As most of you likely know, the EPA CO2 rule for stationary sources was unanimously affirmed last month by the DC Circuit Court.  The rule is more or less an extension of the Clean Air Act's New Source Review (NSR) provisions to cover CO2 in addition to SO2 and NOx.  As with the traditional "criteria pollutants," for existing plants there is a threshold beyond which any annual increase in annual emissions triggers the NSR litigation process.  And, as with SO2 and NOx, this threshold is defined in terms of tons per year, as opposed to the rate of emissions per MWh of generation. So the same so-called "perverse incentives" apply:  making improvements to either capacity or capacity factor can trigger NSR litigation even where the rate of emissions per electricity generated remains constant or even improves.

What this means is that anything which causes an increase in annual CO2 of 25 tons per year can trigger costly time-consuming litigation and penalties.  To put the magnitude in perspective, for a 600 MW coal-fired boiler, this threshold would be reached with merely a 1.5% increase in output or degradation in heat rate.  Ironically, many retrofits required to meet new and emerging NOx and SO2 limits -- such as scrubbers, SCRs, or low-NOx burners -- extract at least this large a heat rate penalty.       

While these regulations can be considered a prime example of the perverse incentives that arise as a consequence of the complicated regulations required by the Clean Air Act, the EPA acknowledges in implementing these regulations that carbon capture and sequestration is costly and commercially  unproven, and that there are very limited current options for reducing CO2.

Accordingly, the remedies considered by the EPA as Best Available Control Technology (BACT) for coal-fired boilers are limited to commercially available technologies that are known to improve efficiency, i.e. reduce heat rate. The EPA Technical Document describing BACT alternatives includes turbine upgrades, economizer modifications, combustion optimization and sootblower optimization.  Ironically, hardware modifications such as turbine upgrades or boiler modifications also have the effect of increasing capacity, which could trigger NSR litigation.

While there is as yet no case history for NSR as applied to CO2, such upgrades and the associated increased in capacity and annual output have triggered NSR litigation for SO2 and NOx across a wide variety of coal-fired plants over the last 15 years.  Only time will tell how this plays out for CO2, but suffice to say any cost-effective alternatives for improving efficiency and/or mitigating the heat rate degradation associated with emissions control retrofits can be seen as a prudent investment.

In closing, it is worth noting the DC Circuit Court judges who issued this ruling and referred to the CO2 rule as "unambiguously consistent with the requirements of the Clean Air Act" are the same three judges reviewing the CSAPR regulations for NOx and SO2, for which a ruling is expected any day now.  As I have stated in earlier blogs, most of the power industry people I talk with believe that the order will keep CSAPR largely intact, but move back the implementation deadline from the original January 2012 date to 2013, whether at the onset of the calendar year or in June, when the CSAPR Ozone Season begins.  

While many in the industry remain concerned about meeting these deadlines despite their being deferred by 12-18 months from the originally issued rule, most I talk with would nonetheless prefer regulatory certainty to the guessing game that has prevailed since the original rule was stayed at the 11th hour within days of the original implementation date.  All I can say is stay tuned...

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