EPA’s Illegal Power Play

Authored by Mario Loyola via RealClear Wire,

The U.S. Supreme Court’s ruling in West Virginia v. EPA last year was a historic defeat for the Environmental Protection Agency. Not only did the Court rule that the 2015 Clean Power Plan, President Obama’s signature climate regulation, was unconstitutional; it also dramatically limited EPA’s power to regulate carbon emissions under the Clean Air Act (CAA) moving forward.

That left the agency with two courses of action. It could take its lumps and focus on proposing regulations with a high chance of surviving federal court review. Or it could stake everything on a final desperate attempt to decarbonize America’s power sector, and go for the win in keeping with President Biden’s commitment to net zero carbon emissions.

On May 23, 2023, EPA chose the latter, proposing carbon emissions standards for power plants far more ambitious than those struck down by the Supreme Court last year. Like other EPA climate regulations, the proposed emissions standards under Section 111 of CAA are not designed to reduce emissions from standard power plants, but rather to force a rapid transition away from reliable and affordable sources of dispatchable power–natural gas and coal–to intermittent renewables and new kinds of power plants that don’t even exist yet. Together with EPA’s electric vehicle mandates, the proposed rule would be a train wreck for the American electricity grid and society as a whole, endangering economic competitiveness and energy security while yielding no measurable climate benefit.

Those hoping for a dramatic finish to Biden’s climate action will not be disappointed: the proposal has so many legal vulnerabilities that it would be a miracle if the rule survives federal court review.

Under the proposed rule, which President Biden hopes to finalize by next summer, large new or modified natural gas plants and existing coal plants would be required to virtually eliminate carbon emissions by 2038, at the latest. Under Section 111(a) “New Source Performance Standards” (NSPS), large new or modified combined-cycle natural gas plants, which currently supply roughly 30% of the nation’s electricity, would be required to achieve close to zero carbon emissions, either by implementing carbon capture and storage (CCS) to capture 90% of carbon emissions by 2035, or by switching from natural gas to 98% “green” hydrogen co-firing by 2038. In addition, under Section 111(d) emissions guidelines, existing coal plants, which currently supply more than 20% of America’s electricity, would be required to virtually eliminate carbon emissions by implementing CCS by 2035.

Interestingly, EPA declined to promulgate NSPS for coal plants because, as it explains, there are no plans to build any new coal plants in the U.S. It declined to promulgate emissions guidelines for existing natural gas plants out of concern for feasibility. Even more interesting, when EPA sent the proposed rule to the White House for regulatory review under E.O. 12866, it contained no emissions guidelines for existing plants at all, and therefore would not have applied to coal plants at all. The White House reportedly sent it back to EPA with orders to put a Section 111(d) rule for existing coal plants in the proposal. This suggests that EPA itself is not very confident in the ability of the Section 111(d) rule to survive court review.

Section 111 of CAA, the same provision at issue in West Virginia v. EPA, authorizes EPA to mandate “the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.”

Section 111 sets a high bar, especially after West Virginia v. EPA. The proposed rule falls woefully short. It has at least three major legal vulnerabilities, any one of which would be sufficient for a court to strike the rule down.

First, neither CCS nor green hydrogen is anywhere near “adequately demonstrated” within the meaning of Section 111. Second, EPA has systematically ignored crucial costs and impacts that it is required to take into account in setting emissions standards under Section 111. Third, like the “best system of emission reduction” struck down in West Virginia v. EPA, the new rule would require sweeping regulatory action and infrastructure investments entirely outside the fence line of the regulated facilities, thereby raising the “major question” doctrine’s presumption against the agency’s interpretation of the law.

The Mandated Technologies Have Not Been “Adequately Demonstrated”

The linchpin of Section 111 of CAA is that the “best system of emission reduction” (BSER) must be an “adequately demonstrated” technology. The D.C. Circuit Court of Appeals, the principal venue for judicial review of agency action in the U.S., explicated the provision’s meaning. In Portland Cement v. Ruckelshaus (1973), for example, the D.C. Circuit wrote that in determining whether a technology is adequately demonstrated, “[t]he Administrator may make a projection based on existing technology, though that projection is subject to the restraints of reasonableness and cannot be based on ‘crystal ball’ inquiry.”

Subsequent decisions of the D.C. Circuit, particularly the ones that EPA relies on in the preamble to the proposed rule, have emphasized that BSER must be based on technology demonstrated at the scale and for the purpose for which it will be used by regulated entities to comply with the new standards. Unlike other provisions of CAA, Section 111 is not designed to force industry to develop new technologies. “[A] standard cannot both require adequately demonstrated technology and also be technology-forcing,” said the D.C. Circuit in NRDC v. Thomas (1986).

Contrary to the unambiguous pronouncements of the D.C. Circuit, EPA treats Section 111 as if it were a technology-forcing provision throughout the proposed rule. For example, EPA claims that CCS has been “adequately demonstrated” for natural gas plants based on small-scale demonstrations at coal plants. But the coal demonstrations cited involve only small slipstreams (carbon captured from a small percentage of the plant’s total emissions) for use in the food industry. Moreover, the coal plant demonstrations do not involve the sophisticated combined-cycle configurations of large natural gas plants–in which the exhaust from the primary combustion cycle is used to heat the steam generator of the second cycle–that the new standards focus on.

In the several hundred pages laying out the proposed rule, EPA provides just two examples of demonstrations at natural gas plants. One, at Bellingham, Massachusetts, captured only a 10% slipstream and closed in 2005 because it was not economical. That was a decade before the Obama-era Clean Power Plan, in which EPA correctly rejected CCS as inadequately demonstrated and too costly. The other, a project at Peterhead, Scotland, is still in planning and may not even be built. Neither can be used as the basis for an adequately demonstrated BSER.

Furthermore, EPA’s CCS mandate would require a massive buildout of carbon transport and storage infrastructure, which has not been adequately demonstrated and would require sweeping investments and regulatory changes by developers and government authorities unrelated to the entities subject to regulation under Section 111 of CAA. Like the measures “beyond the fence line” of regulated entities that were struck down in West Virginia v. EPA, this massive infrastructure buildout would be beyond the ability of EPA-regulated entities to implement.

Co-firing with low-carbon hydrogen is even further from being adequately demonstrated. Nearly all hydrogen today is produced using carbon-intensive methods. Indeed, electrolysis from renewable and nuclear power produces only trivial quantities, and EPA doesn’t even bother to estimate the cost, feasibility, or time it would take to build out the vast amount of new renewable and nuclear power capacity that would be needed to make the low-GHG hydrogen a practicable option for power plants.

In the meantime, no existing natural gas plant can co-fire anywhere near EPA’s proposed 96% hydrogen because hydrogen burns much hotter and faster, making current turbines unsuitable for most hydrogen feedstock. Indeed, EPA admits that hydrogen-capable turbines will require a major redesign of combined-cycle natural gas plant turbines, another way in which EPA’s BSER fails to meet the requirement of adequate demonstration. Even the intermediate standard of 30% co-firing, while tested on small industrials facilities, has not been demonstrated at utility scale.

Finally, EPA explicitly states that its hydrogen BSER is technology-forcing, which, according to controlling precedent in the D.C. Circuit, is not “adequately demonstrated” by definition. Beyond the fence line of regulated facilities, EPA admits that hydrogen faces obstacles of infrastructure limitations, as well as inadequate storage and delivery. All this undermines the claim of adequate demonstration, not to mention the fact that such investments would be entirely beyond the competence of regulated entities.

The same D.C. Circuit cases that EPA relies on to explicate adequate demonstration clearly show that EPA has fallen well short of the minimum statutory standard. EPA alludes to “the D.C. Circuit’s view that EPA may determine a system of emission reduction to be adequately demonstrated if EPA reasonably projects that it will be available by a future date certain.” But the agency cites no case for that proposition, and a close reading of Sierra Club v. Costle(1981) shows that that is not the D.C. Circuit’s view.

In Sierra Club v. Costle, the D.C. Circuit indicated that dry scrubbing, which, at that time, was an emerging clean coal technology, was not adequately demonstrated because, as an “emerging technology,” there were “crucial issues such as … demonstration of commercial-scale systems, which may continue to limit the overall acceptability of this technology.” The court noted that “major uncertainty” existed with the technology “in the absence of experience at large-scale facilities” and that EPA could not extrapolate from smaller pilot-scale facilities. Just as in that case, EPA here admits that CCS and green hydrogen are emerging technologies. Its catalog of demonstrations at different scales, different sources, and different industries does not amount to much, since those scales, sources, and industries are not the ones it now seeks to regulate. What EPA’s own examples show is that considerable uncertainty remains with respect to the overall feasibility and acceptability of its proposed technologies.

The one case that EPA discusses in some detail is the per curiam opinion in Lignite Energy Council v. EPA. According to EPA, the court then held that technology could be “adequately demonstrated through a ‘reasonable extrapolation of performance in other industries.’ ” What EPA neglects to mention is the reason that the D.C. Circuit allowed such extrapolation in that case: namely, that the pollution sources in the other industry were similar in design, scale, and emissions profile to the sources that EPA had sought to regulate. By EPA’s own admission, that is not the case here.

In short, neither CCS nor “green” hydrogen co-firing meets the Section 111 legal standards of “adequately demonstrated” BSER.

EPA Has Ignored the Proposed Rule’s Costs, as well as Its Health, Environment, and Energy Impacts

In determining that a technology is “adequately demonstrated” under Section 111, EPA must take into account the costs of the rule, as well as the health, environment, and energy impacts of the rule. Courts have interpreted this as requiring that costs be reasonable. That poses a threshold problem for EPA’s proposed rule because EPA can point to no measurable environmental benefit that would result from compliance. EPA has based all its greenhouse gas regulations on the same original 2010 Endangerment Finding, which has serious problems of its own, as William Happer and Richard Lindzen note in their July 2023 comment letter to the proposed rule. It has not been demonstrated that the sources subject to the rule make a significant contribution to a condition of air pollution that endangers human health, and the finding mentions the 2021 Technical Support Document on Social Cost of Carbon only in connection with a regulatory impact analysis that is unrelated to the requirements of CAA. Under such circumstances, there is a threshold question of whether any significant costs could be reasonable.

There are other problems with EPA’s estimate of costs and impacts, too. First, its estimate of costs is highly speculative. The rule would affect a host of entities and government authorities across the whole society, the vast majority of them not subject to regulation under CAA, and EPA has little clue as to how they will adjust to the rule. If its cost estimates are off by any significant amount, regulated entities could well react by shuttering, rather than attempting to comply, which would create a situation of dangerous energy scarcity with skyrocketing prices. In parts of the country where fossil energy is restricted as a matter of policy, such as California, the electricity grid is on the verge of dangerous blackouts almost every evening in the summer. And those restrictions are modest, compared with those now contemplated by EPA.

EPA’s most egregious failure to properly account for costs is that it subtracts the amount of federal subsidies from the cost estimate, a nominal reduction of $369 billion based on CBO’s score. That figure will likely turn out to be much greater, given the subsidies’ lack of date-certain sunset.

EPA’s practice of reducing cost estimates under Section 111 by the amount of federal subsidies amounts to an accounting trick that vitiates the purpose for which cost considerations were included in the provision. To see why, consider an emissions standard that costs 10% of gross domestic product to achieve every year. Congress could pass a law subsidizing the entire cost of achieving the standard. By EPA’s logic, the cost of the standard would then be “zero,” even though the subsidy would actually cost more than $2 trillion every year, increasing the overall federal budget by half. To say that the costs of such a standard are “zero” would be tantamount to fraud on the public.

The practice certainly violates Section 111, a fact that EPA tries to cover up with what can only be described as an intentionally misleading characterization of congressional intent: “The legislative history of the [Inflation Reduction Act] makes clear that Congress was well aware that EPA may promulgate rulemaking under CAA Section 111 based on CCS and explicitly stated that EPA should consider the tax credit to reduce the costs of CCUS (i.e., CCS).” But the only “explicit statement” to that effect in the entire legislative history is a statement by a single congressman, Representative Frank Pallone (D-NJ). A statement by a single congressman simply cannot be attributed to Congress.

On the contrary, federal courts have consistently recognized that, in contrast to other provisions of CAA, “costs” in Section 111 mean all costs, direct and indirect, regardless of who ends up paying for them. EPA cites no legal basis for reducing the cost estimates under Section 111 by the amount of federal subsidies, which merely shift the costs of compliance from consumers in their guise as ratepayers to consumers in their guise as taxpayers. Given the clear statutory requirement to consider all costs, EPA’s invocation of congressional intent would be unavailing even if it were not misleading.

As for the impact on electricity prices, EPA estimates that the rule would lead to a price increase of 13%. That is almost certainly a woeful underestimate. In California, where a much milder form of renewable energy mandate has been in place for years, end-user electricity costs are twice the national average. The costs of compliance with the new rules could be far more exorbitant. As further explained below, CCS would reduce the power output of the relevant plants by at least 30%, while green hydrogen would likely be three to four times more expensive to produce and deliver as current demonstrations using natural gas.

The CCS infrastructure alone would require a massive buildout of at least 60,000 miles of pipelines and thousands of injection wells, according to the estimates in the Princeton Net Zero America study. The Congressional Research Service has noted that even small demonstrations of CCS have raised significant safety issues and triggered fierce local opposition. Similarly, the hydrogen BSER would require enormous amounts of new renewable energy capacity in order to produce the “green” hydrogen dreamed of in the rule, along with tens of thousands of miles of highly specialized pipelines for delivery to the power plants. Given the number of factors outside EPA’s expertise and jurisdiction that would determine how much time and money all that infrastructure would cost, EPA’s estimates are little more than conjecture.

While EPA discusses other proposed rules in its preamble, it curiously avoids all mention of several recently proposed vehicle emissions standards that would force two-thirds of all new vehicles produced in the U.S. to be electric by 2032. If implemented as proposed, those rules would shift most of the transportation sector’s energy requirements onto the electricity grid, at the same time as the power plant rule will almost certainly be significantly diminishing the overall capacity of the grid. If implemented simultaneously, the new vehicle and power plant rules would be a catastrophic train wreck for the nation’s electricity grid. Nonetheless, EPA appears to be totally unaware of the danger–another failure to meet the minimum requirements of a standard under Section 111.

The rule also ignores other impacts. It would force generation shifting from large baseload generators to simple-cycle intermediate and “peaker” plants, which are normally used to provide electricity during times of the day when demand is highly variable. Those plants get a pass under the proposed rule because, according to EPA, they are not compatible with CCS for engineering reasons, or with green hydrogen for cost reasons. Under the rule, it will be far cheaper for utilities to rely on intermediate and peaker generators and simply avoid the costly CCS and hydrogen co-firing requirements that will apply to baseload generators.

That is a major loophole in the rule, and one that could well result in more pollution of all kinds, including the toxic and other dangerous pollutants that CAA was originally designed to reduce. Intermediate and peaker plants are far less efficient than combined-cycle plants and, correspondingly, produce more emissions of all pollutants per unit of power output. Furthermore, carbon capture is an energy-intensive process that relies heavily on steam-generated power and reduces the electrical output of a power plant by as much 30%, which would also increase the emissions rate per unit of output. Yet EPA casually dismisses concerns about increased emissions of toxic and other dangerous pollutants.

The Power Plant Rule Raises the Same “Major Question” as in West Virginia v. EPA

In West Virginia v. EPA, the Supreme Court struck down a very similar attempt to regulate carbon-dioxide emissions from power plants under Section 111 of CAA–namely, Obama’s Clean Power Plan. The key issue there was whether EPA’s expansive definition of “best system of emission reduction” could be squared with the statute.

Section 111’s concept of BSER had always been interpreted to refer to technologies, such as scrubbers, that polluters could feasibly install within the facility to reduce emissions. But in the Clean Power Plan, EPA decided that BSER could extend “beyond the fence line” to the whole economy, encompassing utilities’ choice of power sources and other matters beyond EPA’s jurisdiction. Under this novel interpretation of Section 111, EPA was, in effect, claiming the power to reorganize a significant portion of the American economy.

The Court held that EPA’s interpretation raised a “major question” and that, in the absence of clear congressional authorization, the claimed power exceeded EPA’s statutory authority. The Court noted that EPA’s approach to BSER allowed it to set emissions standards at whatever level the agency wanted, regardless of whether any regulated entity could feasibly comply with the new standards. The Court noted that the Clean Power Plan would result “in numerical emissions ceilings so strict that no existing coal plant would have been able to achieve them without engaging in [generation-shifting].”

EPA’s new power plant rule relies on a similarly expansive definition of BSER to establish standards that can be met only by shifting generation away from fossil sources. The only way that regulated sources could comply with the rule would be if states or utilities (or other developers) would build a major interstate infrastructure for CCS and “green” hydrogen, including tens of thousands of miles of specialized pipelines, massive underground storage facilities for CO2, and large-scale facilities for the production and transport of hydrogen gas from renewable sources. Whether to develop such infrastructure is a decision totally beyond the control of regulated entities.

In West Virginia v. EPA, the Court held that EPA’s sudden discovery of a “transformative expansion” in its regulatory authority based on an obscure provision of a “long-extant statute” raised a “major question” about the agency’s authority, requiring Congress to speak with far greater clarity than it had in the statute. EPA’s expansive definition of BSER entailed impacts of great political significance and sought to regulate a significant portion of the American economy.

Just so, EPA’s new interpretation of its authority under Section 111 of CAA–departing from an almost infinitely elastic concept of both BSER and “adequately demonstrated”–presents a major question. The claimed power would regulate a significant portion of the American economy, entails political impact of great significance, and intrudes on matters that are the traditional domain of the states.

EPA’s Persistent Usurpation of Congressional Authority

EPA’s efforts to restrict greenhouse gas emissions from power plants and other sources represent a dangerous overreach of executive power. Congress never authorized EPA to regulate greenhouse gases in this expansive manner. By trying to reorganize the country’s electricity-sector limits through executive fiat, rather than the legislative process, EPA is abusing its authority and circumventing democracy. Net zero climate policy raises novel issues that affect every American citizen in almost every aspect of modern life. Policy requiring such transformative change should be left to Congress.

Mario Loyola is a professor at Florida International University and senior fellow at the Heritage Foundation. He served in the Trump administration as Associate Director for Regulatory Reform at the White House Council on Environmental Quality.