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Utilities See Little Hoped-For Flexibility in New Carbon Rule (1)

July 9, 2019, 8:01 AMUpdated: July 9, 2019, 7:01 PM

Coal-fired utilities that opposed the Obama-era Clean Power Plan aren’t getting the flexibility that they had hoped for under the new Affordable Clean Energy rule to reduce carbon dioxide emissions.

Such flexibility “could have allowed us to comply [with clean-air standards] in a more cost-effective manner for our customers,” Duke Energy spokeswoman Shannon Brushe said.

The Environmental Protection Agency’s Affordable Clean Energy (ACE) rule, published July 8 in the Federal Register, would allow states to examine all coal-fired units within a given plant to determine what type of approach will make them more efficient and emit less carbon dioxide.

“In selecting this approach to setting limits, EPA is limiting the credible control options to those available at the individual units” and not the overall plant, Cheryl A. Gonzalez, counsel with the Indianapolis office of Barnes & Thornburg LLP, told Bloomberg Environment.

The ACE rule (RIN:2060-AT67) is replacing the 2015 Clean Power Plan—which set the first carbon dioxide limits on existing coal-fired power plants—with standards based on a list of technologies that the EPA approves to upgrade plant equipment and improve operations.

‘Reduces Some Flexibility’

But the rule wouldn’t allow coal-fired utilities to average carbon dioxide reductions across individual units or to trade among plants.

The ACE rule “reduces some flexibility in terms of how emissions limitations will be implemented,” added Jessica L. Reiss, an associate attorney with the Indianapolis office of Barnes & Thornburg..

For power companies that were already planning to diversify their energy portfolios and reduce the use of their coal-fired electricity generation, “the ACE rule may add cost by requiring upgrades to coal-fired units,” said Lynn Hutchinson, general counsel and senior project manager for Raleigh, N.C.-based RTP Environmental Associates Inc.

Increases Costs

Other federal agencies warned the EPA of “excessive costs” that utilities would incur if states weren’t allowed to include averaging and trading as an option to reduce carbon dioxide pollution.

“Allowing them as part of a state’s implementation plan would appear to be consistent with standard ways of implementing rules and approving submissions, and also may lead to significantly reduced compliance costs and increased net benefits,” according to interagency comments released on the greenhouse gas rule July 8.

Utilities like Duke Energy Corp., DTE Energy Co., and American Electric Power Co. remain supportive of the Affordable Clean Energy rule, because it wouldn’t require them to alter their long-term plans.

Two environmental groups have already filed lawsuits challenging the rule, with more expected to follow.

Bars Use of Carbon Capture

The regulation not only bars trading and averaging, but also won’t allow states to include carbon-capture technologies in how they set standards for the individual coal-fired units. They also wouldn’t allow the utilities to co-fire biomass, or woody pellets, to reduce their carbon footprint.

States will be allowed to consider costs and the remaining useful life of coal-fired power plants when setting standards.

Trading allows companies the flexibility to make more reductions at facilities where the cost is lower rather than requiring reductions at each generating unit, and most utilities like AEP have successfully used this trading option in combination with installing controls to reduce sulfur dioxide and nitrogen oxide pollution, AEP spokeswoman Melissa McHenry said.

Among Northeastern and Mid-Atlantic states, the Regional Greenhouse Gas Initiative has been most successful at reducing carbon pollution from utilities, a program that states will not be allowed to use as they develop plans for coal-fired utilities in their states.

“As those programs have demonstrated, regulated companies are able to make decisions to create, trade, or buy emissions credits or average across units at a facility that presumably are the most cost-efficient or otherwise more desirable for the company and its portfolio,” Gonzalez said.

The EPA drew “a hard line” on disallowing units to trade and average, which is a flexibility that AEP and the rest of the electric utility sought in the final ACE rule, McHenry said.

“This will require states to look at specific measures that can be applied at individual sources and to develop an emission rate limit that is achievable at the source,” McHenry said.

Lack of Wiggle Room

It is this lack of wiggle room to reduce carbon dioxide pollution that worries some—but not all—utility representatives, industry lawyers and power sector advocates.

They said the lack of flexibility is the result of the administration’s narrow reading of the Clean Air Act Section 111(d), which constrains carbon cuts at coal-fired units to within a utility’s fenceline.

The Trump administration’s reading of that section means electric utilities would only be able to make pollution cuts within the fencelines or boundaries of affected coal-fired units, and they no longer would be able to switch to lower-emitting fossil fuels like natural gas or renewable energy to meet their carbon limits.

This is in contrast to the Clean Power Plan, which allowed utilities to switch generation, average and trade reductions, and burn biomass with coal.

“The ACE rule has virtually no flexibility in it because of all the flexibility that was in the Clean Power Plan,” John Kinsman, senior environment director for the Edison Electric Institute, said at the Air & Waste Management Association meeting. The institute represents investor-owned utilities.

Because the ACE rule prohibits states from considering this kind of “flexibility” in setting an individual unit’s emissions target, “it remains to be seen whether the removal of these potential compliance options will be significant to what facilities are ultimately asked to achieve at each of their units,” Gonzalez said.

Efficiency Gains

The Trump administration has focused on heat rate improvements—leading to efficiency gains—to reduce carbon dioxide pollution from the power sector.

In reality, other factors like shifting generation due to cheaper natural gas prices have played a greater role in cutting emissions, Megan Herzog, special assistant attorney general for the Massachusetts Attorney General’s Environmental Protection Division, said at a June 27 discussion at Resources for the Future, a Washington-based nonpartisan research group.

On the flip side, the Trump rule may give individual companies more flexibility to continue to use their coal-fired generation assets. The Clean Power Plan’s budgets capped carbon pollution at levels that could have forced companies to reduce operations or even close some coal-fired units to meet state budgets.

“Now companies can retain these assets in the generational mix,” Hutchinson said.

—With assistance from Abby Smith.

(Updated with interagency comments about the ACE rule beginning in the ninth paragraph.)

To contact the reporter on this story: Amena H. Saiyid in Washington at

To contact the editors responsible for this story: Gregory Henderson at; Chuck McCutcheon at; Rob Tricchinelli at