Federal Greenhouse Gas Regulations Paul F. Simon Regional Climate Change Program Advisor U.S. Environmental Protection Agency Region 2

Regulatory Initiatives Endangerment Finding Motor Vehicle Standards Permitting Requirements for Stationary Sources GHG Reporting Rule New Source Performance Standards for Power Plants and Petroleum Refineries Renewable Fuel Standard Geologic Sequestration Rule

EPA Regulatory Actions on Greenhouse Gas Emissions Taking action on climate change is one of the top seven priorities Administrator Jackson has set for the EPA The Administrator’s principles to guide EPA regulatory actions on GHG’s: Common Sense Cost-Effectiveness Clarity, Achievability and Flexibility Transparency Focus on the largest emitters The Administrator’s principles to guide EPA regulatory actions on GHG’s: Common Sense – Promote sensible strategies to harness new, more efficient technologies, spur re-investment in U.S. industry, create jobs, and help lay the foundation for a clean energy economy. Cost-Effectiveness – Employ multi-pollutant, sector-based approaches to reduce regulatory uncertainty and keep compliance costs down. Clarity, Achievability and Flexibility – Explore options to ensure maximum environmental benefit while allowing flexibility, encouraging innovative strategies, and allowing adequate time to meet the new standards. Transparency – Seek input through open, public notice and comment Focus on the largest emitters – Focus on large GHG emitters for which there are more cost-effective options for GHG control, and the Clean Air Act requires that cost and technical feasibility are considered.

U.S. Supreme Court Decision EPA Regulatory Actions on Greenhouse Gas Emissions U.S. Supreme Court Decision Clean Air Act Process for Stationary Sources GHG Endangerment Finding First GHG Standards for Passenger Vehicles In accordance with the 2007 decision of the Supreme Court, EPA is using its authorities under the Clean Air Act to bring about incremental GHG reductions from both mobile sources (vehicles) and stationary sources of pollution.

Supreme Court Decision In Massachusetts v. EPA (2007), the Supreme Court held that GHGs are air pollutants covered by the Clean Air Act and that EPA must determine whether or not emissions of GHGs from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.

Endangerment Finding Issued by EPA on Dec. 15, 2009 in response to the Supreme Court decision and a petition that EPA issue standards to control emissions of GHGs from new motor vehicles. Findings: Six greenhouse gases* in combination endanger public health & welfare. The combined emissions of these GHGs from new motor vehicles and motor vehicle engines contribute to the GHG air pollution that endangers public health and welfare. ______________ (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride )

Endangerment Finding “Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level.” “The scientific evidence is compelling that elevated concentrations of heat trapping GHGs are the root cause of recently observed climate change.” “There continues to be no reason to expect that, without substantial and near-term efforts to significantly reduce emissions, atmospheric levels of greenhouse gases will not continue to climb, and thus lead to ever greater rates of climate change.”

Endangerment Finding Adverse public health impacts from climate change include: Health impacts from increased levels of ambient ozone in broad areas of the country Increased number of heat-related deaths Health impacts from increased extreme-weather events Motor vehicles in U.S. account for 4% of total global GHG emissions and thus they contribute to the climate change problem.

GHG Standards for Passenger Vehicles Endangerment Finding made it necessary for EPA to issue standards to control GHG emissions from motor vehicles. Standards issued in April 2010 by EPA and NHTSA -- the first-ever GHG emission standards under the CAA. Standards arrived at through cooperative process with automakers and states. Apply to model year 2012-2016 cars and light trucks. Fuel economy will be increased by ~5%/year. The standards set an average emissions level of 250 grams of CO2 per mile in model year 2016—equivalent to 35.5 mpg if met solely through fuel economy.

GHG Standards for Passenger Vehicles The standards will save consumers more than $3,000 over the lifetime of a model year 2016 vehicle Will reduce greenhouse gas emissions by nearly 950 million metric tons and conserve 1.8 billion barrels of oil over the lifetime of these model year 2012-2016 vehicles. July 2011: EPA and NHTSA announce plan to propose fuel efficiency and GHG emission reductions for model year 2017-2025 light-duty vehicles. Plan calls for steady improvement in efficiency and emissions such that by MY 2025, on an average industry fleet-wide basis, vehicles would need to meet the equivalent of 54.5 miles per gallon, reducing oil consumption by 2.2 million barrels/day. EPA and NHTSA are expected to detail this plan in a proposed rule very shortly. EPA announced in July 2011 that it intends to propose light-duty vehicle standards for model years 2017-2025 that would be projected to achieve, on an average industry fleet wide basis, 163 grams/mile of CO2 in model year 2025. This would be equivalent, on a mpg-equivalent basis, to 54.5 mpg if all of the CO2 emissions reductions were achieved with fuel economy technology. Real-world CO2 is typically 25 percent higher and real-world fuel economy is typically 20 percent lower; EPA estimates that the standards under consideration would yield a fleet with an approximate real world fuel economy of about 39 mpg by model year 2025. In recognition that full-size pick-up trucks have unique challenges compared to other light-duty trucks and passenger cars, EPA intends to propose a lower annual rate of improvement for light-duty trucks in the early years of the program. For light-duty trucks, the proposed overall annual rate of CO2 emissions reduction in model years 2017 through 2021 would be 3.5 percent per year. For model years 2022 through 2025, EPA expects to propose an overall annual rate of CO2 emissions reduction for light-duty trucks of 5 percent per year. Given the long time frame at issue in setting standards for MY2022-2025 light-duty vehicles, EPA and NHTSA intend to propose a comprehensive mid-term evaluation.

GHG Standards for Heavy- and Medium-Duty Trucks EPA and NHTSA have also established the first-ever program to reduce GHG emissions from and improve fuel efficiency of medium and heavy-duty vehicles (semi trucks, buses, etc.). Rules finalized on Aug. 2011 and apply to model years 2014-2018. Require up to 20% reduction in fuel consumption and GHG emissions by MY 2018. Projected to reduce GHG emissions by ~270 million metric tons and save 530 million barrels of oil. A semi truck owner could realize net savings of $73,000 through reduced fuel costs over the truck’s useful life. The medium and heavy-duty vehicle standards will reduce not only GHGs but other pollutants too, such as particulate matter.

GHGs from Stationary Sources Because EPA’s light-duty vehicle standards for GHGs took effect on January 2, 2011, on that date CAA permitting requirements (PSD and Title V req’mts) began to apply to stationary sources of GHGs as well. EPA issued a rule in 2010 which tailored the CAA permitting program for GHGs, so that the permitting req’mts are focused on the largest GHG emitters. The following GHGs are covered: - Carbon dioxide - Methane - Nitrous oxide - Hydrofluorocarbons - Perfluorocarbons - Sulfur hexafluoride Just as EPA has done with reducing GHGs from vehicles, the Agency is using the processes in the Clean Air Act to make incremental improvements to GHG emissions from stationary sources.

Prevention of Significant Deterioration (PSD): Permitting Steps under the Tailoring Rule EPA’s 2010 “Tailoring Rule” phases in the Clean Air Act permitting requirements for stationary sources of greenhouse gases in several steps: Step 1 - January 2, 2011 to June 30, 2011: Only sources already subject to PSD “anyway” New sources: 75,000 tons per year (tpy) of carbon dioxide equivalent (CO2e) Modifications: 75,000 tpy CO2e Step 2 - July 1, 2011 to June 30, 2013: Continue Step 1 sources plus other large GHG emission sources New sources: 100,000 tpy CO2e Modifications: 75,000 tpy CO2e Step 3 - Rulemaking to conclude no later than July 1, 2012: Evaluate whether additional sources of GHG emissions should also be subject to permitting req’mts., but the permitting threshold would be no lower than 50,000 tpy. The term “carbon dioxide equivalent” (CO2e) used in this slide is one which reflects the different global warming potential (GWP) of different GHG’s. The GWP of methane, for example, is 21 times greater than that of CO2, and thus in order to quantify the carbon dioxide equivalent of a given quantity of methane emissions, one multiplies the methane quantity by 21. CO2e is thus a common unit of measurement for the six GHGs, enabling “apples to apples” comparisons of the emissions of different GHGs. The purpose of the Prevention of Significant Deterioration (PSD) program under the Clean Air Act is to ensure that in those regions that meet the National Ambient Air Quality Standards (NAAQS), the addition or modification of a factory, industrial boiler, power plant, etc., does not cause the region to no longer meet the NAAQS and does not otherwise cause air quality in the region to significantly worsen. PSD permits are pre-construction permits applicable to new major stationary sources and major modifications at existing major stationary sources. The permits require the facilities to use the “Best Available Control Technology” (BACT) to limit their emissions. Title V permits are operating permits that contain all of the pollution control requirements that are applicable to a given stationary source of air pollution. Under the “Tailoring Rule,” EPA is phasing in these permitting requirements for GHGs in a few steps. “Step 1” ran from January 2 to June 30, 2011. During that period, only sources that were already subject to the PSD permitting program (i.e., those that would be newly-constructed or modified in a way that would significantly increase emissions of a pollutant other than GHGs) were subject to permitting requirements for their GHG emissions under the PSD program. And for these projects, only GHG increases of 75,000 tons per year (tpy) or more, on a CO2e basis, needed to determine BACT for their GHG emissions. Step 2 began on July 1, 2011 and runs until June 30, 2013. In this phase, PSD and Clean Air Act title V permitting requirements cover, for the first time, new construction projects that emit GHG emissions of at least 100,000 tpy, on a CO2e basis, even if they don’t exceed the permitting thresholds for any other pollutant. In addition, modifications at existing facilities that increase GHG emissions by at least 75,000 tpy are subject to the permitting requirements, even if they don’t significantly increase emissions of any other pollutant. Focusing on the sources above these thresholds means that the largest industrial sources – those emitting nearly 70% of the GHG pollution from stationary sources – will be covered, while millions of small business will not be. EPA said that the Tailoring Rule was necessary because without it, PSD and title V would apply to all stationary sources that emit or have the potential to emit more than 100 or 250 tons of GHGs per year beginning on January 2, 2011. The Agency said: “Under these circumstances, many small sources would be burdened by the costs of the individualized PSD control technology requirements and permit applications that the PSD provisions, absent streamlining, require. Additionally, state and local permitting authorities would be burdened by the extraordinary number of these permit applications, which are orders of magnitude greater than the current inventory of permits and would vastly exceed the current administrative resources of the permitting authorities. Permit gridlock would result with the permitting authorities able to issue only a tiny fraction of the permits requested. “… [T]he costs to the sources and the administrative burdens to the permitting authorities of PSD and title V permitting will be manageable at the levels in Steps 1 and 2 of the Tailoring Rule… However, we also intend to issue a supplemental notice of proposed rulemaking in 2011, in which we will propose or solicit comment on a third step of the phase-in that would include more sources, beginning by July 1, 2013. In the same rulemaking, we may propose or solicit comment on a permanent exclusion from permitting for some category of sources, based on the doctrine of ‘‘absurd results”… We are establishing an enforceable commitment that we will complete this rulemaking by July 1, 2012, which will allow for 1 year’s notice before Step 3 would take effect. “In addition, we commit to explore streamlining techniques that may well make the permitting programs much more efficient to administer for GHGs, and that therefore may allow their expansion to smaller sources. We expect that the initial streamlining techniques will take several years to develop and implement.   “We are also including in this action a rule that no source with emissions below 50,000 tpy CO2e, and no modification resulting in net GHG increases of less than 50,000 tpy CO2e, will be subject to PSD or title V permitting before at least 6 years from now, April 30, 2016. This is because we are able to conclude at the present time that the administrative burdens that would accompany permitting sources below this level will be so great that even the streamlining actions that EPA may be able to develop and implement in the next several years, and even with the increases in permitting resources that we can reasonably expect the permitting authorities to acquire, it will be impossible to administer the permit programs for these sources until at least 2016. “Further, we are establishing an enforceable commitment that we will (1) Complete a study by April 30, 2015, to evaluate the status of PSD and title V permitting for GHG-emitting sources, including progress in developing streamlining techniques; and (2) complete further rulemaking based on that study by April 30, 2016, to address the permitting of smaller sources. That rulemaking may also consider additional permanent exclusions…” 13

Best Available Control Technology (BACT) Basics Since EPA is the PSD permitting authority in P.R. and U.S.V.I., EPA plays the key role in determining BACT for each project in P.R. and U.S.V.I where PSD is triggered. EPA Guidance on PSD and Title V Permitting for GHGs (March 2011): BACT determinations will continue to be a state- and project-specific decision. Permitting authorities can continue to use the five-step case-by-case BACT selection process that has been used under the Clean Air Act for many years. The guidance emphasizes the importance of BACT options that improve energy efficiency. Carbon Capture and Sequestration is currently an expensive technology and unlikely to be selected as BACT in most cases. Specific types of fuels or facility design are neither required nor precluded by the guidance. “BACT” is an emissions limitation that is based on the maximum degree of control that can be achieved by a particular facility. It is a case-by-case decision that takes into account technical feasibility, cost, and other energy, environmental, and economic impacts. BACT can be add-on control equipment or modification of the production processes or methods. It may be a design, equipment, work practice, or operational standard if imposition of a numeric emissions standard is infeasible. EPA’s March 2011 guidance (“PSD and Title V Permitting Guidance for Greenhouse Gases”) does not prescribe BACT for any source type. The longstanding 5-step process for determining what BACT is in a given case applies with regard to GHG emissions. The five steps are: 1: Identify all available control technologies 2: Eliminate technically infeasible options 3: Evaluate and rank remaining control technologies based on environmental effectiveness 4: Evaluate cost-effectiveness of controls as well as energy and other environmental impacts and document results 5: Select best option as BACT for the source On November 10, 2010, EPA also issued technical “white papers” focusing on the industrial sectors that emit the highest amounts of GHGs. The papers provide basic information on GHG control options to assist permitting agencies and regulated entities implementing measures to reduce GHGs, particularly in the assessment of BACT under the PSD permitting program. These papers provide basic technical information that may be useful in a BACT analysis but they do not define BACT for each sector. The industrial sectors covered include: - Electric Generating Units - Large Industrial/Commercial/Institutional Boilers - Pulp and Paper - Cement - Iron and Steel Industry - Refineries Nitric Acid Plants In March 2011, EPA also issued guidance that provides a suggested framework for undertaking an analysis of the environmental, energy, and economic benefits of biomass in Step 4 of the top-down BACT process, that, as a result, may enable permitting authorities to simplify and streamline BACT determinations with respect to certain types of biomass used in energy generation. See http://www.epa.gov/nsr/ghgdocs/bioenergyguidance.pdf. 14

Regulation of Biomass Sources July 2011: EPA issues a rule deferring for 3 years the application of the Clean Air Act PSD and Title V permitting requirements to carbon dioxide emissions from bioenergy and other “biogenic” stationary sources. Biogenic CO2 emissions are emissions of CO2 directly resulting from the combustion or decomposition of biologically-based materials other than fossil fuels and mineral sources of carbon. Purpose of the 3-year deferral is to give EPA time to conduct a detailed examination of the science associated with biogenic CO2 emissions and other technical issues. EPA intends to develop a final rule by the conclusion of the 3-year deferral period regarding how biogenic CO2 emissions should be treated and accounted for in PSD and Title V permitting. Examples of biogenic stationary sources of CO2: - CO2 generated from the biological decomposition of waste in landfills, wastewater treatment or manure management processes; - CO2 from the combustion of biogas collected from biological decomposition of waste in landfills, wastewater treatment or manure management processes; - CO2 from combustion of the biological fraction of municipal solid waste or biosolids; CO2 derived from combustion of biological material, including all types of wood and wood waste, forest residue, and agricultural material. EPA: Some information suggests that certain biomass – e.g., waste materials whose inevitable decomposition will result in GHG emissions anyway -- have only very limited climate impacts when combusted as fuel; other information indicates use of some types of biomass as fuel could have more significant climate impacts. The issue needs to be studied further.

Greenhouse Gas Reporting Rule Goal: To provide a better understanding of where U.S. GHG emissions are coming from and help guide development of policies and programs to reduce emissions. Directed by Congress in 2008 Appropriations Act. Applies to facilities emitting large quantities of GHGs (≥25,000 metric tons of CO2e. There are also 22 “all-in” categories). Requires annual reporting by 41 source categories, accounting for 85-90% of U.S. GHG emissions, including 33 types of direct emitters and 6 types of suppliers of fuel and industrial GHGs. First annual reports were due September 30, 2011. Approx. 6700 reports submitted. Public release of data expected in December 2011. Some categories of sources don’t need to submit their first reports until 2012 (some by March 31, 2012, others by Sept. 28, 2012). All told, more than 13,000 U.S. facilities are covered by the reporting rule.   The reporting threshold for most sources is 25,000 metric tons of CO2e per year. There are about 22 “all-in” categories in which sources must report their emissions even if below 25,000 tons CO2e per/yr.

This slide shows that the biggest source of industrial greenhouse gas emissions, by far, is fossil fuel-fired power plants. The second biggest industrial source is petroleum refineries. These two source categories together account for almost 40% of U.S. GHG emissions.

Emission Standards for Power Plants & Refineries EPA will soon be proposing GHG emission standards (“New Source Performance Standards” under the Clean Air Act) for fossil fuel-fired power plants and petroleum refineries. The standards will set a limit on the amount of GHGs that new or modified power plants and refineries may emit. Also, EPA will issue guidelines that states and territories will have to address in preparing their own plans to control GHG emissions from existing power plants and refineries. EPA’s draft rule on power plant GHG emissions now undergoing OMB review. Section 111(a)(1) of the CAA provides that New Source Performance Standards (NSPS) are to “reflect 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 non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.” This level of control is commonly referred to as “best demonstrated technology” (BDT). In determining BDT, EPA typically conducts a technology review that identifies what emission reduction systems exist and how much they reduce air pollution in practice. This allows EPA to identify potential emission limits. Next, EPA evaluates each limit in conjunction with costs, secondary air benefits (or disbenefits) resulting from energy requirements, and non-air quality impacts such as solid waste generation. The resultant standard is commonly a numerical emissions limit, expressed as a performance level (i.e. a rate-based standard). While such standards are based on the effectiveness of one or more specific technological systems of emissions control, unless certain conditions are met, EPA may not prescribe a particular technological system that must be used to comply with a NSPS. Rather, sources remain free to elect whatever combination of measures will achieve equivalent or greater control of emissions. Costs are also considered in evaluating the appropriate standard of performance for each category or subcategory. EPA generally compares control options and estimated costs and emission impacts of multiple, specific emission standard options under consideration. Section 111(d) of the CAA requires regulation of existing sources in specific circumstances. Specifically, where EPA establishes a NSPS for a pollutant, a section 111(d) standard is required for existing sources in the regulated source category (except for pollutants regulated under the CAA section 109 requirements for NAAQS or regulated under the CAA section 112 requirements for HAPs). Section 111(d) also uses a different regulatory mechanism to regulate existing sources than section 111(b) uses for new and modified sources in a source category. Instead of giving EPA direct authority to set national standards applicable to existing sources in the source category, section 111(d) provides that EPA shall establish a procedure for states to issue performance standards for existing sources in that source category. Under the 111(d) mechanism, EPA first develops regulations known as “emission guidelines.” These may be issued at the same time or after an NSPS for the source category is promulgated. Although called “guidelines,” they establish binding requirements that states are required to address when they develop plans to regulate the existing sources in their jurisdictions. These state plans are similar to state implementation plans under CAA section 110 and must be submitted to EPA for approval. Historically, EPA has issued model standards for existing sources that could then be adopted by states. In the event that a state does not adopt and submit a plan, EPA has authority to then issue a federal plan covering affected sources. Section 111(d) guidelines, like NSPS standards, must reflect the emission reduction achievable through the application of BDT. However, both the statute and EPA’s regulations implementing section 111(d) recognize that existing sources may not always have the capability to achieve the same levels of control at reasonable cost as new sources. The statute and EPA’s regulations in 40 CFR 60.24 permit states and EPA to set less stringent standards or longer compliance schedules for existing sources where warranted considering cost of control; useful life of the facilities; location or process design at a particular facility; physical impossibility of installing necessary control equipment; or other factors making less stringent limits or longer compliance schedules appropriate.

Renewable Fuel Standard (RFS) Program required by Congress in order to ensure that transportation fuel sold in the U.S. contains a minimum volume of renewable fuel. The increased use of renewable fuels required by the RFS is expected to reduce dependence on foreign sources of crude oil and increase domestic sources of energy, while at the same time providing reductions in GHG emissions. Goal is to increase the use of renewable, low-carbon fuels in motor vehicles to 36 billion gallons by 2022 and decrease GHG emissions. The renewable fuels must achieve GHG emission reductions compared to the gasoline and diesel fuels they replace. EPA is required to set renewable fuel standards each November for the following year based on gasoline and diesel projections from the Energy Information Administration, and also set an annual cellulosic biofuel standard. Current allowable renewable fuel feedstocks are: corn; sugarcane; soy; canola; waste oils; fats and grease; algal oils; and cellulosic material

Other Power Plant Regulations EPA has proposed new emission standards to cut hazardous air pollutants (e.g., mercury) from coal- and oil-fired power plants. The rule is expected to be finalized shortly. Could have co-benefit of reducing GHG emissions.

Litigation EPA’s various GHG regulatory actions are currently being challenged in court. Litigation pending in DC Circuit. American Electric Power Co. v. Connecticut (Supreme Court, June 20, 2011):  State and local governments sued five major power companies under the federal common law of nuisance to seek abatement of the power co.’s’ contributions to global climate change. Plaintiffs sought a court order setting CO2 emission limits. HELD: Clean Air Act and the EPA rulemaking actions that the Act authorizes displace any federal common-law right to seek abatement of CO2 emissions from fossil fuel-fired power plants.