Weekly Analysis

Previewing Legal Claims, Critics Lob Range Of Attacks At EPA’s GHG Rule

May 6, 2024

Conservative lawyers and other critics are lobbing a range of attacks at the Biden EPA’s power plant greenhouse gas standards that could preview forthcoming legal arguments, including elaborating on claims that carbon capture and storage (CCS) is not sufficiently “demonstrated” to serve as the basis for the rule’s strictest requirements.

They also charge that EPA wrongly used Inflation Reduction Act (IRA) tax credits for CCS to reduce the rule’s projected compliance costs, and that states would struggle to develop compliance strategies for existing power plants regulated by the rule.

“There is no legal basis” for including the IRA credits in the rule’s cost-benefit analysis, argued Mario Loyola, a Heritage Foundation fellow and former Trump White House official, during a May 2 Federalist Society event. That decision is a “fairly brazen accounting trick” to lower the rule’s costs, he added.

EPA’s rule requires long-running coal plants and frequently operating new gas plants to slash their emissions by 2032, based on what can be achieved by running CCS at a 90 percent capture rate. The rule requires more modest GHG cuts for other categories of existing coal and new gas plants.

But industry critics have strongly attacked the CCS-based standards, asserting the technology is not mature enough to be “adequately demonstrated” -- a key requirement to serve as the basis for standards under section 111 of the Clean Air Act (CAA).

“Certainly, at minimum, I don’t think there’s a facility out there that captures at 90 percent consistently,” said Emily Fisher of the Edison Electric Institute (EEI) during a separate May 2 event hosted by Resources for the Future (RFF). This is a “a concern” for utilities trying to comply.

These hurdles for deploying CCS will snarl state officials’ attempts to write implementation plans for existing sources, Doug Benevento, Trump-era acting EPA Deputy Administrator, added in an interview with Inside EPA’s Climate Extra. He says state officials tell him they will be unable to meet the rule’s two-year deadline for writing plans.

Such arguments likely preview claims in litigation that will be filed once the rule is formally published in the coming weeks, with critics expected to ask an appellate court to quickly pause implementation of the measure.

Absent a stay of the rule, Jackson Walker attorney Mike Nasi told the outlet WyoFile that the “regulatory uncertainty that ensues while the case is litigated for two to three or four years requires people to make capital investments [that are] at risk, and people will simply retire units rather than taking that risk.”

‘Questionable Tactic’

EPA’s assessment of CCS costs accounts for the IRA’s “section 45Q” credit for carbon storage, finding those incentives would help reduce deployment costs for the technology and bolster the agency’s finding that CCS is the “best system of emission reduction” (BSER) used to set targets.

But Loyola of the Heritage Foundation charged that EPA’s cost analysis “is like saying that costs disappear when you shift them from people in their capacity as electricity ratepayers to people -- the same people -- in their capacity as taxpayers.”

Benevento adds that he is “kind of skeptical” that EPA can use the IRA incentives to lower the rule’s projected costs, calling that a “questionable tactic.”

EPA is “making assumptions about people being able to access those funds and whether the people that need them will be the people that will get them,” he says. Plus, it is “unclear to me that there is enough IRA money” to cover all the CCS installation that would be needed under the rule.

EEI’s Fisher separately noted that the 45Q credits are only available to early adopters of CCS, and they “will not actually be available potentially during most of the time which we actually have to comply with the rule, so post-2032.”

But EPA air chief Joe Goffman told the RFF event that EPA officials also “expect” the 45Q credit to encourage CCS deployment sooner than 2032.

EPA in the rule argues it is “reasonable to take the tax credit into account because it reduces the cost of the controls to the source, which has a significant effect on the actual cost of installing and operating CCS.” Plus, all regulated plants that might install CCS are eligible for 45Q.

The agency also cites prior CAA rules that considered the effects of tax credits in their cost analysis. And, a formal statement issued alongside IRA passage from then-House Energy & Commerce Committee Chairman Frank Pallone (D-NJ) said the law’s CCS tax credits “may also figure into CAA Section 111 GHG regulations for new and existing industrial sources.”

But Loyola said that statement is from just one lawmaker and does not necessarily capture the full legislative intent of the IRA.

Adequately Demonstrated

Regarding the flagship argument over whether CCS is “adequately demonstrated,” Loyola said that term “means that somebody in the industry has successfully used it to achieve the mandated emissions rate,” but that no fossil fuel-fired power plant in the world has gotten “anywhere near” those reductions.

EPA’s final rule text cites myriad examples of CCS. Goffman at the RFF event cited “at least two facilities that are currently operating CCS” -- Boundary Dam in Canada and Petra Nova in Texas -- in addition to a “number of other facilities that are applying operating components of CCS systems.”

The rule text finds that “the technological advances from full-scale deployments” like Petra Nova and Boundary Dam, “combined with” supportive state policies and IRA incentives, “mean that CCS can be deployed at scale today.”

Petra Nova, the first at-scale use of carbon capture at a U.S. coal plant, began operating in 2017. It idled in 2020 due to economic issues and then restarted in 2023. The project captured 92.4 percent of the CO2 from the slip stream of processed flue gas, and sequestered 99.08 percent of the captured CO2 via enhanced oil recovery, EPA says.

Boundary Dam “Unit 3,” meanwhile, has recently achieved an 83 percent capture rate. The unit has also achieved short periods of up to 89.7 percent capture.

Benevento, though, was skeptical those demonstration projects prove CCS meets a BSER threshold, arguing it is problematic to apply the technology nationwide “irrespective of geological conditions, irrespective of infrastructure, and irrespective of whether the state can set up a legal structure to manage it.”

Jeff Holmstead, the former Bush EPA air chief who is now an attorney with Bracewell, told the Federalist Society event that permit delays could slow CCS deployment, which would allow coal plants to stay open while complying with the rule. Even though Biden officials “mandate” CCS, and “supposedly support” the technology, he criticized them for being slow to approve carbon sequestration permits.

Loyola also asserted that carbon pipelines needed to install CCS are “outside of EPA’s jurisdiction, [and] its expertise.”

“EPA has no idea how long it would take or how much it would cost to build the enormous infrastructure that would be required for utilities to be able to comply with this rule,” he claimed.

A related question that could arise in litigation, Fisher said, is whether EPA can “incorporate lead time into the compliance of the standard,” which EPA did by setting a 2032 deadline for certain plants to install CCS.

‘Infeasible’ Implementation

Section 111 rules are designed to provide flexibility by allowing states to implement the standard level that EPA sets however works best for their fleets.

EEI’s Fisher argued that flexibility exists in theory, but it is “going to be really challenging” given the CCS-based standards requiring such a high level of emissions reduction. “I don’t know what other options there are” to meet that emissions threshold, she said.

She contrasted that dynamic with EPA’s mercury and air toxics (MATS) rule, where “people often took a variety of options to get to the emissions rate . . . because there were a variety of options out there.”

Benevento similarly says that he does not believe “there is anybody out there” who thinks CCS is “viable,” so states will now have to consider other options when writing plans for existing coal plants.

The two years for such plans is “infeasible,” he says, citing conversations he has had with state air directors who say that timeline is “going to be unmanageable for them,” especially as they are implementing multiple other EPA rules.

But Goffman flagged a number of flexibilities for states, including emissions trading programs such as the Northeast’s Regional Greenhouse Gas Initiative. He says states can show their existing programs meet the EPA standards, or they can make revisions to their programs to meet the criteria.

Even though EPA did not finalize hydrogen co-firing as a BSER due to “uncertainties” about its performance, “hydrogen remains a compliance option.”

Loyola during a separate conversation with former FERC Commissioner James Danly (R) also raised concerns about grid reliability problems caused by EPA’s rules. He cited remarks from the head of Buckeye Power that the Ohio power co-op will have to retire 80 percent of its generation capacity, and isn’t sure how to replace it.

But Danly argued that “one way or another, the needed generation is not going to be retiring.” Instead, grid officials would try to issue a series of emergency orders, though such a disorderly process would raise prices, among other issues, he said. -- Abigail Mihaly (amihaly@iwpnews.com)