The Regulatory Assistance Project 50 State Street, Suite 3 Montpelier, VT 05602

Phone: 802-223-8199 web: www.raponline.org

January 15, 2014

Further Preparing for EPA Regulations: A Status Update

Presentation to the Vermont Agency of Natural Resources

Montpelier, VT

Ken Colburn, Senior Associate

David Farnsworth, Senior Associate

Outline

I. Introduction

II. Clean Water Act Cooling Water Intake Structures—316(b)

Effluent Limitations Guidelines

III. Resource Conservation and Recovery Act Coal Combustion Residuals

IV. Clean Air Act Cross-State Air Pollution Rule (CSAPR),

Mercury Air Toxics Rule (MATS), and

New Source Performance Standards for GHGs - 111(d)

V. Discussion

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I. Background

New paper Further Preparing for EPA Regulations provides an update on:

– Regulatory proposals and newly implemented programs

– Significant trends

– Considerations and questions that regulators should touch upon as they evaluate these issues

– Includes discussion of EPA regulations and other market factors.

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I. The Challenge for Regulators

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Affordable Environmental

Compliance

Traditional Regulatory

Goals

Dramatic Industry Change

Comprehensive Planning

Comprehensive Planning

II. Cooling Water Intake Structures—316(b)

• Problem: “Impingement” and “entrainment”

of fish and other organisms

• Existing Sources

– Existing Sources withdrawing ≥ 2 million

gals/day, and

– Using ≥ 25% exclusively for cooling

• Final Rule, Jan 14, 2014

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Source: www. sesync.org

II. 316(b)—Compliance Considerations

• Impingement compliance:

– Either • Annual average mortality ≤ 12%

• Maximum monthly average mortality ≤ 31%

– Or • Intake velocity≤ 0.5 feet per second or less

• Entrainment compliance: site-specific information, permit writer’s best professional judgment

• Uncertainties/Risks – Permit writer’s approach

– Water-dependent cooling subject to drought and other water quality issues

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II. Effluent Limitations Guidelines (ELG)

• Problem: steam electric power plants are 50–60 percent of all toxic pollutants discharged to US surface waters

• Final Rule May 2014

• Technology-based effluent limitations guidelines and standards that apply to: – Direct discharges of wastewater

– Indirect discharges to publicly-owned treatment works

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II. Key Waste Streams

II. Regulatory Options Being Considered Option Best Available Technology (BAT) Alternatives

3a For fly ash transport water and wastewater from flue gas mercury control system discharges - zero

discharge effluent limit.

For gasification process discharges – numeric effluent limits for mercury, arsenic, selenium, and total

dissolved solids.

For nonchemical metal cleaning waste discharges – numeric effluent limits for cooper and iron.

For bottom ash transport water and CCR residual leachate from landfills/surface impoundments – numeric

effluent limits for total suspended solids, oil and grease that are equal to the current BPT effluent limits for

these discharges.

Flue gas desulfurization (FGD) wastewater – determine on a site specific basis.

3b FGD wastewater for plants with a total wet scrubbed capacity of 2,000 MW or greater – numeric effluent

limits for mercury, arsenic, selenium, and nitrate-nitrite.

All other proposed Option 3b requirements are identical to the proposed Option 3a requirements

described above.

3 FGD wastewater (exception for plants that are 50 MW or smaller or oil fired) – numeric effluent limits for

mercury, arsenic, selenium, and nitrate-nitrite.

All other proposed Option 3 requirements are identical to the proposed Option 3a requirements described

above.

4a Bottom ash transport water from units that are greater than 400 MW – zero discharge for all pollutants. All other proposed Option 4 requirements are identical to the proposed Option 3 requirements described

above.

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III. Coal Combustion Residuals

• Problem: byproducts of power plant coal combustion including ash and flue-gas desulfurization waste

• Appalachian Voices

– Court orders EPA plan/schedule for finalizing CCR rules by end of December 2013

• RCRA Subtitle C — CCRs = hazardous waste

Subtitle D — CCRs = “non-hazardous” waste

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www.epa.gov/coalashrule7

III. Key Differences Between Subtitles C and DSUBTITLE C SUBTITLE D

Effective Date Timing will vary from state to state, as each state

must adopt the rule individuall y-can take 1 – 2

years or more

Six months after final rule is promulgated for

most provisions.

Enforcement State and Federal enforcement Enforcement through citizen suits; States can

act as citizens.

Corrective Action Monitored by authorized States and EPA Self-implementing

Financial Assurance Yes Considering subsequent rule using CERCLA

108 (b) Authority

Permit Issuance Federal requirement for permit issuance by States

(or EPA)

No

Requirements for Storage, Including

Containers, Tanks, and Containment

Buildings

Yes No

Surface Impoundments Built Before Rule is

Finalized

Remove solids and meet land disposal restrictions;

retrofit with a liner within five years of effective

date. Would effectively phase out use of existing

surface impoundments

Must remove solids and retrofit with a

composite liner or cease receiving CCRs

within 5 years of effective date and close the

unit

Surface Impoundments Built After Rule is

Finalized

Must meet Land Disposal Restrictions and liner

requirements. Would effectively phase out use of

new surface impoundments.

Must install composite liners. No Land

Disposal Restrictions

Landfills Built Before Rule is Finalized No liner requirements, but require groundwater

monitoring

No liner requirements, but

require groundwater monitoring

Landfills Built After Rule is Finalized Liner requirements and groundwater monitoring Liner requirements and groundwater

monitoring

Requirements for Closure and Post-Closure

Care

Yes; monitored by States and EPA Yes; self-implementi ng

III. Potential Coordination Between Effluent Guidelines and CCR Rule

• Design, Timing, and Implementation of both rules

• Both affect disposal of CCRs going to and discharged from surface impoundments at power plants

– e.g., ELG rule could reduce or entirely eliminate discharges

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IV. Cross-State Air Pollution Rule (CSAPR)

• Problem: Interstate transport of pollutants (SO2 and Nox) emitted by electric generators located in the eastern two-thirds of the country

• Rule (under Section 110 … SIPs)

• Vacated in EME Homer City Generation v. EPA; now before Supreme Court

• CAIR in the meantime

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IV. Cross-State Air Pollution Rule (CSAPR)

• GenOn REMA LLC v. EPA

– Petition under Section 126

– Holds Clean Air Act does not foreclose the EPA from forcing upwind states to address air pollution that significantly contributes to a downwind state’s nonattainment

• Meanwhile, EPA still required to address interstate transport of pollutants

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IV. Mercury & Air Toxics Rule (MATS)

• Problem: Power plants emit mercury and other toxic heavy metals, acid gases, and certain toxic organic compounds

• Rule sets standards for new and existing sources of hazardous air pollutants

• 3-year compliance period

• White Stallion Energy Center, LLC v. EPA

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• Flexibility:

– Facility-wide emissions averaging

– Use of surrogates

– Compliance timelines

• Widely regarded as a reliability “success story”

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IV. Mercury & Air Toxics Rule (MATS)

Image courtesy of Dan/FreeDigitalPhotos.net.

Discussion Preference? GHGs, §111, Outcomes, Co-Benefits?

• Details on §111

• Potential outcomes

• Forthcoming regulations beg for comprehensive, multi-pollutant approaches

• Power sector future; Discussion

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EPA’s “Carbon Pollution Standards” (§111)

• Framing

• “What” Shape It May Take

• “How” It May Be Implemented

• What Should States Do Now?

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Framing

• Essentially new terrain for EPA …

• On a very tight schedule…

• With some legal tension…

• Recent SIP-related court decisions reinforce states’ role… – (Corn Growers, CSAPR remand)

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“What” (1)

• New Sources - §111(b): – “Source-based” standards of performance

– Marginally bifurcated coal vs. gas (1100 vs. 1000 #/MWh)

• Existing Sources - §111(d): – “System-based” best system of emission reduction

(BSER)

– Adequately demonstrated; consider cost; timeframe

– Emission “Guideline” (but enforceable)

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“What” (2)

• Existing Sources - §111(d) (continued): – Anticipate BSER will be some combination of

supply-side and demand-side measures

– Supply-side: • Heat rate improvements? Fuel-switching? Co-firing

biomass? Retirement/replacement? Plant dispatch? Renewables/RPS? Fleet averages?

– Demand-side: • Energy Efficiency – EERS? 1%/year? Utility DSM?

• Combined Heat & Power (CHP)?

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“What” (3)

• Cornerstone questions remain:

– What level(s) of reduction will be required?

– Against what baseline?

– Within what compliance timeframe?

– One possibility: Copenhagen commitment – 17% below 2005 by 2020; economy-wide

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“How” (1)

• Equally uncharted territory…

• But states will definitely get “first crack” on existing sources:

– “Each state shall submit a plan” under a procedure EPA establishes “similar to … section 7410” (i.e., like §110 SIPs)

– aka, “State Equivalency Plan”

– Due June 30, 2016

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“How” (2)

• Cornerstone questions on “how” as well…

• Implementation issues are critical; approval of “state equivalency plans” will hinge on:

– How will emission reductions be measured? • Rate-based (#/MWh)? Mass-based (tons CO2e)?

Carbon intensity? Carbon pricing?

– What GHG accounting, tracking, reporting?

– Will EPA provide a Model Rule?

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“How” (3) • Implementation issues (continued):

– What flexibility mechanisms (if any)? • Off-site energy efficiency?

• Any kind of trading (and allowance issues)?

• Alternative compliance payments? Other?

– How to quantify emissions benefits of EE?* • EMV? “Deemed savings?” Location/grid issues?

“RSVPE?” … (if EPA does this at all – vs. states…)

– How will “first-mover” states be recognized? • RGGI, AB-32, WCI, RPS, EERS, IRP, etc.

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* A recent RAP paper by John Shenot specifically addresses this issue

“How” (4)

• Bottom Line: The burden will fall on EPA to clearly define in rule, or on states to clearly demonstrate in plans

– “Clear definition” has lacked in the past (e.g., iterative process of nonattainment SIPs)

– EPA doesn’t have all the answers – or time; framing suggests greater deference to states

– States may need to “cowboy up”; establish credible, defensible reductions

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EE and Clean Air Act §111(d)

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CAA §111(d) = GHG reductions from existing power plants

EE = Key to 111(d) envir, economic, political effectiveness

EE hinges on “State Equivalency Plans”

State Equivalency Plans hinge on quantifying EE

Quantifying EE hinges on EE/RE Roadmap

EE/RE Roadmap hinges on:

EMV & Data

Measures Emissions

EPA Regional Offices

Success Stories

What Should States Do Now? (1)

• Get your “ducks in a row”

• Get a handle on your state’s: – Current situation

– Preferred direction

• Develop credible, transparent processes – with broad stakeholder participation and solid evidence – that can form your foundation for defensible GHG reduction claims

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What Should States Do Now? (2)

• What EE, RE, CHP, EGU or other supply-side reductions are in place? What review processes?

– Have measured energy savings (and how – SEEAction? DOE Uniform Methods?)

– How EMV’d, reviewed, and translated into emission reductions?

– Determined where located?

– What does EPA/DOE-EIA have in their baseline projections?

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What Should States Do Now? (3)

• Are PSB, DEC, and SEO talking with each other? Planning together?

• Dialogue with EPA Regional Office?

• Pursuing “SIP-quality” credit using EPA’s EE/RE Roadmap?

• Joined EPA’s “Ozone Advance” and/or “PM Advance” program(s)? – Inventory, identify EE/RE measures, etc.

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• In Short: Get ready, get going, talk to EPA…

– 111(d) is likely to fall largely to the states

– Getting ahead of the curve => better understand §111(d) problems & challenges

– Earnest first-movers likely to be rewarded

– Make your wishes known to EPA • EPA seeking input; tell them what you want/need

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What Should States Do Now? (5)

What Should States Do Now? (6)

• Get ahead of the curve – Identify current situation – Identify preferred direction – CO PUC, DPHE, and Xcel plan for

Clean Air-Clean Jobs – MD estimating EE/RE impacts on

air quality attainment, jobs

• Communicate policy preferences to EPA – KY, RGGI

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Page | 2

In this context, the RGGI cap-and-invest program plays three integral roles in achieving

emission reductions. The declining cap and corresponding change in the cost of allowances

provides a market signal that supports fuel switching, on-site efficiency improvements, the

retirement of high-emitting plants, the construction of new more efficient plants, and other

measures that reduce emissions. The auction mechanism provides a source of funding for

complementary energy efficiency and renewable energy investments that further reduce

emissions. The enforceable emissions cap ensures that the combined effect of the RGGI

program and the suite of supporting policies is to actually reduce emissions to below the cap

level.

The experience in the RGGI states shows the magnitude of emission reductions possible

from the power sector: a projected 50% decline in tons of carbon dioxide (CO2) emissions and a

fossil fuel-fired generation fleet that is projected to achieve emission rates on par with the

recently proposed new source performance standard for new electric generating units.

Between 2005 and 2012, CO2 emissions from the power sector in the nine participating RGGI

states dropped more than 40%, from 162.5 million tons in 20052 to 92 million tons in 2012. The

RGGI states are locking in this reduction by reducing the regional cap to 91 million tons in 2014,

and reducing it an additional 2.5% each year thereafter to 78 million tons in 2020. In 2020, the

RGGI emissions cap will ensure that regional emissions are 50% below 2005 emission levels

(See Figure 1).

Some of this reduction is attributable to the successful energy efficiency programs

implemented  by  each  of  the  RGGI  participating  states.    For  example,  New  York’s  energy  

efficiency programs have reduced electricity use in New York by a cumulative total of 6.5% in

2012. As a result, CO2 emissions associated  with  New  York’s  electricity  use  are  estimated  to  be  

2.68 million tons lower in 2012 than they would have been otherwise. In the four years since it

began  in  2009,  Maryland’s  EmPOWER  program  has  reduced electricity consumption by 3.25%,

reducing CO2 emissions by 1.17 million tons. Massachusetts projects that its investment in

energy efficiency will accelerate the reduction in electricity demand to approximately 2.5%

each year from 2013-15. From 2005 through 2015, these energy efficiency investments will

reduce  Massachusetts’  electricity  demand  by  17.1%,  for  a  total  annual  reduction  of  3  million  

tons of CO2 in 2015. Similarly,  Connecticut’s  energy  efficiency  programs  have  reduced  electric  

consumption by over 10% since 2001, resulting in a total reduction of over 2 million tons of CO2

emissions.

2 http://rggi.org/historical_emissions; https://rggi-coats.org/eats/rggi/index.cfm?fuseaction=search.rggi_summary_report_input&clearfuseattribs=true

What Should States Do Now? (7)

• Some detailed “asks” of EPA: – Line up Regional Offices

– Anticipate and address foreseeable circumstances (e.g., regional compliance pools)

– Release an hourly emission calculator (AVERT)

– Approve EE/RE Roadmap submittals

– “Mobile source analogy” for EE

– “Scale-it-up” tools

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Measuring Emissions Reductions: RAP’s “Mobile Source Analogy”

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Clean Air SIP

Clean Air SIP

Clean Air SIP

“Scale-It-Up”: Libraries of EE/AQ Data

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Sources: Northwest Regional Technical Forum; Wisconsin Focus on Energy

Most Likely Outcome?

• Bad news: Sargent & Lundy: ~2-5%?

• Good news: EE will “count”

– (i.e., “system”, outside the fence)

• What else? (Form? Baseline?)

– It depends…

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5%? Is the Juice Worth the Squeeze?

• Certainly not ideal, but…

– EE/RE finally & firmly seated at the table

– RGGI/AB-32 will count (or satisfy)

– More EE/RE => more fossil plant closures

– EERS/RPS locked in, or else “backsliding”

– Eventual review of the standard (8 years?)

– Remember the real goal now: • Not June 2014 Proposal, but 2015 Final Rule &

2016 state plans

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RGGI States’ Experience

…also: little EMV; largely “self-implementing;” a funding stream

EE Also Reduces Multiple Pollutants: What if the Ozone NAAQS is Tightened?

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Broader Benefits of EE

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• Unwise climate policy choices can hurt air quality & water

• Unwise air quality & water choices can hurt climate

• End result: Higher overall costs

Multi-Pollutant Measures (e.g., EE) Offer Extraordinary Co-Benefits

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US$ / MWh (Source: RAP, 2012, Vermont Data)

New RAP paper on this comprehensive “Layer Cake” of benefits

Synergistic Effects of a

Multi-Pollutant Approach

Offer Economic Benefits

Design Task: Reduce air pollution health impacts by 50%.

(Source: Based upon Bollen et al,

2009 cited in RAP 2012, Integrating Energy and Environmental Policy)

EE Impacts in ISO-NE Forecasts

43 These graphics illustrate the impact of the energy-efficiency forecast on both the peak demand

forecast and the long-term load forecast for the region as a whole.

The blue line in both charts is the baseline load forecast. Again, this is how peak demand and

energy consumption would trend if NO EE savings were taken into account. The red line

reflects the energy-efficiency savings that have been acquired through the Forward Capacity

Market for the next three years; in this forecast, the amount of energy savings from the FCM is

held constant after the third year. And the black line shows the results of the energy-efficiency

forecast: increasing amounts of energy-efficiency savings, which reduces the long-term forecast

for both annual electricity consumption and peak demand.

These results have already led to the cancellation of 10 planned transmission upgrades in New Hampshire and Vermont, saving $260 million.

Integrated, Multi-pollutant Planning for Energy and Air Quality (IMPEAQ)

Integrated Resource Planning

(IRP): Forward-looking focus by

energy regulators on ways to meet electric system

reliability needs at least-cost, but ignores public

health and environmental “externalities.”

State Implementation

Plans (SIPs): Backward-looking focus by air quality

regulators on achieving AQ

standards, but ignores reliability, cost, and (as yet)

climate issues.

Best-of-both: Forward-looking focus integrating energy reliability, cost, air

quality, climate, etc.

Steps of the IMPEAQ Process (1)

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Determine public health (or other)

goals for air quality

1

Identify current ambient AQ

levels through monitoring

3 Identify ambient AQ levels

needed to make goals possible

2

4

Steps of the IMPEAQ Process (2)

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Determine (through AQ modeling) the target emission reductions needed to achieve

satisfactory ambient pollution levels

4

Run optimization model against database

of potential emission reduction measures until target emission

reductions are reached

5

Steps of the IMPEAQ Process (3)

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AQ and energy regulators collaborate to determine energy savings (and co-

benefits) achievable through cost-effective energy efficiency (EE),

demand response (DR), and renewable energy (RE)

measures

5A (if model in 5 unavailable)

Translate (convert) EE, DR, and RE

energy savings into emission reductions

5B (if model in 5 unavailable)

Enough to meet target emission

reductions?

6

7 Yes

5 No

Steps of the IMPEAQ Process (4)

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Conduct regulatory processes necessary to adopt and implement

the measures identified in Steps 5-6

7

Is IMPEAQ Legal Under the Clean Air Act?

• Columbia Law School Center for Climate Change Law (September 2013)

- Assessed the general statutory and regulatory framework applicable to IMPEAQ as a voluntary program for states to adopt for air quality planning

- Would be generally permissible under the Clean Air Act and EPA policy, given states’ wide discretion

- Represents a viable planning approach for states to voluntarily adopt for integrated, multi-pollutant air quality planning

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• Any “RGGI-like” (or “RGGI-lite”) outreach to other states? Any potential for same?

• When will Ozone NAAQS revision happen? PM2.5?

• Is Gina standing alone?

• VT leadership on RGGI, EE, Layer Cake; why not RGGI+, multi-pollutant/IMPEAQ?

Provoking Questions

Overarching Recommendations to Regulators (1)

• Avoid an outcome where you see no choice but to approve proposals to recover costs associated with compliance technology without appreciating alternatives that a utility might have considered in making its compliance decisions originally.

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• Coordinate with air, water and solid waste offices in your state

• Comprehensively consider forthcoming regulations on a multi-pollutant basis

• Explore the issues with utilities, and, where relevant, generators and RTOs

• Ask: – What choices are out there? – Are the utilities considering them?

Overarching Recommendations to Regulators (2)

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For More Information

The Economic Impacts of the Regional Greenhouse Gas Initiative on Ten Northeast and Mid-Atlantic States Review of the Use of RGGI Auction Proceeds from the First Three-Year Compliance Period, November 5, 2011,Hibbard et al. http://www.analysisgroup.com/uploadedFiles/Publishing/Articles/Economic_Impact_RGGI_Report.pdf Climate Issue Brief #4, State Clean Energy Policies: The Foundation for an Electric Sector Cap-and-Trade Program, National Association of Regulatory Utility Commissioners, http://www.naruc.org/Publications/ClimateIssueBrief4_Jul2009.pdf Preparing for EPA Regulations: Working to Ensure Reliable and Affordable Environmental Compliance, Farnsworth, RAP (2011) Incorporating Environmental Costs in Electric Rates: Working to Ensure Affordable Compliance with Public Health and Environmental Regulations, Lazar, Farnsworth, RAP (2011). Images and How We Remember History, Farnsworth http://www.huffingtonpost.com/david-farnsworth/images-and-how-we-remembe_b_604784.html RGGI Auction Tracker: State Allocations and Spending Plans, June 7, 2013 http://www.env-ne.org/public/resources/ENE_RGGIAuctionTracker_130607R.pdf

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For More Information

Quantifying the Air Quality Impacts of Energy Efficiency Policies and Programs,

RAP, Shenot, August 2013, www.raponline.org/document/download/id/6680

Considerations in the Design of a Program to Reduce Carbon Pollution from

Existing Power Plants, USEPA, September 23,

2013http://www2.epa.gov/sites/production/files/2013-

09/documents/20130923statequestions.pdf

Greenhouse Gas Policy Implications for Kentucky under Section 111(d) of the

Clean Air Act, Kentucky Energy and Environment Cabinet, October 2013,

http://eec.ky.gov/Documents/GHG%20Policy%20Report%20with%20Gina%20McCart

hy%20letter.pdf

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About RAP

The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that focuses on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies that:

Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers

Learn more about RAP at www.raponline.org

David Farnsworth: dfarnsworth@raponline.org

Kenneth Colburn: kcolburn@raponline.org

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Additional Slides

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Concluding Thoughts

• Encouraging EPA to include EE in 111(d) emissions guideline process will help:

– Ensure a broadly inclusive review of emissions reduction systems as required by EPA’s own regulations

– Avoid producing guidelines based on its review of a limited number of more expensive on-site technologies that come with their own environmental impacts and energy requirements

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