Supreme Court rules on EPA power plant regulations

The Supreme Court of the United States has ruled that the U.S. Environmental Protection Agency acted unreasonably in developing new regulations on hazardous air emissions from power plants without considering the cost impact of those regulations.  This ruling reinjects uncertainty into EPA's "Mercury and Air Toxics Standards" and other efforts to regulate power plant emissions under the Clean Air Act.

The federal Clean Air Act was designed to improve environmental quality and human health, among other goals.  It broadly allows federal regulation of air emissions of pollutants of various types and from various sources.

Because certain specific provisions in the Clean Air Act applied specifically to power plants, Congress placed a special restriction on EPA's regulation of power plant emissions under Section 7412(n)(1)(A) of the Clean Air Act.  That provision allows EPA to regulate emissions of hazardous air pollutants from power plants under Section 7412 only if it “finds such regulation is appropriate and necessary.”  In 2000, after a study, EPA concluded that regulating power plants under Section 7412 was "appropriate and necessary."  EPA reaffirmed this finding in 2012, and promulgated standards for emissions from power plants.

Along with those standards, EPA issued a “Regulatory Impact Analysis” estimating that the regulation would force power plants to bear costs of $9.6 billion per year.  That analysis also found that while benefits were hard to fully quantify, estimated benefits were worth $4 to $6 million per year.  Based on this analysis, compliance costs to power plants were thus between 1,600 and 2,400 times as great as the quantifiable benefits from reduced emissions of hazardous air pollutants.  At the same time, EPA argued that it did not have to consider costs in establishing its standards.

Following the issuance of these standards, 23 states sought review of EPA’s rule in the D. C. Circuit Court of Appeals in a series of cases which were later consolidated.  The D.C. Circuit upheld EPA's refusal to consider costs in its decision to regulate, at which point petitioners appealed to the Supreme Court. As my partner Jeff Talbert explains, in a 5-4 decision issued June 29, the Supreme Court held that EPA interpreted §7412(n)(1)(A) unreasonably when it deemed cost irrelevant to the decision to regulate power plants.

So what does the Supreme Court's ruling mean for U.S. power plants?  Uncertainty -- but not necessarily freedom from regulation.  The Supreme Court remanded the case back to the D.C. Circuit for further consideration.  The D.C. Circuit could uphold the rule again (on new grounds, compliant with the Supreme Court's decision) -- or it could invalidate the rule based on the Supreme Court ruling.  If that happens, EPA will likely have to resume the process of developing new regulations for hazardous air emissions from power plants under Section 7412.

FERC authorizes mine drainage microhydro

The Federal Energy Regulatory Commission has issued a hydropower license to a project whose turbines generate electricity from acid mine drainage. The micro-hydropower license issued to the Antrim Treatment Trust illustrates this unusual approach to the twin challenges of mine remediation and renewable energy.

The power of falling water, in the White Mountain National Forest in New Hampshire.

In the 1980s, Antrim Mining, Inc. operated a surface bituminous coal mine in Pennsylvania.  When water draining through the mine and into streams and rivers was found to exceed pollution limits, the Commonwealth of Pennsylvania charged the company with violations of mining and reclamation law.  The charges led to a series of settlements through which Antrim agreed to improved water treatment facilities, including an off-the-grid hydroelectric facility.  This micro-hydro plant would be powered by treated effluent flowing downhill out of lagoons.  Antrim created the Antrim Treatment Trust to manage treatment of the mine water in 1991, then went out of business.

In an attempt to reduce the cost of treating the site's severe acid mine drainage, the Babb Creek Watershed Association identified micro-hydropower as an option for the site.  In 2008, the association received an Energy Harvest Grant from the Pennsylvania Department of Environmental Protection.  This $428,710 award was designed to support the installation of two hydroelectric turbines on the treatment plant's discharge, which was completed in 2012.

While the Federal Power Act requires most hydropower projects to secure a license from the Federal Energy Regulatory Commission, some off-grid hydropower projects that do not use the waters of the United States do not require licensure.  In 2010, the Antrim Treatment Trust filed a Declaration of
Intent for a 40-kilowatt grid-connected project, but quickly revised its project to be off-grid after the Commission issued an order finding that a license was required for the grid-connected project.  Once the project was off-grid, the Commission ruled that no license was required.

The Antrim treatment plant seems to have then operated one turbine, but left the second turbine non-operational. A 2012 article in the Williamsport Sun-Gazette suggested that with both turbines running and selling power into the electricity grid, the treatment plant could cut $12,000 in annual power costs and make $10,000 per year in new revenue.  But this could require a FERC license, because the project would become connected to the utility grid.

The Trust appears to have decided that these economics were worth pursuing, because in 2013 it filed an application for a project license for a 40-kilowatt project.  In the application, Antrim Trust proposed to bring a second identical turbine (currently in place but non-operational) online by installing additional indoor wiring with appurtenances within the existing powerhouse and treatment plant, and operate both turbines as a grid-connected project using the treated and/or untreated water.

As licensed, the Commission estimates the annual cost to develop and maintain the proposed 40-kW project is $9,356 or $37.42/megawatt-hour (MWh).  The project will generate an estimated average of 250 MWh of energy annually.  Based on Commission staff’s view of the alternative cost of power ($56.93/MWh), the total value of the project’s power is $14,233 in 2013 dollars.  To determine whether the proposed project is currently economically beneficial, staff subtracts the project’s cost from the value of the project’s power. Therefore, in the first year of operation, the project is expected to cost $4,877 or $19.51/MWh less than the likely alternative cost of power - demonstrating economic benefit.

Micro-hydropower projects can make economic sense in some mine drainage situations and other places where water treatment is required and a suitable vertical drop or pressure is available.  In Antrim's case, the project's success can partially be explained by the existence and purpose of the Trust, as well as the DEP grant to support project construction.  If treated and untreated mine drainage can be used to generate hydroelectricity, what other unusual sources of power will arise?

EPA carbon rule: cost and benefit

Monday, the U.S. Environmental Protection Agency proposed a rule aimed at reducing carbon dioxide emissions from power plants.  Part of the EPA's "Clean Power Plan", the rule would rely on states developing and implementing their own plans to reduce the amount of carbon emitted by the electric power sector per unit of electricity generated.  EPA projects that if fully implemented, meeting this goal would reduce the power sector's carbon emissions to 30% below 2005 levels by 2030.  But what will this cost -- and what will the benefits be?

Steam rises from the Con Edison power plant at 14th Street and Avenue C, in New York City.  The plant can burn fuels including oil and natural gas.

Power plants represent the largest source of carbon dioxide emissions in the U.S., accounting for about one-third of the nation's greenhouse gas emissions.  Building on President Obama's 2013 Climate Action Plan and the May 2014 release of the third National Climate Assessment, the Clean Power Plan is premised upon the finding that greenhouse gas pollution "threatens the American public by leading to potentially rapid, damaging and long-lasting changes in our climate that can have a range of severe negative effects on human health and the environment."  The proposed rule targets carbon dioxide because is the most prevalent greenhouse gas, accounting for 82% of U.S. greenhouse gas emissions.

The Clean Power Plan requires states to develop plans to reduce the carbon intensity, or amount of carbon emitted per unit of useful energy, of their power plants.  Each state is allowed to select the measures it wishes to use to reach its carbon intensity goal.  This allows states flexibility to craft policies to reduce carbon pollution that:

1) continue to rely on a diverse set of energy resources, 2) ensure electric system reliability, 3) provide affordable electricity, 4) recognize investments that states and power companies are already making, and 5) can be tailored to meet the specific energy, environmental and economic needs and goals of each state .

The economic impacts of the Clean Power Plan will form a key theme in the debate over its implementation.  The flexibility afforded states makes projections of costs and benefits hard to quantify, even before consideration of the global social cost of carbon or economic concepts like the appropriate discount rate to apply to future costs and benefits.  With those caveats stated, EPA has analyzed two illustrative cases: a collaborative, regional compliance approach (perhaps along the lines of the Regional Greenhouse Gas Initiative) and a state-by-state approach.

Under EPA's analysis as stated in its proposed rule documents, the Clean Power Plan will produce economic benefits far in excess of its costs.  In 2020, EPA projects the regional compliance approach would have total costs of $5 billion, climate benefits of approximately $17 billion, and health co-benefits associated with reduced particulate matter and other emissions -- mostly in the form of reduced premature fatalities -- of between $16 billion and $37 billion.  In this scenario, the Clean Power Plan would yield net economic benefits of between $28 billion and $47 billion by 2020.  EPA's analysis of a state-by-state approach yields similar costs and benefits: a cost of $7.5 billion by 2020, climate benefits of approximately $18 billion, and health co-benefits of between $17 billion and $40 billion.  Under either case, net benefits continue to grow through 2030, reaching between $48 billion and $84 billion.

EPA also projects "job gains and losses relative to base case for the electric generation, coal and natural gas production, and demand side energy efficiency sectors."  In 2020, EPA projects job growth of 25,900 to 28,000 job-years in the power production and fuel extraction sectors, and an increase of 78,000 jobs in the demand-side energy efficiency sector.

What the ultimate costs and benefits of the Clean Power Plan will be remains uncertain, as does EPA's adoption of a final rule implementing the plan.  In the meantime, electric generators, consumers, and policymakers are taking close looks at the plan to ascertain its impacts.