EPA to Propose New GHG Provisions in Utility, Refinery NSPS

On December 23, 2010, the U.S. Environmental Protection Agency (EPA) stated its intention to regulate emissions of greenhouse gases (GHG) using New Source Performance Standards (NSPS) (40 CFR Part 60). This action is the result of consent decrees which EPA signed as part of the resolution of multiple lawsuits filed by groups of states and environmental organizations in 2006 and 2008 seeking the issuance of NSPS for GHG emissions. EPA has narrowed its focus to the electricity generation and petroleum refinery sectors since, combined, they produce approximately 40 percent of GHG emissions in the U.S.

The utility NSPS would establish GHG standards for new and modified oil, natural gas, and coal utility boilers, with emission guidelines established for existing units. Per the schedules outlined in the consent decrees, a proposed regulation for utilities is expected by July 26, 2011 with a final rule by May 26, 2012. Similarly, EPA would create GHG standards for new and modified refineries, with GHG emission guidelines for existing refinery sources. A proposed regulation covering GHG emissions from refineries is anticipated by December 15, 2011, with a final rule issued by November 15, 2012. The emission guidelines set forth for existing units would be used by States to develop plans to reduce emissions from existing sources based on demonstrated controls, costs, and expected timeframes for installation and compliance. Compared to the federal guidelines, States may choose to apply less stringent standards with longer compliance periods if the State can demonstrate the federal guidelines are unreasonably costly, physically infeasible, or other factors exist that reasonably prevent facilities from meeting the guidelines.

To facilitate progress towards rule development, EPA has announced several “Listening Sessions” whereby EPA allows the National Petrochemical and Refiners Association (NPRA) and American Petroleum Institute (API) to invite15-20 individuals to contribute to a roundtable discussion with EPA regarding these upcoming NSPS rulemakings. These sessions will be conducted from early February through early March 2011. EPA is seeking interactive discussions on issues such as whether the GHG NSPS should offer incentives or market-based flexibilities to support facilities in reducing GHG emissions below the limits set forth in the rules. The public can attend the sessions and public comments will be accepted at the end of the meetings. The following five sessions are scheduled: February 4th in Washington, DC with power industry officials; February 15th in Atlanta, GA with environmentalists; February 17th in Chicago, IL with state and tribal officials; February 23rd in Washington, DC with members of coalition groups; and finally March 4th in Washington, DC with petroleum refinery representatives.

EPA’s approach in selecting GHG standards in these new NSPS rules will set a precedent for future NSPS GHG rulemakings. Any decision by EPA to offer market-based flexibilities that emulate a “cap-and-trade” approach is expected to receive strong political resistance from lawmakers. Conversely, limited flexibility in these rules could create increased costs at some facilities or dissuade emission reductions at other facilities.

Will EPA be pressured into adopting lenient emission limits since it has previously received congressional criticism on climate rules. Congress will likely view any attempt by EPA to include market-based approaches such as emissions trading as a way to reintroduce a cap-and-trade scheme, which Congress has already voted against in the form of cap-and-trade bills. However, for those facilities that anticipate difficulty immediately complying with the forthcoming rules, some flexibility would be beneficial.

For more information on the consent decrees, see EPA’s Fact Sheet at www.epa.gov/airquality/pdfs/settlementfactsheet.pdf. Trinity will provide relevant updates based on the outcome of the “Listening Sessions” to track progress towards these NSPS rulemakings.