US EPA Proposed Regulations for Power Plant Emissions – Natural Gas to the Rescue

US EPA Proposed Regulations for Power Plant Emissions – Natural Gas to the Rescue

The U.S. Environmental Protection Agency (EPA) has proposed a new rule, called Greenhouse Gas Standards and Guidelines for Fossil Fuel-fired Power Plants (“the rule or rules”).  The new rule aims to limit carbon dioxide emissions from power plants. These rules, if implemented, are expected to accelerate the ongoing transition from coal-fired plants to lower carbon power generation, including natural gas, across much of the country.

The proposed standards would require fossil fuel-fired electric generating units to reduce their carbon dioxide emissions below a specified rate, measured as a standard level of performance achievable through the use of the best available technologies. This could force many older, less efficient coal plants to convert to natural gas, or shut down entirely.

While the rules have garnered both praise and criticism so far, they would likely lead to noticeable reductions in greenhouse gas emissions from the power sector. However, the regulations also raise challenges around ensuring reliable and affordable electricity as the nation moves to cleaner sources of energy.

This article explores the key elements of the EPA’s proposal, industry and stakeholder reactions thus far, the transition from coal to natural gas generation it could trigger, and the climate, grid reliability, and cost implications that may flow from these GHG standards.

EPA’s Proposal

The EPA’s proposed rule aims to cut carbon dioxide emissions from the power sector by strengthening existing standards and setting new guidelines for coal and natural gas plants. Specifically, it would tighten the New Source Performance Standards (NSPS) for new natural gas units, establish the first federal carbon standards for existing fossil fuel plants, and create separate standards based on technology, age, size, and utilization of units.

The EPA claims that its initiative is expected to mitigate up to 617 million metric tons of CO2 emissions through 2042, equivalent to the annual emissions from about half of the vehicles in the United States. Alongside CO2, the proposal aims to substantially reduce emissions of particulate matter (PM2.5), sulfur dioxide, and nitrogen oxide.

The rule also relies heavily on carbon capture and storage (CCS) to achieve emission reductions, especially for efficiently operating coal plants and new combined cycle gas turbines. It also incorporates natural gas co-firing at coal plants and co-firing of natural gas with clean hydrogen as potential compliance options. The industry has also pointed out the critical role of new and existing natural gas generation in this transition, emphasizing the need for a balanced approach that supports the nation’s clean energy goals without compromising the stability of the power supply.

Industry Reactions and Concerns

The power industry cautions the plan could negatively impact reliability and electricity prices if the costs of compliance are unreasonable. Retrofitting carbon capture systems requires substantial capital investment, though the EPA argues new tax credits and private financing can alleviate this concern. Companies also worry unproven CCS could carry technology risks.

The Edison Electric Institute (EEI) has engaged with the EPA to stress priorities around timeline alignment with utility transition plans, recognizing gas’s reliability role, and technology inclusion. EEI maintains focus on the power sector’s ongoing emissions progress, citing 2022 carbon levels on par with 1984 despite climbing electricity demand.

Devin Hartman of the R Street Institute contends the proposal offers modest climate benefits at a steep cost due to the commercially unproven scale of technologies like carbon capture. In his view, the legally questionable regulatory approach could further endanger strained grid reliability, which underscores the need for legislative climate policy. Hartman suggests regulators should instead reduce barriers around developing new power plants, the actual driver of reliability.

The Electric Power Research Institute (EPRI) submitted comments to the EPA on the proposed ruling[1].  EPRI has been involved in decarbonization-related research for more than five decades and is a leader in global collaboration surrounding the transition to low-carbon energy.  Through its review, EPRI has developed technical recommendations with a focus on maintaining reliability, affordability, and equity for consumers through the clean energy transition.  EPRI brings forward the following concerns:

• Emerging Technologies: The emerging technologies identified in the rules—CCS and hydrogen—have seen little to no deployment at scale so far and depend on new infrastructure with impacts to project timelines, feasibility, and costs beyond the scope of EPA’s analysis.  Although the proposed rules treat CCS and hydrogen similarly, they are two very different technologies that are not comparable in their greenhouse gas (GHG) reduction impacts or timelines to scale. These emerging resources require entire new supporting infrastructure (production, pipelines, and storage for hydrogen; pipelines and storage for CCS), and should be considered in their entirety to fully understand the potential benefits, costs, and deployment challenges and opportunities.
• CCS deployment: The power industry’s experience with full-scale construction, deployment, and operation of CCS technology is nascent. A phased approach to CCS deployment is needed in order to answer key questions around costs, development, and operation prior to industry-level deployment.  In particular, the rules’ cost assumptions are not representative of current trends.  Also, research has shown that adding CCS to operating facilities reduces flexibility, potentially impacting steam pressures, ramping rates, and minimum load.  Access to and feasibility of CO2 transport and storage infrastructure varies across regions.  Regional differences can significantly impact cost and feasibility, leading to inaccurate cost estimates if these differences are not considered.
• Hydrogen: Hydrogen power generation has the potential to play an important role as part of a net-zero economy, however it is an emerging resource and has not been demonstrated at the scale envisioned in the rules.  Low-GHG hydrogen is not available at commercial scale today.  Deployment at the scale proposed by the rules would require new infrastructure, markets, policies, and technologies.
• RIA Modeling: Assumptions modeled in the Regulatory Impact Analysis (RIA) do not reflect the impacts on the power sector, environment, customers, and communities.  For example, the current modeling likely overstates renewables deployment and understates firm capacity and energy storage deployment.  Technology modeling and cost assumptions do not account for the full infrastructure needed to support CCS and low carbon hydrogen, reflect aggressive deployment timelines, and do not reflect the uncertainty associated with these technologies. With respect to air quality, RIA modeling to calculate air quality health benefits should consider a more robust analysis of uncertainty, the full effects of co-pollutants, and potential air quality impacts of the chemicals used in carbon capture processes.
• Electrification growth: Anticipated end-use electrification trends and their impacts on electricity demand growth, load profiles, and flexible demand may impact the costs and emissions associated with the rules.
• Climate and net benefits: The social cost of carbon (SCC) methodology and estimates—critical inputs into the climate benefit calculations in the RIA—should be revised to produce scientifically grounded and robust climate and net benefits estimates.
• Customer and community impacts: The Environmental Justice (EJ) Impacts section of the RIA, which analyzes the effects of the proposed rules on disadvantaged communities, should be augmented to include considerations beyond air quality, quantify cumulative impacts, and assess the full proposed rules rather than a subset of the standards.

If the compliance timelines are too aggressive, it may force abrupt coal retirements that outpace the construction of new gas capacity and transmission needed to fill the gap. While the EPA has coordinating authority with energy agencies, modeling different phase-out schemes will be imperative. Overall, the industry seeks greater flexibility even if it means less ambitious climate targets.

Ensuring equitable protections for workers and communities also poses challenges. Transition assistance programs will be vital as coal plant closures accelerate. The faster shift from coal to gas may address environmental justice issues over the long term but still cause disruptions for many towns in the near term.

Impact on Coal and Natural Gas Power Plants

The EPA’s proposal is expected to have a substantial impact on coal power plants across the country. The EPA estimates that carbon emissions from power plants will drop by 63% in 2030 and as much as 83% in 2040.

This will likely lead to the retirement of less efficient and older coal plants that cannot economically justify the required upgrades. Mitigating retirements of coal plants is the potential for natural gas co-firing which can result in lower emissions, reduction in environmental controls, and reduced maintenance and fuel costs.  Still, the shift is anticipated to decrease coal’s share in the power generation mix, a move aligned with broader decarbonization goals but presenting challenges for regions heavily reliant on coal for energy and employment.

Natural Gas Power Plant Capacity Impact

For natural gas power plants, the impact of the EPA’s standards is nuanced. While the proposal encourages the construction of new, more efficient natural gas plants equipped with carbon capture technologies or the capability to co-fire with low-GHG hydrogen, it also sets stringent emissions standards that existing plants must meet.

This could stimulate some investment in modernization and efficiency improvements among the existing fleet of natural gas plants. However, the inclusion of CCS and hydrogen co-firing may impose financial and operational challenges, particularly for plants not designed to accommodate such technologies.

Technologies and Compliance Pathways

The EPA’s plan relies heavily on the deployment of carbon capture and storage (CCS) to curb emissions, especially from coal plants and less efficient gas combined cycle units that operate frequently. Capturing and sequestering 90% of carbon is identified as the Best System of Emissions Reduction (BSER) for these subcategories. The new tax credits for CCS under the Inflation Reduction Act are outlined by the EPA to improve the economic feasibility.

For less utilized coal units, the compliance options include co-firing with natural gas (see EPA performance standards for Natural Gas co-firing), clean hydrogen or meeting unit-specific emission rate standards. These pathways avoid requiring expensive CCS retrofits on plants that may soon retire. Older, smaller gas combustion turbines can also limit emissions via clean hydrogen co-firing rather than installing carbon capture equipment.

However, EPRI points out that early experience with existing power generation CCS facilities has presented challenges. Particular difficulties with CCS surround cost, operation, availability, and achieving a 90% capture rate. The rules use optimistic assumptions about cost, project schedule, operational flexibility, regional viability for CCS, and accessibility of Inflation Reduction Act (IRA) incentives.

EPA claims their tailored approach provides flexibility for companies to choose how to best meet the standards based on their units. It asserts that grid operators can plan around proposed timelines for emission controls, though some modifications may still be needed to preserve reliability as coal plants shutter. For now, though, EPA and power generators may be in different places as to whether the proposed rule enables a realistic path for the continued transition from coal to other technologies in a climate-friendly manner.

The Road Ahead–Timing for Implementation

The EPA’s proposal sets forth a phased approach aimed at balancing the urgency of climate action with the practicalities of industry adaptation.  However, power industry participants question whether the proposed rule realistically would ensure that power plants can meet new requirements without disrupting our energy supply and reliability.

Meaningful state consultation with disadvantaged groups will be vital in devising equitable phase-out arrangements for coal plants. This includes advancing redevelopment plans for impacted workers and towns. Communication with public utility commissions can further the synchronized planning of generation, transmission, and distribution capabilities.

While litigation from fossil fuel interests is foreseeable, state energy offices developing compliance blueprints could bolster legal defensibility. Alternatively, Congress could preempt challenges by codifying the emissions cuts and technologies into law.

Ending FAQs

1.   What are the new EPA Greenhouse Gas Standards and Guidelines for Fossil Fuel-Fired Power Plants?

The new EPA Greenhouse Gas Standards and Guidelines for Fossil Fuel-Fired Power Plants aim to significantly reduce carbon dioxide emissions from both coal and natural gas-fired power plants. These proposals are part of a broader effort to tackle climate change. Specifically, the EPA seeks to avoid up to 617 million metric tons of CO2 emissions through 2042, equating to the emissions from about half of the vehicles in the United States today. The standards focus on implementing technologies like carbon capture and storage and the use of low-GHG hydrogen to achieve these reductions.

2.   How will these regulations affect coal and natural gas power plants, as currently envisioned by the rule?

The regulations will have a considerable impact on both coal and natural gas power plants. For coal-fired plants, especially those planning to operate beyond the near term, the proposal mandates significant emissions reductions. The proposed ruling sets out categories of plants, based on anticipated operating horizons.  Depending on those projected operating timelines, the proposed rule could require coal plants to co-fire with natural gas or require the adoption of CCS technology or hydrogen blending. New natural gas plants, particularly those that will operate at high capacity, are expected to incorporate CCS or hydrogen blending to meet emission standards. The EPA’s approach aims to require compliance with the new standards while allowing for certain technology options to coincide with what is feasible at existing facilities.

3.   What has been the industry’s reaction to date with respect to the proposed rule?

Industry reactions to the proposed rule have been mixed. While environmental groups and some sectors of the energy industry have welcomed the move as a necessary step toward combating climate change, others have expressed concerns about the feasibility and costs associated with implementing the required technologies. Organizations like the Edison Electric Institute have emphasized the need for regulations to align with existing energy transition plans and ensure reliability and affordability. Other research organizations such as EPRI, have performed in-depth analyses which highlight flaws in the base assumptions and impracticality of the proposed rule requirements.  Similarly, the R Street Institute argues that the rule could impose undue burdens on the power sector and question the scalability of technologies like CCS and hydrogen.

4.   How will these regulations influence the future of energy production in the U.S.?

The regulations are poised to influence the future of energy production in the U.S. by accelerating the transition away from coal and towards cleaner energy sources, including natural gas and renewables. While litigation is expected on the requirements imposed on power generators, as the EPA pushes for increasingly more stringent emission standards, combined with lucrative tax incentives, the adoption of advanced technologies such as CCS and hydrogen blending should increase.  Regulations that require operating parameters under which older power generation facilities are unable to comply will drive earlier retirement of those facilities than previously planned.  Energy production and reliability can be impacted depending upon the reasonableness of the pace of the retirements and the ability of power generators to construct new generation that complies with EPA regulations and also provides the reliability and system support to ensure a resilient, dependable power grid.  Still, the rule is likely to spur investments in renewable energy and cleaner technologies, including investment in natural gas, driving the country toward achieving its climate goals and ensuring a sustainable energy future.

[1] EPRI Comments on the U.S. Environmental Protection Agency’s “New Source Performance Standards for GHG Emissions from New and Reconstructed EGUs; Emission Guidelines for GHG Emissions from Existing EGUs; and Repeal of the Affordable Clean Energy Rule” Docket ID: EPA-HQ-OAR-2023-0072 August 2023