In this episode, Grace Van Horn and Jonas Monast of the Center for Applied Environmental Law and Policy do a deep analysis on the EPA’s recently finalized carbon pollution standards for power plants.
Text transcript:
David Roberts
Listeners may remember that about a year ago I did an episode with Lissa Lynch of NRDC about EPA’s development of carbon pollution standards for power plants. Well, at long last, EPA has finalized those standards.
What's in them? What's new? What effect will they have? To get into these and other questions, today I have with me two guests from the Center for Applied Environmental Law and Policy: Grace Van Horn, its director of policy analysis, and Jonas Monast, its executive director.
After a little stage setting with the history of these rules, we're going to get into how they've changed since the initial proposal last year, what they require of power plants, what kind of power plants aren't covered, and what the rules’ legal fate may be when they inevitably reach the Supreme Court.
With no further ado, Jonas Monast and Grace Van Horn, thank you so much for coming to Volts.
Jonas Monast
Our pleasure.
Grace Van Horn
Thanks for having us.
David Roberts
I hate to do this, but this story that we're dealing with today has quite a backstory. And unfortunately, I feel like we do have to run through that backstory for people to properly understand what's going on today. And I know that regular listeners of Volts have probably heard this backstory now two or three times, but I know we have some new listeners and some people who are not familiar with . So just to begin with, the two of you, please bear with me as I spend three to five minutes quickly rehearsing the history of this benighted rule that we are once again attempting to pass.
So, way back in the mists of time in the 1970s, the US passes the Clean Air Act. The Clean Air Act says, among other things, if EPA determines that substance X, whatever it is, is a dangerous air pollutant, then EPA must regulate that air pollutant. So in 2005, the state of Massachusetts sues EPA and said, "Hey, EPA, it sure looks like carbon dioxide is a dangerous air pollutant that is harming us. Seems like you ought to regulate it under the Clean Air Act." That case was fought all the way up to the Supreme Court, which issued a fateful ruling, Mass versus EPA, which said, "Yes, carbon dioxide can qualify as a pollutant under the Clean Air Act if the EPA determines that it is a danger."
The George W. Bush administration famously did nothing with this information. There's an episode where EPA emailed the White House, and the White House quite literally refused to open the email for years. So, the George W. Bush administration ran out the clock without doing anything about this. In comes Obama. Obama spends first term doing health care, trying and trying to get climate through the legislative process, which, as we all remember, was a spectacular failure. So, late in his second term, fatefully late, the EPA set about crafting some of these rules. So, they faced a difficulty. They faced a dilemma: Which is for a big coal plant, say you can reduce emissions a little bit with, say, efficiency improvements or sort of heat rate.
You know, tweaks. There are tweaks you can do to a coal plant to marginally reduce emissions. But if you want to reduce emissions substantially to levels that are safe, say, for humans, there are not a lot of options. There's carbon capture and sequestration, which back in 2014 or whatever, ten years ago, was nowhere and not really plausible to force on people. Or you could switch coal to natural gas. Even that doesn't get you a ton. So it's, you either are approaching on an individual coal plant level, you're either using a BB gun or a bazooka. And that was a difficult dilemma.
So, the way the Obama administration got around this dilemma is they said, "States, consider your power plant fleet as a unit, and we are going to ask you to bring down the average emissions rate of that fleet. And you can do that in any number of ways. You can add renewable energy, you can retire coal plants, you can do fuel switching, you can do efficiency, blah, blah, blah." This is for states the maximum flexibility that EPA possibly could have offered. It said, "You can treat your whole fleet as the unit, and you can even trade emissions across states."
Could not have possibly been more flexible — which you would think a conservative would greet with gratitude. That did not happen. Instead, there were lawsuits. So this was the Clean Power Plan. This was the Obama administration's Clean Power Plan. There are three amusing things to know about the Clean Power Plan. First, it was never implemented. When the case reached the Supreme Court, they put a stay on the rule. They basically suspended the rule going into effect until they considered the case. Very unusual and unprecedented thing to do. One of the last things Scalia did before he croaked .
So it never — this plan never went into effect. And that stay ran out the Obama administration, and then Trump became president. And then so the second crazy thing about the Clean Power Plan is that the Supreme Court heard the case against it, even though it had not gone into effect and would never go into effect, because Trump became president and promised not to put it into effect. So, the Supreme Court took the bizarre step of considering a rule that had not and would not be implemented, and then found that it's unconstitutional. Why? Well, the rationale was the Clean Air Act gives you authority to regulate individual power plants, and here you are trying to regulate power fleets.
Regulating whole power fleets is major. It's a major thing to do. It's big. And the idea was, with this newly dreamed-up major questions doctrine, is if Congress wanted you to do something major, it would have said so in the law explicitly. Now, this left legal scholars with lots of questions. Like, for instance, every rule is underwritten in some way or another and requires agency discernment, judgment on some level, and how to enforce it. What level of judgment? What level of interpretation is major? John Roberts, could you give us, say, a metric, some objective description, something?
No, there is no such thing. What is major is what strikes John Roberts as major. So that's the second crazy thing about the Clean Power Plan. And the third crazy thing to know about the Clean Power Plan is that its targets were met despite the fact that it did not pass. Meaning, the power sector was headed in that direction anyway. Meaning, passing the law would have had almost no effect. It would have just had the power sector doing what it was going to do anyway, which you might think is by definition not major — but nonetheless, that's where we are.
So, in comes the — I'm almost done, guys — in comes the Obama administration or the Biden administration. They said, "All right, we can't regulate power fleets. We've got to return inside the fence line," as they say. "We got to come up with a rule that applies to individual power plants. And we need, we, we need a rule that applies to individual power plants that isn't major." That is, I don't know, minor or normal. Again, making writing this rule in a complete fog of information about what might count as major or not. But they are attempting to be as strictly within the guidelines of the Clean Air Act as possible.
So that, my now bored audience and my now bored guests, is the history of EPA attempts to regulate carbon dioxide as a pollutant. So, with all that history under our belt here, one question I wanted to ask by way of preface, before we get into the specifics of what the Biden administration has come up with — and, Grace, maybe you can tackle this. I wanted to just briefly ask what effect on this rules formation and development has been played by the passage of IRA, the passage of the Inflation Reduction Act? Because I think part of the thinking of the people who wrote and passed IRA was they had these rules in the back of their mind.
So maybe, Grace, you can explain that connection.
Grace Van Horn
Sure. So, under the Inflation Reduction Act, of course, there were numerous incentives put in place for clean energy, for carbon capture and sequestration, for all of these things that are really helping to drive further carbon reductions in the electric power sector. And they are continuing and accentuating those trends that you mentioned earlier that led to us meeting those clean power plan targets eleven years ahead of time, which is that renewable energy is increasingly cost-effective. It certainly outcompetes coal and in many cases outcompetes gas. It's leading toward carbon capture and sequestration being very cost-effective.
In fact, EPA's analysis in these final rules shows that coal plants could make money by installing CCS due to the 45Q expanded carbon capture and sequestration credit. And so, all of these things really underpin where the market is going and therefore where the electric sector is going. And EPA, and Jonas can talk about this, but under the Clean Air Act, which is the statute under which EPA is setting these regulations, EPA does have to consider things like whether or not technologies are adequately demonstrated, whether or not the costs are reasonable. And so, when thinking about CCS in particular, the IRA had a huge impact.
It really is helping to — I think EPA probably could have made the case anyway, but it's made it so incredibly clear that CCS is cost-effective and can be applied in the way that EPA is proposing that some plants might do. I think it's also, and we can talk about this a little bit, but it also means that the specific impacts of these rules are not enormous. Right. Compared to the baseline, which does now include the IRA, there's not an enormous incremental impact, but that's because of these changes happening anyway. And so you could view these 111, these new power plant rules as helping to ensure that we take full advantage of the IRA and that we really maximize those benefits and that the incentives that are offered there are really taken full advantage of.
And that's, of course, setting aside all of the RD&D and all the other good stuff that's happening through the IRA. That is going to push us even further.
David Roberts
Right, right. So there's just an immense amount of funding of carbon capture and sequestration, I think, in anticipation of the very legal fights that are going to break out over this rule, which we can get into later. But one other factoid, which I wasn't even aware of until months after the IRA passed, which is that buried in IRA, Congress said, "Yes, CO2 is a pollutant under the Clean Air Act." Right.
Because there was this nagging concern in the background that this newly conservative Supreme Court would undo Mass versus EPA, would reverse that decision. So, all that ambiguity was removed. So, at the very least, any EPA, even Trump's, is going to be under legal obligation to do something that qualifies as regulating CO2. So, all that preface aside, let's talk just briefly about exactly what the rule says. What kinds of plants — it divides power plants up into a couple of categories, and specifically is regulating a particular kind of category. So maybe, Grace, you can just run through just sort of what the letter of the law is here.
Grace Van Horn
Yeah, so EPA has set carbon emission standards for new gas-fired power plants and existing coal-fired power plants. New coal-fired power plants are already subject to a 111 standard. And for a variety of reasons that we can get into, EPA has postponed existing gas-fired power plants.
David Roberts
Yeah, I want to get to that later.
Grace Van Horn
So, in these rules finalized last week, we've got new gas-fired power plants and existing coal-fired power plants. For new gas plants, EPA recognized that these plants run at different capacity factors and play different roles in our electric sector. So maybe, as just a brief aside, a capacity factor, right, is the ratio of how much electricity a power plant produces compared to how much it could produce if it ran just all out for every hour of the year. So, you know, a 50% capacity factor means that a plant ran at half output for the whole year or full output for half the year, or like some combination there.
And so, EPA said, "Look, if you're running at lower capacity factors, your operations are different. The types of technologies you use to do that are different. And so, it makes sense to set these standards separately for those different subcategories." So, they divided natural gas plants into three categories: low load or peaker plants that run up to capacity factors of 20%, the intermediate, which is between 20% and 40% capacity factor, and then baseload plants, which operate at capacity factors of more than 40%. And for peak or intermediate plants, the standard essentially is more or less business as usual operations. Based on the fuels used and the efficiencies that EPA determined are currently being achieved by, you know, the types of plants that will fall into these subcategories.
For baseload plants, the EPA set a standard that's in the near term based on efficient generation. But starting in 2032, the standard is based on capturing 90% of the plant's carbon emissions with CCS. So, that's an eight-year lead time between now and 2032 that new gas plants have to, if they're going to go that route, determine how they'll meet that emissions limit.
David Roberts
A couple of questions: So if I build a new gas plant before 2032, do I escape these standards? Or does that just mean if I build a new gas plant before 2032, I have to have ccs on it by 2032?
Grace Van Horn
Yeah, so the difference between what's classified as new and existing under the Clean Air Act is cued to actually when the rules were proposed, which was May of 2023. So, any gas plant built after May of 2023 is a new gas plant.
David Roberts
Got it.
Grace Van Horn
So, that plant will have to meet this kind of efficiency-based standard until 2032, and then if it's going to continue to operate, you know, in the base load capacity factor, it will have to meet this lower emission standard as of 2032.
David Roberts
And so a coal plant has to, by 2032, be capturing 90% of emissions. Isn't there an out for that? Like, if the coal plant is closing before some date, it doesn't have to do this?
Grace Van Horn
Yeah. So that was for — what we just walked through was for gas plants. Now, for coal plants you're right. The subcategories, again, EPA split the fleet into different subcategories, this time not based on capacity factor, but instead based on operating horizon, like you just said. So plants that have a retirement date planned between 2032 and 2039, those plants are subject to a less stringent standard. They have to meet a standard that's commensurate with co-firing of 40% natural gas. So that's around a 16% decrease in emissions. So they have to start hitting that standard by 2030, and then they have to commit to retiring basically before 2039.
If a plant plans on retiring after 2039 or has no plan to retire, then you're exactly right. Then again, the standard is based on a 90% capture of carbon emissions, and then any plant that's retiring before 2032 is just not at all subject to these rules. It's just exempt from the rules.
David Roberts
Mm hmm. Interesting. So this is mostly going after plants that are being built to run a lot, basically, like the workhorses, the base load plants is mostly the target of this rule.
Grace Van Horn
Yeah, that's exactly right.
David Roberts
A couple of things changed since the initial proposal of the rule, which was, I don't know how many months ago, a year ago. It's all a blur.
Grace Van Horn
Yeah, almost exactly a year.
David Roberts
What's changed?
Grace Van Horn
So, on the gas side, one of the big differences was kind of expanding what would be covered under that baseload subcategory. That subcategory that's subject to this stricter emission standard that's based on CCS. So originally in the proposal, it was plants running at 50% or above capacity factors. Now it's 40% or above. So more plants are going to be potentially facing that standard or having to make decisions about whether or not they want to keep operating at those baseload levels.
David Roberts
I've seen people make a semi-big deal out of this, that the standard for what counts as baseload has dropped from 50% capacity factor to 40% capacity factor. And I just have no conception whatsoever how many extra plants that involves. Are there a lot of natural gas plants operating in that space between 40 and 50%?
Grace Van Horn
Yeah, so there's a little bit of a difference here when thinking about the new gas fleet and the existing gas fleet. But in general, part of this is also really cued to where the fleet is going over time, and EPA looked really closely at that. So as we're in this environment, with again more renewables coming on, being very cost-effective, gas plants are in general moving more toward this renewable integration operating profile. You know, it's not, we're not in a scenario where we need a ton of base load generation in the same way. And so when we look at our modeling, by the mid-thirties, the average capacity factor for a natural gas combined cycle plant was in the thirties.
It was like 37% or something, if I'm remembering that correctly.
David Roberts
Interesting.
Grace Van Horn
For peakers, for just simple cycle combustion turbines, it was way lower than that. And so, part of this is just reflecting what baseload means going forward. There's a calculation about what sort of plants it is reasonable and cost-effective to assume could install CCS and could make back their money or operate at a reasonable cost — so that had to do with it. And EPA's calculations show that even running at a 40% capacity factor, it's still very cost reasonable to install CCS.
David Roberts
Part of me is just wondering, how many of these baseload gas plants that would be subject to this do utilities really want to build? That's part of what I was wondering about. As you note, we're moving to a world where most gas plants are serving as peakers or quasi-peakers, filling in the gaps for renewables. And I just wonder, are there a lot of these baseloadish gas plants being proposed? Do utilities want a lot of these, or do we expect this to apply to a relatively small handful of plants?
Grace Van Horn
I think the answer to those questions might actually be slightly different. So, are utilities proposing them? And are they actually going to be run this way? I think there may be two different questions. I think, yes, utilities are proposing a lot of new gas right now, and I think one of the really important roles that this rule can play is to make them think about that choice. As I know you've talked about with previous guests, and many listeners will know, I mean, the reliance on gas as new capacity is somewhat just based on what utilities have already done and what utilities are comfortable with.
And there are a lot of other options that, once you take carbon into account and once you are thinking about carbon when you're doing your least cost decision making at a regulator or at a utility, I think that could look really different. And so that, I think, is going to be one of the big impacts of these rules. In terms of whether or not utilities will then — how they'll run these plants, I think that remains to be seen. I mean, the modeling shows that most new natural gas plants that are added after these standards go into effect choose to operate at the lower capacity factors rather than installing CCS.
And that's, you know, that's a model, but that is what we're seeing in those projections.
David Roberts
One question that's come up a couple of times is what's to stop a utility who doesn't want to install ccs on a new gas plant to just build two gas plants and run them both at low capacity factors rather than building one and running it at a high capacity factor?
Grace Van Horn
Yeah, well, cost, really. You know, they'll have to take that to either their boards, if they're a public utility, or their regulator, if they're an investor-owned utility, and justify that decision of basically running an asset that you're saying you're going to intentionally not use as much as you otherwise could and that you are, you know, thumbing your nose at incredibly rich 45Q credits, among other things. So, I think in this era of very cheap and still highly subsidized renewables and energy efficiency and all sorts of other alternatives, I would hope that regulators would kind of look at that and say, "Are you really making the best choice for your customers here?"
David Roberts
Okay. Another change since the original rule proposal is that hydrogen has fallen out as a best source of emission reduction, or whatever the heck the term is. Maybe, Grace, you can address technically why that's the case, and maybe, Jonas, if you want to pipe in, I'm sort of curious what the legal significance is of hydrogen being removed.
Grace Van Horn
So, yeah, originally, EPA, in its standards for actually both new and existing gas baseload plants, had said, "Look, you have two different pathways you could follow here. You could reach this emissions limit that's based on CCS by a certain timeline, or follow this separate pathway on a slightly different timeline, but getting to the same emissions limit eventually by doing hydrogen co-firing." And in the final rule, as you mentioned, they kind of took out that dual pathway. Now they just have the single emissions limit that hits in 2032. When EPA was describing why it did this, it essentially said, "Look, we're just not super confident about how the market will develop for producing low GHG hydrogen."
So, they actually said multiple times that they still believe that hydrogen co-firing is technically feasible based on combustion turbine technology. It's just more on the supply side, they're not sure about quantities and cost on that, and so they didn't feel like they could finalize it.
David Roberts
Interesting. Well, it's kind of ironic. We're about to plow 40 kajillion dollars into subsidizing the production of green hydrogen, and we still can't say confidently that it's going to be affordable.
Grace Van Horn
Yeah, I mean, well, EPA did say, "You know, look, this industry is changing really quickly, and we believe that these considerations may change. And so we're going to keep an eye on it and we'll reevaluate our findings and establish different standards if we need to." And the one thing I'll note is that hydrogen still remains a perfectly acceptable compliance pathway. Right. So, the way that the section 111 works is that EPA has to use what you said, that the best system of emission reduction to identify what the standard is, which is essentially 100 pounds per megawatt hour under this rule.
And then, power plants can choose to meet that standard however they want. So, they can install CCS or they could co-fire hydrogen.
David Roberts
Right. This is so important to emphasize. I wanted to really pound the table on this a little bit. Because if there's one thing that sort of the popular press and whining industry people get wrong about this all the time, or lie about, is that the EPA is forcing them to do these things. What the EPA does is use CCS to determine the level, but then it says, "meet that level however you want." So, other than CCS, what other compliance routes are there? Is hydrogen the only alternative, or are there others that you think utilities might use?
Grace Van Horn
There's also the kind of net power Allam cycle option, I suppose.
David Roberts
Right? I always forget about that.
Grace Van Horn
Yeah, but CCS and hydrogen are the main ones for your typical new natural gas plant.
David Roberts
And I want to get to your modeling later and what it says about those. But right now, as a previous pod got into, there are a lot of utilities, especially in the southeast, lining up to build new gas based on these projections of rising energy demand. Specifically, how do you think this rule is going to affect that fight? Are those plants that those utilities are proposing, plants that are going to be subject to this, and do you think this will dissuade them from that?
Jonas Monast
Well, the plants are definitely subject to the rule now, and I think we're going to see a big impact that may not be reflected in the modeling that Grace will talk about later. Public utilities commissions are going to take a different view of utility proposals at this point. Some of the projections about AI and data centers are new. The idea that we're going to be plugging more into the wall and electricity demand is going to go up is not new. Utilities should have been planning for that for quite some time. As you've already noted, these rules don't require them to install CCS if they're building a new natural gas-fired power plant and running above a 40% capacity factor, but they can, that's certainly an option that's available to them, and the tax credits make it cost-effective.
So, there are a number of options that the utilities may not like. The utilities haven't been planning on. The utilities won't do unless there's a regulation that's forcing them to make a choice they might not have otherwise done. But, I think it's completely false to suggest that they can't meet electricity demand because these rules are now in place.
David Roberts
Yeah, well, we'll get to the modeling in a second that says more about that. But the other question I wanted to address about the change between the proposal and this — is probably the most notable change — is in the original proposal, there were some separate regulations for existing gas plants, and existing gas plants are sort of, just to state the obvious, kind of the big problem. Like, I think coal's kind of going away, coal's on its way out, and existing gas is, I think, going to be the subject of the biggest fights. So it's significant that they took those out.
So maybe, Grace, you can just tell us what those previous rules said and why they were dropped and what your sort of take on the valence of that is. Should we view that as like a retreat out of caution, or possibly stronger rule, better rules coming, or what's the tea leaves on why that happened?
Grace Van Horn
Yeah, so in the proposal, EPA had included standards, or emissions guidelines, that would have applied to a subset of the existing gas fleet. So —
David Roberts
Not the whole thing?
Grace Van Horn
Not the whole thing. So, only those units that were 300 megawatts or larger, which is a fairly good-sized unit and running at 50% or higher. So, again, kind of focusing on the large base load units, and that ultimately was a fairly small portion of the fleet. So, under the proposal, those units would have been subject to a CCS-based standard, similar to baseload new gas units.
And like you said, a few months ago, now, at the start of March, EPA announced that it would not be finalizing those standards, and instead it committed to moving forward this spring and summer on a more comprehensive approach that could cover a larger portion of the fleet or even the entire fleet. And it's also looking to coordinate this GHG regulatory approach through section 111 with standards, through other aspects of the Clean Air Act, to provide additional protections on other pollutants, which is particularly important for frontline communities. And so, they're looking at this hopefully more holistic approach, both in terms of units that are covered and pollutants that are covered.
David Roberts
And do we have any indication whatsoever what that might look like, or is this just a total black box at this point? You think they just have not gotten started?
Grace Van Horn
So, they've kicked off a process to dig into this. I assume that staff has been very focused on finalizing the rules that were released last week, but they have initiated a, what's called a non-regulatory docket, basically an open call for input, and released a series of framing questions around that to ask folks about different approaches that they thought could be useful both on this greenhouse gas side and on other pollutants. They're holding the only announced, but I'm sure the first of many stakeholder meetings at the end of this month to start having discussions around that. And so, with the feedback that they're getting in writing at the end of the month and the meeting, which I guess is next week already or in two weeks, then they'll be able to move forward at looking at a more comprehensive approach.
And in that document, those framing questions, they did tee up a number of possible technological BSERs — possible things that could be used to determine an emissions reduction. So, CCS, absolutely still on the table, energy efficiency, and then a suite of kind of on-site solutions integrating things like fuel cells or renewables or battery storage with the operations of the natural gas plant. You know, we are still limited by that legal framework that you mentioned at the top of the call. Right?
David Roberts
Yeah, yeah. Inside the fence line.
Grace Van Horn
Exactly. It's staying inside the fence line on that, but hoping to take a broader approach.
David Roberts
That will be so interesting to follow. And I guess it's worth saying, although I guess this is obvious to everybody, but it's worth stating explicitly, there's no way in hell that's getting done before the end of Biden's term. So, those rules happening at all entirely depend on Biden getting reelected. So, one other thing, which I forgot to ask about the coal plants: Besides CCS and hydrogen, isn't co-firing with natural gas also an option for coal plants, and are any of them going to take that, or am I making that up?
Grace Van Horn
Yeah, so that's an option for these kind of midterm operating plants. So for the plants that are retiring before 2039, but after 2032. So if you're planning to operate kind of through the thirties, but commit to a retirement date before 2039, then you're subject to this standard that is a 40% natural gas co-firing standard, which is a fairly easy retrofit. And so, EPA felt like that was justifiable even for those units who, you know, who might not be operating very long. So, you couldn't use co-firing to meet the CCS-based standard. There's just, you'd have to fully repower to be a gas-fired unit in order to meet that standard.
David Roberts
Yeah, is that a thing? Like, has that happened to any coal plant? I mean, would it be worth it even doing that to a coal plant, just switching it entirely to natural gas? Or would that be, you know, you might as well just build a new plant.
Grace Van Horn
It is something that happens, coal to gas conversion. You still have a steam boiler, so it's a lot less efficient than a combustion turbine. And so, the economics of it don't always pan out. But that is something, that's something that we've seen a lot of in the last couple of decades and will certainly happen going forward.
David Roberts
Interesting, interesting, interesting. If between now and 2032, you have a bunch of power plants scrambling to capture all their emissions, what are they going to do with all that CO2? And does this rule have anything to say about that at all? Like, is there anything in here about CO2 pipelines or burial or anything? Or is all that just like, "You figure it out. Utilities, figure that out"?
Grace Van Horn
Yeah, so EPA does include in its determination that carbon capture and sequestration can be set as the basis for this standard. It does include both transportation and sequestration in that. So, it looks at the capturing part, the transferring part, and the storage part all independently, and notes that each one of those, at each step, the technology is adequately demonstrated and is cost reasonable. And EPA does point also to development in pipeline networks as something, as you note, that will be really important to making all of this happen. It's also worth noting that part of the way that these standards for existing coal plants work is that EPA sets the standard, and then it basically gives that standard to the states and says, "You come up with a plan —"
David Roberts
This is all state-administered.
Grace Van Horn
Right. You're right. So, "You come up with a plan for how each of the units or plants in your state, who will be subject to this standard, how each of them are going to meet that standard." And so, it's possible through that that states could look at specific plans and say, "You know what? This plant is just very, very different than the kind of average and the set of data that EPA used to set this standard. We're very outside the norm here." So, one example they gave is you're on a remote island. Right. And so, it's not really feasible to build a CO2 pipeline from that island or something like that.
And so, if — states have a pretty strong burden of proof there — but if states can demonstrate that, look, they're very, very far from sequestration or something like that, that those standards shouldn't apply.
David Roberts
So, there's still some flexibility, a little bit of flexibility for states here.
Grace Van Horn
Yeah. And there is actually a mechanism that EPA built in this final rule that states can issue a one-year kind of extension of compliance for coal plants if they're having kind of demonstrated trouble permitting CCS or that sort of thing. They've got to prove it, essentially, but that is an added flexibility that was put into this final rule.
Jonas Monast
You know, it's important to appreciate that these rules are dealing with the power plants themselves. The rule that the EPA issued last week is not about sequestration. There will be other rules and regulations that deal with that part of it. The tax credits, in order for this to have a financial incentive here, the tax credits do require the sequestration part, so the utilities will have an incentive to get it right. But the EPA is not using this section of the Clean Air Act and this set of rules to govern the sequestration side, which also gets to the question you were asking earlier from the legal side about hydrogen.
I think the EPA, in the end, didn't - I think this is smart - they didn't end up saying anything in this rule about hydrogen and how it's produced. And that's why Grace was talking about some of the market dynamics. Will there be enough supply? That's critical. But in terms of a 111 standard for the category of sources of existing coal plants or new gas plants, EPA is not using this rule to govern other aspects of the energy system.
David Roberts
Right, right, right. Okay. I have a bunch of other legal questions, Jonah, but I have one final one for Grace, which is just predictably, as predictably as anything in the world is predictable. Energy companies are responding to this rule proposal by just retiring to their fainting couches and saying, "How on earth could we ever?! We could never do this. This is going to crush the reliability of the power system. This technology is not ready yet. We're doomed!" et cetera, et cetera, which I'll just say I'm going to try to not get on this rant because I've already wasted too much time here with rants.
But I'll just say, they say this literally every time an air rule is proposed, going all the way back five, six decades now. They say the same thing every time, and they are wrong every time. Every time the rule passes and they meet the requirements fine, and the economy's fine and the sector's fine, and power reliability is fine. But for some reason, this six-decade record of 100% failure of prediction doesn't ever seem to inform the latest debate. For some reason, we just have to have it all over again. So here we are having it all over again.
Grace, they say this is going to ruin reliability. You've done some modeling of compliance of this rule. What does the modeling show?
Grace Van Horn
Right. Well, I mean, I sympathize with the arguments to a very small extent, which is that it's important to get this right. You know, we all do rely on this system. But I completely agree with you that these arguments are overblown and not in good faith. I mean, as we've talked about already, the energy system is changing. I mean, as anyone tracking the electric sector knows and as EPA's own modeling bears out, you know, there are significant changes projected for the coming decades due to things completely independent of these rules. Right? Economic factors, IRA incentives, state policies, customer preferences, you name it.
And so, these are issues that have to be addressed by utilities, by grid operators, by some of the ones who are making the loudest noise here. You know, if you aren't expecting load growth, you haven't been paying attention. It's just that some of these things are happening. So, you know, there are changes. I think it also creates some incredible opportunities. But these changes have to be managed no matter what EPA does or doesn't do.
David Roberts
Well, what they're saying is that the rise of data centers and the rise of electricity demand and all this new demand is precisely why they can't do this right now. They're like, you know "We'd love to clean up, but like, we can't do it in this time of rising demand, we'll never be able to keep up." Like, that's their whole excuse.
Grace Van Horn
Yeah, and I mean, so EPA did do some modeling of higher demand scenarios. So, I think there's some aspect to which the claims that demand is going to be rising are absolutely correct. I don't think it's because of AI and data centers. There's been some good research that's come out recently that shows just how computational data needs, or energy needs, are highly unlikely to reach the, what, 5% or 10% annual growth rates that some utilities are claiming. You know, at the same time, EPA just finalized some vehicle rules that have some strong electrification components. We want to electrify some parts of industry and buildings.
So, you know, I think it's right to assume that we're not going to be in this flat demand world anymore. But that said, this is exactly what utilities do and they can handle it. So, EPA looked at a couple different scenarios in their modeling that actually integrated the vehicle rules. They also looked at an even higher demand scenario. So, these scenarios got to about 2% year over year annual growth, which is pretty in line with kind of electrification scenarios that third parties have put out as reasonable. And in those cases, we see that the standards under the rules can still be met by, you know, and still have enough capacity online and at very limited cost.
So, that's just kind of one way of looking at this for the EPA modeling. But it definitely tells an encouraging story.
David Roberts
So, we anticipate a lot of CCS going in then as a result of this rule, because some people, I think, have it in the back of their heads that CCS is too expensive and will never work. And everyone's kind of playing a game of chicken here. Not to admit it, but you think the models show lots of CCS being installed, basically?
Grace Van Horn
I wouldn't say lots. It shows some. It doesn't show much for natural gas plants. The economics are a little harder there. You've got net less CO2 per megawatt-hour that you create. And so the 45Q credit doesn't get you quite as much. But on the coal side, we actually see a fair amount of CCS being deployed in the baseline, again, because the model sees those credits and sees that they can actually make money even without the proposal. So I think it's ten gigawatts under the baseline by 2035 and about 19 gigawatts under the final rules. So it's a doubling, but, you know, that's compared to over 100 gigawatts of coal on the system right now.
So, it's definitely not the majority of the fleet.
David Roberts
Right, right. Well, it'll be so interesting. And presumably, there are mechanisms for EPA to enforce this. Right, I mean, cause we've seen lots of CCS projects sort of make a lot of big claims and then never reach anywhere close to that 90% threshold. Presumably, EPA is gonna be on it, you know, requiring that they actually demonstrably meet this and not just spend a bunch of money on something that's called CCS.
Grace Van Horn
Yeah, so, as part of the state process, all coal plants will have to meet what are called increments of progress. Basically, to demonstrate on a set timeline that they'll agree to with the states that they're conducting their feed study, and then they're establishing, getting their permits, and that they're entering into contracts and that sort of thing. So, ensuring that they keep on track and then the emissions limit will be part of their permit going forward to operate. So, they'll have to ensure that they actually run the CCS at that 90% capture rate.
David Roberts
Interesting. All right, Jonas, I knew this would take more time than I thought. I've left less time than I wanted for legal stuff. But I have a couple of questions. One, to start with, is one of the sort of extraordinary things that happened around the Clean Power Plan, and I went and I touched on this in my potted history, is the Supreme Court put a stay on it while it was considering the case, meaning the rules did not go into effect. This was highly unusual. Usually, I think the legal regime or the legal sort of precedent is that courts give agencies wide latitude, and they sort of —
The default assumption is that agencies know what they're doing. And so, generally, agencies are allowed to go ahead doing their thing while the courts mull over the rules. The court broke that precedent and put a stay on the Clean Power Plan, much to everyone's sputtering outrage back then. Do you anticipate them doing it again? And is there any, I mean, I don't know, I'm asking you to predict these people, but, like, what do we know about whether they're gonna put a stay on it or not?
Jonas Monast
Well, you're also — you're asking me to predict it at a time when it's particularly hard to predict what the court might do. What was particularly unprecedented in 2016 with the Clean Power Plan is not just that there was a stay. It was that the Supreme Court issued the stay as opposed to the DC Circuit. Usually, the litigation goes through the process to the DC Circuit. If the DC Circuit believed there needed to be a stay, that's one thing. For it to go to the Supreme Court and the Supreme Court to make that decision, essentially overruling the DC Circuit, that's completely another.
David Roberts
Did they just, just briefly, did they justify that? Did they, I mean, what was the, I don't want to spend too much time on this, but did they just do it or did they pretend to have reasons?
Jonas Monast
No, they just did it and they don't, you know, they don't have to explain themselves as the Supreme Court. Right. You know, they're currently considering doing the same thing right now with the "good neighbor" rule. This is dealing with wind and downwind transport of ozone, so ozone emissions that go from one state to another.
David Roberts
Right.
Jonas Monast
Right. Surprisingly, the Supreme Court heard arguments for whether a stay is appropriate there, and we're waiting for a decision. What the Supreme Court does on that state petition will probably be a pretty powerful sign about what they would do with this suite of rules. So, you know, in normal times, I would say they won't, or at least they shouldn't. These are not normal times. So, I'm not going to predict where this is going to end up in terms of the state petition.
David Roberts
Yeah, I mean, they have not, I don't know, with the Supreme Court, I kind of think if they can do something to stick their thumb in Biden's eye, they are going to, but I guess we'll see. So then we get to the major legal question of the case. So, EPA very carefully stayed inside the fence line this time. So, insofar as going outside the fence line is major, they're not major this time. But the beauty of the major questions doctrine is that it has no friggin' definition or limits or specifics attached to it at all. So, what is the legal strategy this time for the states, West Virginia and all the states that are suing?
My understanding is, basically, now they're saying that CCS is major. Is that right?
Jonas Monast
So, the legal arguments are going to break down into two broad categories. The first is going to be focusing on this narrative of "Here goes the EPA again, they're trying to re-engineer the electricity sector. They're going way beyond their authority."
David Roberts
They're legally required to do it! Jonas, t hey have to do it; it's part of the f****** law. Sorry.
Jonas Monast
I hope that the court agrees with you, David. We would be in a better place if they did. So that's one. And that's some of the red state attorneys general who recognize it's good politics to sue when EPA issues a new regulation. That's gonna be one of the arguments that they're making is that this is the EPA not doing the narrow thing that Congress told it to do under section 111 of the Clean Air Act. This is the EPA trying to re-engineer everything. That bucket of arguments, that's where the major questions doctrine is going to come in.
That's where the other kind of anti-regulatory decisions that the Supreme Court has been handing down in recent years, that's where that will come in. That's one bucket of arguments. The other bucket of arguments will be more kind of boring, run-of-the-mill Administrative Procedure Act arguments. Did the EPA do what the statute tells it to do? Grace already mentioned some of the key language in Section 111. The EPA sets the emission standard based on the best system of emission reduction. The best system of emission reduction is determined based on determination that the system is adequately demonstrated.
So, there will be challenges that CCS has not adequately demonstrated. I can say in a minute why I think that those should fail. But that'll be one line of argument. Another line of argument will be that it's too costly. Because when setting the best system of emission reduction, the EPA has to consider cost. EPA also has to consider energy requirements, and that's where the reliability arguments will come in. So, the second bucket of legal arguments will be the EPA just didn't do what the statute tells it to do. Again, it's arbitrary and capricious.
David Roberts
Right. So, in the second bucket of arguments, this is where typically the Chevron doctrine would come in. Right. Typically, the court, like, why would the court think that, like, Sam Alito is better positioned to make the determination of what is the best system of emission reductions for certain sizes of natural gas power plants than the EPA? Like, typically, that second bucket, they would lose those arguments according to precedent, according to tradition. Like, the court generally defers to agencies, does it not?
Jonas Monast
Yeah, so this is the Chevron doctrine. Basically, it boils down to: If the statute is clear, the agency has to do what the statute says. If the statute isn't clear, then the agency can make a reasonable interpretation of the ambiguous language. And as long as that interpretation is reasonable, courts will defer.
David Roberts
Right. Not that necessarily that we, the court, agree with the interpretation, just that it's reasonable.
Jonas Monast
Yep. And as you've noted on a previous pod, there's a case pending before the court that is questioning whether Chevron is still good law. We'll know by the end of June. I will say though, David, my second bucket, kind of the boring, run of the mill statutory interpretation questions. I don't think that they need to rely on Chevron in order to win on an argument about whether CCS is adequately demonstrated. There are decades of court decisions interpreting what adequately demonstrated means in the 111 context, and standards have been upheld on the basis of test programs, pilot scale technologies operating at one plant, vendor information.
And this is important, the performance of how the system worked in other industries. So, it doesn't even have to be installed in the type of sources that are subject to the rule there. So, there's a lot of latitude and courts have recognized this really since the beginning of the Clean Air Act.
David Roberts
So, you think, legally speaking, whether CCS qualifies as the best system of emission reductions, you think, legally speaking, the case is pretty overwhelming that it is.
Jonas Monast
I think that if the court does a record-based decision, right? Did the EPA reasonably conclude that this is adequately demonstrated and supported in the record? I think the EPA has done that. I think the bigger risk, the far bigger risk, is if a conservative court accepts the kind of the broader narrative, "Here goes the EPA again." That becomes much harder for the EPA to win.
David Roberts
Yeah, well, let's talk about this then, because it's pretty easy to stray into Kafkaesque territory when you're discussing this. But how is the EPA supposed to argue against it? Like, what exactly is the substance, the legal substance of the claim that EPA needs to refute here?
Jonas Monast
First off, to state the obvious, what's happening at the Supreme Court is far bigger than the impact on any climate rule or any environmental regulation. The Supreme Court is making it harder for the federal government to govern. It's making it harder for Congress and agencies to deal with big, complex problems, particularly those that are likely to change over time, like climate change. So, what does an agency do like the EPA? One option is they still do their job. They craft the rules based on what the Supreme Court has told them. I think one of the best ways to understand why the EPA did what it did in these power sector rules is it's a direct response to West Virginia v. EPA.
That's one approach, right? And it takes a risk those decisions might be overturned. But the agency is doing its job. It is using the statutory authority that Congress has given it, and it is doing what Congress told it to do. Another approach, another response to where we are right now, and this is where I think the major questions doctrine is so nefarious for being as ambiguous as it is, as you've noted. Another response that an agency could take is be overly cautious, do far less than it should or thinks is the right thing to do because it is worried that whatever it does will get overturned.
To EPA's credit here, EPA did its job, and now we're reaching the stage where the courts are gonna have their say.
David Roberts
Yeah, and it's worth saying, and I think maybe people get this instinctively, but it's worth saying anyway, that part of the purpose of these vague, ambiguous rulings, part of the purpose of any capricious exercise of state authority, is to scare people in advance, to get people to comply in advance, to get agencies, for instance, in this case, to tone down or scale back their efforts in advance, because you just don't know. And it's like whatever they say about casinos, you know, sort of the irregular feedback that really makes an impression. Like, if you get randomly smacked down by the court, you're going to get leery about this.
So, I do think it's creditable that the EPA just went ahead and did this as though we have a normal court, as though we live in normal times. But I wonder how many times we can expect EPA to do that. You know what I mean? Like, if this gets smacked down again for another arbitrary reason, how many times can you expect the agency to just do all this work all over again? Over time, I don't see how this effect doesn't eventually sort of erode agency ambition or autonomy, etc.
Jonas Monast
I think it's certainly had a toll on a lot of people that are working at EPA. But I will say that the agency is going to keep doing its job as long as we have a president that allows the agency to keep doing its job. I do think, partly, David, I think the response to this is doing what you've done a number of times, which is shine a light on the fact that this is happening and that it's not normal. I think this is bigger than just how an agency responds to it.
David Roberts
Yeah, I wonder if the Supreme Court cares at all. We'll see if they care at all about being exposed or care at all about public criticism. It doesn't seem like they really do. But I want to get back to this first legal question, which is, well, what is it? I can't even — I can't even really summarize what it is, which is why I'm baffled how the EPA is supposed to respond to it. Like the Clean Air Act says, if it's an air pollutant and it's dangerous, you have to by law regulate it. And so they found that it's an air pollutant and it's dangerous.
So now, by law, they have to regulate it. That's — that much at least, is clear and understood by all parties. Right. So, what is the legal charge exactly?
Jonas Monast
So, the EPA, I think, did an admirable job justifying its statutory authority. Again, it's clear they are doing this with an eye towards West Virginia v. EPA. They are rooting what they're doing in statutory language. They're doing what they're doing, rooting it in the history of how this section of the Clean Air Act has been applied, and they have developed a technical record to justify the decisions that they've made.
David Roberts
Just to rephrase what you're saying, this is a very normal, if you just strip away all the circumstances around it, just the rule itself. This is a very normal EPA rule. It absolutely is along the guidelines and the template of many past rules, even Clean Air Act 111 rules. Like there's, it is not ambitious like the Clean Power Plan was.
Jonas Monast
Well, it's also, you know, it is not unheralded. This is some of the language from West Virginia v. EPA. It's not a departure from past interpretations. This is using section 111 the way that they've used section 111 in the past. I will say, you know, you noted before some of the hysteria around the impacts here, that the irony of that is that a lot of the groups that are being so hysterical now are also those groups that fought the clean power plan and insisted that the standard should be based on an inside defense line standard. They won, now they're living with the consequences and they don't like it.
David Roberts
Yes. Well, this is kind of something I wanted to get to, which is if John Roberts hears this argument and says, "Well, this is also major," whatever the f*** that means, if he decides this is major, too, and shuts it down, then basically the court has said EPA cannot substantially reduce carbon emissions from these power plants. They've eliminated the fleet-wide option. They've eliminated the only reasonable inside-the-fence line power plant option. There's no options left. So there's no substantial emission reductions left possible if they knock this down, too. Right. And I just wonder, like, is that, is there a legal case there?
Like if the Clean Air act says you have to regulate it and then the Supreme Court eliminates all the actual ways of regulating it, where does that leave us?
Jonas Monast
So, I'm not willing to accept that that's the future that we're living in. I hope that we end up with a different outcome. I think another way of saying what you're getting at this, David, there's a clear tension that the Supreme Court has just absolutely ignored, which is Massachusetts v. EPA is still good law. The definition of pollutant covers greenhouse gases, and that's not, you know, the Supreme Court said that, and this Supreme Court hasn't overturned it. And as you noted, the Inflation Reduction Act now codifies that. So, there's an obligation to act. There's language that Congress wrote that is designed to deal with exactly this kind of situation, a new pollutant and you've got to craft the regulations.
So, this is why, you know, I don't want to maybe not use the word hopeful, but I'm also not willing to accept that the court is just going to strike this down. This should be a record-based Administrative Procedure Act case. And if the court goes that way, I think the EPA has done a really good job of crafting a strong rule that should survive the courts. We'll see where they go.
David Roberts
Just if, if they knock it down and Trump comes in, it will still be the case that the Trump EPA is lawfully obliged to regulate carbon dioxide. Is that not the case?
Jonas Monast
They're lawfully required to regulate carbon dioxide. It would also be the case; these are final rules. So, these are regulations; a future president can change direction. But there's a long, arduous process that it requires to go through that process. So, these are the law. Power plants have to comply with them. We'll see if a court issues a stay, and we'll see where the Supreme Court ultimately ends up if they take this case. So, it may be a couple of years from now before we know where the courts are on this.
David Roberts
Yeah, I was going to ask, is this the case where we probably, again, are not going to get a final ruling until after the presidential election?
Jonas Monast
Oh, almost certainly. I mean, it will. We probably won't even have arguments before the DC Circuit before the presidential election.
David Roberts
It would be, both of you have to admit, it would be truly hilarious if they once again put a stay on these rules and then Trump won and then once again scrapped the rules, and then they once again took up the rules and ruled them unconstitutional, even though they're never going to pass. I mean, just in terms of, like, historical ironies, that would just be a little too much.
Grace Van Horn
Yeah, I'll grant you ironic.
Jonas Monast
Yeah, if that happens, I look forward to the next iteration of your quick run-through of the entire history.
David Roberts
Oh, my God. It'll just be me with Edvard Munch's Scream face on the screen from now to eternity. Okay, well, we gotta wrap up. We've gone on too long.
Jonas Monast
Maybe.
David Roberts
Grace, just a final question. Like, one of the things I think that people noted about the Clean Power Plan was the very prospect of it seemed to kind of jolt utilities into action. And that's one of the reasons you could argue why they ended up complying with the dang thing, even though it never went into effect. Do you think that even if this rule is — even if a stay is put on it and it doesn't go into effect, do you think that's going to have similar effects on utilities?
Grace Van Horn
I think there's certain to be a market signal. I mean, like Jonas said, now we know that utilities and their regulators and power plant operators should be incorporating carbon into their decision-making. And so that is a real signal. I think there's a regulatory certainty aspect, too, that, you know, power companies and utilities who support this rule and have supported it along, are grateful for a lot of the investments that utilities have to make in general are really long term. And so it's good to not have this back and forth every four years of "will they, won't they?"
And so, I think they're, at least for now, there's a strong market signal and some good regulatory certainty. And so, hopefully, we'll see that continue into the future.
David Roberts
All right, well, you two, I have really enjoyed this, and I am really grateful to you for coming on the pod. And I hope you will not be offended if I say I really hope we don't have to do this again. It's always a joy, but like anything, too much is too much. Let's just regulate these damn things and move on to something else. All right, well, thank you guys for coming on. Thanks for walking us through this, and we'll see in the next couple of years where this all goes.
Grace Van Horn
Thank you.
Jonas Monast
Great to talk to you.
David Roberts
Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf. So that I can continue doing this work. Thank you so much and I'll see you next time.
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