The U.S. Environmental Protection Agency is developing a number of new regulations for the power sector governing air emissions, cooling water intake structures, and coal combustion waste disposal methods. Combined, these regulations have the potential to drive as much as 40% of existing coal-fired generating units to retire in the next 10 years, representing about 51 GW.
Over the past two-plus years, we have heard the regulatory drumbeat for the coal-fired power sector quicken and increase in volume. The U.S. Environmental Protection Agency (EPA) has, in quick succession, begun new rulemaking to reduce air emissions, established criteria for using once-through cooling water and its structures, and reopened the question of coal ash waste classification and disposal. The regulatory approach, driven largely by legal requirements, has also changed from past administrations. The plant-level, rather than market-based, structure of most expected regulations will force utility and merchant generators to address new control technology uncertainty, and how that uncertainty impacts future resource planning, in a relatively short period of time.
Under the coming rules, the critical uncertainties and trade-offs surrounding compliance planning will shift away from second-guessing legislative efforts and potential reliance on emission credit (allowance) markets. The EPA is developing a set of new rules within the confines of existing law and, in many cases, subject to court-ordered deadlines. That means that these rules will be implemented, barring any moves by Congress to actively delay their implementation (unlikely) or develop a legislative alternative (even less likely).
The role of allowance markets in the EPA’s compliance calculations will also be diminished. With the exception of the new Clean Air Transport Rule, expect the EPA rulemaking over the next two years to focus on compliance requirements at the plant level, rather than on broader regional or national cap-and-trade mechanisms, as was the case with the Acid Rain Program begun in 1995. As a result, compliance uncertainties are shifting away from allowance market economics and legislative analysis toward the economic viability of each plant and the effectiveness of controls at achieving the necessary emission reduction levels. However, the same fuel and power market factors, including natural gas prices, will be just as relevant as in the past. In addition, uncertainty over future CO2 regulations adds another layer of complexity to future resource planning.
New Rules, No Legislation
The EPA is currently working on a number of new regulations under the Clean Air Act (CAA), Clean Water Act (CWA), and Resource Conservation and Recovery Act (RCRA). The most pressing of those for coal-fired generators are the Clean Air Transport Rule (CATR) and the hazardous air pollutants maximum achievable control technology standards (HAPs MACT) under the CAA, the cooling water intake structure requirements under the CWA, and the coal combustion residuals- (ash-) handling requirements under RCRA. The EPA has proposed these new rules under the existing laws but has yet to finalize them. The final CATR and HAPs MACT rules are due this year, in July and November, respectively, while the water intake and ash rules are not due until 2012. Three of the four proposed rules (excluding CATR) require compliance at the plant level if plants wish to continue operating.
Air Rulemaking. The EPA introduced CATR as the replacement for the Clean Air Interstate Rule, which the U.S. Court of Appeals (D.C. Circuit) remanded back to the agency in 2008 for reconsideration. Of the four rules noted above, CATR is the only program with an allowance-trading component. It will implement a cap-and-trade program to reduce emissions of SO2 and NOx in the eastern U.S. to help states meet and maintain National Ambient Air Quality Standards for particulate matter (PM) and ozone. The EPA plans to start the program in 2012 with two regional allowance trading programs for SO2 emissions, one for annual NOx emissions, and one for ozone season (May through September) NOx emissions. Starting in 2014, the rule will limit allowance trading by requiring that emissions in affected states meet or fall below state-specific allowance budgets (caps) that the agency is developing.
The most anticipated new regulation by owners of coal-fired capacity is the HAPs MACT, or Toxics Rule (see “Anticipating the New Utility MACT Rules,” January 2011 in the POWER archives at http://www.powermag.com). The rule, proposed by the EPA on March 16, 2011, requires control of three hazardous air pollutants: mercury, hydrochloric acid (as a surrogate for the acid gases), and PM (as a surrogate for the nonmercury metals).
The proposed rule also calls for routine equipment maintenance to ensure optimal fuel combustion to reduce emissions of organic air toxics and dioxins/furans. Affected sources will include all coal-fired units over 25 MW. The rule imposes emission standards at the plant level for each surrogate gas.
Because the proposed MACT regulations allow for plant averaging, owners will be required to decide if they need to control each unit to meet the standard or retire some or all units at a plant. Plants will have three to four years from the publication date of the final rule to comply, depending on extensions that may be granted by the states.
Water Rulemaking. Section 316(b) of the CWA addresses withdrawals for cooling by point sources subject to the National Pollutant Discharge Elimination System (NPDES) program (see “Cooling Water Intake Structure Regulations,” October 2008). The EPA’s proposed rule under 316(b) will cover large existing thermal generating units (Phase II facilities, including coal-fired, nuclear, and other steam units) with flow design rates of 2 million gallons/day or greater for the impingement part of the standard and 125 million gallons per day for entrainment. It also will require compliance investments at plants with once-through intake systems. Compliance with the new regulation will be determined by the state and phased in over time as units come up for new NPDES permits.
Ash Rulemaking. Following the ash pond failure at Tennessee Valley Authority’s Kingston plant in 2008, the EPA released a proposed rule in April 2010 for the disposal of coal combustion residuals (CCRs). CCRs include fly ash, bottom ash, boiler slag, and flue gas desulfurization materials (see “New Federal Rules for Coal Ash Storage on the Horizon,” May 2009). In its proposal, the agency offered two potential regulatory approaches: one under RCRA Subtitle C and another under Subtitle D. Both approaches require that ash handling going forward be converted from wet to dry handling. Regulation under Subtitle C would require that such waste be handled as hazardous, which would impact disposal costs for ash at all plants. Subtitle D would not treat the ash as hazardous but would still effectively require that plants convert from wet to dry handling and close existing ash ponds. A subset of the Subtitle D approach, titled “D prime,” would allow plants to keep their existing ash ponds in place. The EPA will publish the final rule in 2012.
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