EPA unveils Step 3 of greenhouse gas tailoring rule

The U.S. Environmental Protection Agency published in the March 8 Federal Register the proposed third step in its controversial Tailoring Rule, which would control greenhouse gas emissions from power plants and other sources.

“We are proposing to maintain the applicability thresholds for greenhouse gas (GHG)-emitting sources at the current levels,” said the notice. “We are also proposing two streamlining approaches, which will improve the administration of GHG Prevention of Significant Deterioration (PSD) and title V permitting programs.”

Comments on the proposals are being taken until April 20, with a public hearing to be held March 20.

The first proposal addresses the implementation of GHG plant-wide applicability limitations (PALs). EPA proposes to allow permitting authorities to issue GHG PALs on either a mass-basis (tons per year) or a carbon dioxide equivalent (CO2e) basis, and to allow PALs to be used as an alternative approach for determining whether a project is a major modification and whether GHG emissions are subject to regulation.

The second proposal would create the regulatory authority for the EPA to issue synthetic minor limitations for GHGs in areas subject to a GHG PSD Federal Implementation Plan.

The purpose of the Step 3 rule is to continue the process of phasing in GHG permitting requirements under the PSD and title V programs begun in Steps 1 and 2 of the Tailoring Rule. As a result of actions to regulate GHGs under other Clean Air Act (CAA) programs, GHGs are required to be addressed under the major source permitting requirements of the CAA’s PSD and title V programs.

“The Tailoring Rule is necessary because the statutory definitions that have been used for other air pollutants to determine which sources are ‘major sources’ subject to permitting under these programs are based on annual emission rates of 100 or 250 tpy which, if implemented immediately for GHGs, would bring so many sources into the programs as to overwhelm the capabilities of state permitting authorities to issue permits and potentially impede the ability of sources to construct or modify their facilities,” EPA noted.

Under Step 1 of the Tailoring Rule, which began on Jan. 2, 2011, sources above the GHG threshold that are required to obtain a PSD or title V permit anyway due to emissions of other pollutants are required also to address their GHG emissions in the permit. Under Step 2, which became effective on July 1, 2011, sources with GHG emissions above the Tailoring Rule threshold also are required to obtain a PSD or title V permit, even if they would not be subject to these programs based on emissions of other pollutants.

For the Step 3 rulemaking, EPA evaluated whether it is now possible to lower the GHG major source threshold to bring additional sources into the CAA permitting programs without overwhelming state permitting authorities. In addition, the agency has continued its identification and evaluation of potential approaches to streamline permitting so as to enable permitting authorities to permit more GHG-emitting sources without undue burden.

Entities affected by this action include sources in all sectors of the economy, including commercial and residential sources of GHG emissions.

“As of December 1, 2011, the EPA and state permitting authorities had issued 18 PSD permits with GHG requirements,” the notice said. “We also estimate that as of that date, the EPA and state permitting authorities had received an additional 50 GHG PSD permit applications. The types of source categories for which permitting authorities have issued GHG permits include: biofuel production, cement plants, electric generating units, lime production facilities, outer continental shelf exploration, pulp and paper mills, and refineries. Eleven states and three EPA regions issued these permits. In most cases, no permitting authority issued a permit for the same source category more than once.”

AEP, Southern Co. oppose EPA regulatory approach

These rules apply to power plants and Southern Co. (NYSE:SO), one of the largest coal-fired power plant operators in the U.S., briefly described this rulemaking in its Feb. 24 annual Form 10-K report.

“In 2007, the U.S. Supreme Court ruled that the EPA has authority under the Clean Air Act to regulate greenhouse gas emissions from new motor vehicles, and, in April 2010, the EPA issued regulations to that effect,” said the Southern Co. Form 10-K. “When these regulations became effective, carbon dioxide and other greenhouse gases became regulated pollutants under the Prevention of Significant Deterioration (PSD) preconstruction permit program and the Title V operating permit program, which both apply to power plants and other commercial and industrial facilities. In May 2010, the EPA issued a final rule, known as the Tailoring Rule, governing how these programs would be applied to stationary sources, including power plants. In addition to these rules, the EPA has announced plans to propose a rule setting forth standards of performance for greenhouse gas emissions from new and modified fossil fuel-fired electric generating units in early 2012 and greenhouse gas emissions guidelines for existing sources in late 2012. The ultimate outcome of these rules cannot be determined at this time and will depend on the outcome of any legal challenges.”

American Electric Power (NYSE:AEP), offered a slightly different take on the situation in its Feb. 28 annual Form 10-K report. “In the absence of comprehensive climate change legislation, the federal EPA has taken action to regulate CO2 emissions under the existing requirements of the CAA,” said the Form 10-K. “Such actions are being legally challenged by numerous parties. Our fossil fuel-fired generating units are large sources of CO2 emissions. If substantial CO2 emission reductions are required, there will be significant increases in capital expenditures and operating costs which would hasten the ultimate retirement of older, less-efficient, coal-fired units.”

The AEP Form 10-K added: “We continue to support a federal legislative approach to energy policy as the most effective means of reducing emissions of CO2 and other greenhouse gases (generally referred to as CO2) that recognizes that a reliable and affordable electricity supply is vital to economic recovery and growth. We do not believe regulating CO2 emissions under the Clean Air Act is the appropriate solution. During the past decade, we have taken voluntary actions to reduce and offset our CO2 emissions. Unfortunately, two of the voluntary programs that helped businesses such as AEP to set quantitative commitments no longer exist. The federal EPA’s Climate Leaders Program and the Chicago Climate Exchange both ended their reduction obligations at the end of 2010. However, through these programs and others, we voluntarily reduced our CO2 emissions by approximately 94 million metric tons during the 2003 to 2010 period. We expect our emissions to continue to decline over time as we diversify our generating sources and operate fewer coal units.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.