed discount rates (currently 3%). Changes to the value of the SCC could influence regulatory impact assessments.
Effluent Limitation Guidelines for Steam-Electric Power Industry (ELG) – Finalized in November 2015, the ELG rule sets limitations for effluent water discharge from the ash and scrubber water cycles, requiring wet-to-dry ash conversions and a combination of chemical and biological treatment for scrubber waste water. The rule is currently under litigation in the 5th Circuit of the US Court of Appeals. Brief filings and oral arguments are expected for 2017. Arguments center on EPA withholding cost and performance data used for the ELG development, the coal quality effect on biological treatment performance, premise for gasification wastewater limits, and the assumed bromide impact on drinking water.
1-hr SO2 National Ambient Air Quality Standard (NAAQS) – Set in 2010 at 75 ppb, original areas were designated October 4, 2013, while a second round of area designations was effective September 12, 2016. Currently, there are 32 areas in non-attainment with the 2010 1-hr SO2 NAAQS. Expect to see State Implementation Plan (SIP) revisions for these areas in 2017, possibly requiring additional SO2 emission controls on some coal-fired power plants.
Ozone O3 NAAQS – Revised in 2015 and set at 70 ppb, EPA will likely designate areas as in attainment/non-attainment sometime this year. Subsequently, some states will likely need to revise current SIP for compliance with the 2015 standard. Most eastern states will rely on the Cross-state Air Pollution Rule (CSAPR), for which the EPA recently revised the state budgets for the ozone cap-and-trade program portion of the rule. SIP plans for non-CSAPR states will likely dictate technical solutions such as additional NOx emission controls for power plants located in or near non-attainment areas.
Regional Greenhouse Gas Initiative (RGGI) 2016/17 Program review – RGGI, the CO2 cap-and-trade program in the Northeast US, undergoes program reviews every three years. The 2016/17 program review, which extends into 2017 likely due to the November 8, 2016 election, will likely extend the RGGI program through 2030 and incorporate a emission cap decline of 2.5% or 3.5% per year. Due to the likely absence of a federal CO2 regulation (see CPP above), some states might elect to join the existing 9 RGGI states (e.g. Virginia, New Jersey).
California/Quebec CO2 Cap-and-Trade Program – In September 2016, California revised its CO2 reduction goal. SB 32 now requires the state to reduce its greenhouse gas emissions to 40% below 1990 levels by 2030, a much more ambitious target than the previous goal of hitting 1990 levels by 2020. The California Air and Resources Board (CARB) is currently reviewing the passed legislation and will likely subsequently extend the current CO2 cap-and-trade program beyond its current expiration date of 2020. With Canada pursuing a significant reduction in its own carbon footprint, Quebec’s continued joint efforts with California beyond 2020 are likely. First design elements for this extended cap-and-trade program are expected for 2017, with other states/provinces possibly joining (e.g. Ontario). However, a still undecided law suit against the legality of the California cap-and-trade program could deem the program and illegal tax (since the original law was not passed with a 2/3 majority as required under CA tax law), should the California court side with petitioners.
State Carbon Control Measure Initiatives – With the likely absence of a federal CO2 regulation (see CPP above) in the coming years, more and more states may take matters into their own hands to reduce their carbon foot print by incentivizing no-carbon emitting power generation resources such as nuclear and renewables. Expect more states to raise and expand their current renewable portfolio standards (RPS), join or expand existing CO2 cap-and-trade programs (see RGGI, California), and/or create financial incentives for existing nuclear power plants struggling to remain financially viable in a low demand growth/low power price world (e.g. New York’s Clean Energy Standard, Illinois’ Future Energy Jobs Bill).
Regional Haze Reasonable Progress Determination – So far, initial regional haze program focus was on Best Available Retrofit Technology (BART) determinations for eligible units and if SCR and/or FGD should be considered BART. These plans must be updated for the next period 2019-2023 and will likely focus more on states’ plans for making reasonable progress. Arkansas was a test case in which the EPA FIP would require FGD controls on non-BART units for their reasonable progress determination. If this is a sign of future EPA actions under the new EPA administration remains to be seen.