EPA Bets on Low-GHG Hydrogen and Carbon Capture & Sequestration Technologies in Latest Proposed Power Plant Clean Air Act Rule

Legal Intelligencer

(by Gary Steinbauer and Christina Puhnaty)

In the nearly decade-long saga to regulate greenhouse gas (GHG) emissions from fossil fuel-fired power plants, the U.S. EPA recently began the rulemaking process for a new set of regulations that would impose restrictions on emission units at new and existing power plants. On May 23, 2023, the U.S. EPA published a proposed rule entitled “New Source Performance Standards for Greenhouse Gas Emissions From New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions From Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule” (Proposed Rule), starting a comment period that ends on July 24, 2023. 88 Fed. Reg. 33,240 (May 23, 2023). EPA’s Proposed Rule relies heavily on hydrogen co-firing and carbon capture and sequestration (CCS) deployment as part of the decarbonization of the power-producing sector.

In the Proposed Rule, EPA proposes five distinct actions under section 111 of the Clean Air Act (CAA). First, EPA is proposing to amend existing New Source Performance Standards (NSPS) for GHG emissions from new and reconstructed fossil fuel-fired stationary combustion turbine EGUs. Second, EPA is proposing to amend existing NSPS for GHG emissions from fossil fuel-fired steam generating units that undergo a large modification. Third, EPA is proposing emissions guidelines for GHG emissions from existing fossil fuel-fired steam generating EGUs (including coal, oil, and gas-fired steam generating EGUs). Fourth, EPA is proposing emissions guidelines for GHG emissions from the “largest, most frequently operated” existing stationary combustion turbines. Lastly, EPA is proposing to repeal the Affordable Clean Energy (ACE) Rule promulgated by the Trump administration in 2019 because “the emissions guidelines established in ACE do not reflect the Best System of Emissions Reduction (BSER) for steam generating EGUs and are inconsistent with section 111 of the CAA in other respects.” 88 Fed. Reg. at 33,243.

Under section 111 of the CAA, EPA identifies source categories that emit dangerous air pollutants and establishes NSPS for new sources of dangerous air pollutants in that source category, as well as emissions guidelines for certain pollutants from existing sources in that source category. 42 U.S.C. § 7411. In promulgating NSPS and emissions guidelines, EPA must determine the best system of emission reduction (BSER)—taking into account the cost of the reductions, health and environmental impacts, and energy requirements—that is “adequately demonstrated” for the purpose of improving the emissions performance of the covered sources. EPA notes in the Proposed Rule that the agency “may determine a control to be ‘adequately demonstrated’ even if it is new and not yet in widespread commercial use, and, further, that the EPA may reasonably project the development of a control system at a future time and establish requirements that take effect at that time.” The technologies that are “new” and “not yet in widespread commercial use” are CCS and low-GHG fuels/hydrogen co-firing, technologies that could allow steam generating EGUs and stationary combustion turbines to continue producing power with less GHG emissions.

EPA’s reliance on CCS and low-GHG hydrogen in the Proposed Rule is based on Congressional support of these technologies in the 2021 Infrastructure Investment and Jobs Act (IIJA, also known as the Bipartisan Infrastructure Law) and the 2022 Inflation Reduction Act (IRA). The IIJA provided more than $65 billion for infrastructure investments and upgrades for clean energy technologies, including low-GHG hydrogen. Several IIJA programs are intended to improve the country’s transmission capacity and pipeline infrastructure, including the Carbon Dioxide Transportation Infrastructure Finance and Innovation Program to provide federal funding to build carbon dioxide (CO2) pipelines. The IIJA also allocated $8 billion for the development of regional clean hydrogen hubs across the United States.

The IRA also increased Internal Revenue Code section 45Q tax incentives for the capture and storage of CO2, including from coal-fired steam generating units and natural gas-fired stationary combustion turbines. This 70 percent increase in credit values equals $85 per metric ton for CO2 captured and securely stored in geologic formations and $60 per metric ton for CO2 captured and utilized or securely stored incidentally in conjunction with enhanced oil recovery. New provisions of the Internal Revenue Code at 45V provide tax credits for clean hydrogen, utilizing a tiered approach based on the estimated GHG emissions from the hydrogen production process.

The agency also notes that many utilities across the country have made public commitments to stop using coal and move towards low-GHG energy generation. Relying on these financial incentives and commitments, EPA concludes that low-GHG hydrogen co-firing and CCS are sufficiently achievable such that the agency can establish these technologies as the BSER for GHGs in the power sector.

EPA dismisses any potential legal concerns with the emerging nature of hydrogen and CCS technologies. More specifically, to show that a system of emissions reduction is “adequately demonstrated” to be an achievable emission limitation, the system must be “one which has been shown to be reasonably reliable, reasonably efficient, and which can reasonably be expected to serve the interests of pollution control without becoming exorbitantly costly in an economic or environmental way.” Essex Chem. Corp. v. Ruckelshaus, 486 F.2d 427, 433 (D.C. Cir. 1973), cert. denied, 416 U.S. 969 (1974). In the Proposed Rule, EPA cites Sierra Club v. Costle, 657 F.2d 298, 364 (D.C. Cir. 1981) to justify its reliance on new technology that is not yet in widespread commercial use, stating that EPA may “hold the industry to a standard of improved design and operational advances, so long as there is substantial evidence that such improvements are feasible.” According to EPA and its review of relevant case law, “common sense dictates that the EPA may promulgate a rulemaking that imposes a standard on the sources, but establishes the date for compliance as a date-certain in the future, consistent with the period of time the source needs to install and start operating the control equipment.” 88 Fed. Reg. at 33,273. The Proposed Rule lays out timelines for the implementation and adoption of low-GHG hydrogen co-firing and CCS technologies at regulated emission units that EPA projects will provide sufficient time to manufacture the necessary control equipment and ensure that the necessary infrastructure upgrades are made to support these technologies.

EPA is also required by section 111(a)(1) of the CAA to take into account the cost of achieving an emission reduction and the extent to which emissions are reduced when determining whether an emission control is the “best system of emission reduction . . . adequately demonstrated.” When considering the cost of low-GHG hydrogen and CCS technologies in the Proposed Rule, EPA considered both the pre and post-IIJA and IRA cost effectiveness, i.e., costs in dollars per metric ton of GHG reduced. See, e.g., Hydrogen in Combustion Turbine Electric Generating Units, Technical Support Document, EPA Docket ID No. EPA-HQ-OAR-2023-0072 (May 23, 2023), https://www.epa.gov/system/files/documents/2023-05/TSD%20-%20Hydrogen%20in%20Combustion%20Turbine%20EGUs.pdf (Hydrogen TSD). When considering the costs of co-firing hydrogen in combustion turbines, for example, EPA recognized three sets of potential costs: (1) the capital costs of combustion turbines that have the capability of co-firing hydrogen; (2) pipeline infrastructure to deliver hydrogen; and (3) the fuel costs related to production of low-GHG hydrogen. Similarly, when evaluating the costs of CCS for new combined cycle units, for example, EPA considered the cost of installing and operating CO2 capture equipment as well as the costs of CO2 transport and storage. See, e.g., Carbon Capture and Storage for Combustion Turbines, Technical Support Document, Docket ID No. EPA-HQ-OAR-2023-0072 (May 23, 2023), https://www.epa.gov/system/files/documents/2023-05/TSD%20-%20GHG%20Mitigation%20Measures%20for%20Combustion%20Turbines.pdf.

The Proposed Rule is expected to garner significant interest by the regulated community, States, and environmental groups. Time will tell whether EPA hits the jackpot on its bet on hydrogen and CCS technologies in its latest suite of CAA regulations aimed at reducing GHG emissions from the power sector.

Gary Steinbauer is a shareholder and Christina Puhnaty is an associate in Babst, Calland, Clements and Zomnir’s environmental group. Their practices focus largely on matters arising under the Clean Air Act, analogous state clean air laws, and their implementing regulations. Contact them at gsteinbauer@babstcalland.com and cpuhnaty@babstcalland.com.

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Reprinted with permission from the June 8, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.