US Supreme Court ruling may pave way for cofiring, CCS at coal-fired power plants

Capturing and storing CO2 or cofiring natural gas or woody waste with coal at power plants may be the avenue open to the US government to limit the generation sector's emissions now the US Supreme Court has outlawed shifting to natural gas or renewables, according to energy and environmental lawyers.

The Supreme Court's 6-3 decision, delivered 30 June, didn't preclude the US Environmental Protection Agency (EPA) from considering other GHG emissions reduction approaches, such as averaging reductions across coal-fired units, capturing and storing CO2, or cofiring with other cleaner-burning fuels, the attorneys told Net-Zero Business Daily by S&P Commodity Insights.

They noted the EPA only lost its authority to require fossil fuel power plants to switch from coal to cleaner burning fuels under Section 111(d) of the Clean Air Act under the West Virginia v. EPA ruling.

Section 111d of the Clean Air Act requires EPA to regulate air pollution from existing stationary sources, such as coal-fired plants, using the "best system of emissions reductions (BSER)."

While the lawyers agreed that EPA has options it can pursue under existing Clean Air Act provisions, at least one cautioned that approaches like carbon capture and storage (CCS) could run into hurdles given its price tag.

Ruling didn't preclude CCS or cofiring

Six of the nine justices in the US' highest court made it clear that "Congress did not grant EPA in Section 111(d) of the Clean Air Act the authority to devise emissions caps based on the generation shifting approach the agency took in the Clean Power Plan."

The majority ruled on what EPA couldn't do under this provision of the Clean Air Act, which is to set emissions standards based on generation shifting, noted Jay Duffy, an attorney at environmental advocacy group Clean Air Task Force (CATF) who specializes in the Clean Air Act.

The ruling didn't preclude the EPA from considering CCS or cofiring with biomass or natural gas as BSER, he added.

"The Clean Air Act continues to provide EPA with ample authority to set stringent existing source standards based on directly applied pollution control technologies and techniques, such as carbon capture and sequestration and co-firing with zero-carbon fuels-both which CATF is deeply engaged in exploring and deploying," Duffy wrote in a 1 July blog.

The Global Carbon Capture, Storage, and Utilization Tracker maintained by S&P Global Commodity Insights shows 12 operational projects at coal-fired plants globally capturing about 1.5 million metric tons of CO2 equivalent (mt CO2e) a year.

But no CCS project is currently operating at a coal-fired power plant in the US, although the tracker shows 17 projects with the capacity to capture 29 million mtCO2e annually are in the active pipeline stage.

Although the Supreme Court was "careful not to shut the door" on options other than generation shifting, the EPA will have to work out how much regulation needs to be at the source or "inside the fencelines," said Chris Carr who heads the environment and energy practice at the Paul Hastings law firm in San Francisco.

Demonstrate technological viability

Eric Christensen, a Beveridge & Diamond attorney, agreed that both CCS and cofiring can be identified as BSER "If EPA can prove they are technologically viable."

"These are 'inside the fence line' measures that fit within the BSER rubric as defined by the court on Thursday, but, under 111d, EPA would still have to demonstrate that the systems are the best system of emissions reductions that are 'adequately demonstrated,'" Christensen said.

"Given the current state of technology for carbon capture," Christensen cautioned, "that is a pretty high hurdle. I think EPA might have a better shot with co-firing using biomass or natural gas."

A recent Government Accountability Office (GAO) report noted that CCS projects at coal-fired facilities in the US have had more difficulty getting off the ground than CCS at ethanol or other industrial plants, due to the high cost of separating CO2 from the flue gas of a coal plant.

GAO cited the one completed, $1-billion coal-fired power CCS project known as Petra Nova to illustrate its argument. The project suspended operations in May 2020 after running for three years. When oil prices dropped to $50/barrel, Petra Nova lost customers for the captured CO2, as oil drillers pulled back their activities.

Current high oil prices may prove to be a boon again for CCS projects at power plants.

Although oil prices dipped below $100 a barrel for the first time since the end of February, West Texas Intermediate (WTI) crude closed 5 July at $99.64 a barrel, or $8.79/b lower than 1 July.

"It could improve the economics of adding CCS to a power plant if the CO2 is sold for EOR, however this will be a very niche market. Since most of the projects in the pipeline are expected to inject the CO2 instead of use it for enhanced oil recovery," Paola Perez Pena, S&P Global Commodity Insights principal analyst for clean energy technology, told Net-Zero Business Daily 5 July.

Perez Pena added that Petra Nova may be able to restart operations if high prices remain for a long period of time though she hasn't heard of any announcements yet.

The Petra Nova facility was designed to capture at least 90% of the CO2 emissions, or 1.4 million mt/year, from a 240-MW unit at the W.A. Parish Electric Generating Station in Thompsons, Texas. Given the volume of CO2 targeted for capture, plant operator NRG had to erect a 100-foot tower and a 320-foot tower to separate the CO2 from the flue gas.

Inside or outside the fenceline

By "inside the fenceline" measures, Christensen and Carr were alluding to the replacement of inefficient boilers, and related coal-combustion equipment inside coal-fired generation units---as opposed to a power plant that may consist of one or more units-- that EPA under President Donald Trump required as a GHG-reducing approach in its 2019 Affordable Clean Energy (ACE) rule.

The US Court of Appeals for the District of Columbia Circuit in January 2021 vacated the ACE rule, a decision that had the effect of resurrecting the EPA's first power plant GHG reduction rule, known as the Clean Power Plan (CPP), that it had replaced. The CPP, unlike ACE, allowed utilities the flexibility to meet the GHG limits through shifting generation to natural gas or renewables, averaging reductions across coal-fired units, trading carbon credits and banking them.

In CPP, EPA listed cofiring with natural gas and biomass as well as CCS as potential GHG reduction approaches for power plants but stopped short of listing them as BSERs because "costs were too high." Although EPA said carbon capture and storage might be too expensive to be applied across the electric power sector, it noted that "retrofit of CCS technology may be a viable option at some individual facilities, particularly where the captured CO2 can be used for enhanced oil recovery (EOR)."

In ACE, EPA also ruled out these options because of the expense involved. It also ruled out trading because it went beyond the fenceline of individual sources.

Court sidesteps fenceline question

The Supreme Court, however, chose to sidestep the Clean Air Act reading of applying the "system of emissions reductions" to individual sources, or coal-fired units.

Instead, Chief Justice John Roberts made a point of noting that "the only interpretive question before us, and the only one we answer, is more narrow: whether the 'best system of emission reduction' identified by EPA in the Clean Power Plan was within the authority granted to the agency in Section 111(d) of the Clean Air Act. For the reasons given, the answer is no."

According to Duffy, the court didn't preclude the use of market-based mechanisms, such as a GHG emissions trading program, in conjunction with at-source controls for the electric power sector.

"While the opinion speaks negatively about cap-and-trade systems and fuel switching, the central holding of the case strikes down only the Clean Power Plan system, which was a trading regime based on generation shifting including to zero-emitting sources on the grid, but outside the regulated industry," Duffy wrote in his blog.

Did the court preclude trading?

Christensen also was doubtful whether a trading program would fly given the court's opinion.

"It is hard to see how a carbon cap-and-trade program could survive under any other provisions of the Clean Air Act given the logic of the decision, especially the court's reliance on the fact that [US] Congress rejected a carbon cap-and-trade system when it rejected the Waxman-Markey [legislation]," he said.

The US House of Representatives passed the American Clean Energy and Security Act of 2009 establishing a cap-and-trade system for GHG emissions and setting goals for reducing such emissions from covered sources by 83% of 2005 levels by 2050. The bill failed in the US Senate where the Democrats, though in control of the chamber, were unable to get a supermajority of 60 votes to end debate and vote on the measure.

Moreover, Roberts noted that the cap-and-trade measure, which the CPP had allowed, had repeatedly been rejected by the US Congress. "It is one thing for Congress to authorize regulated sources to use trading to comply with a preset cap, or a cap that must be based on some scientific, objective criterion, such as the [National Ambient Air Quality Standards (NAAQS)]. It is quite another to simply authorize EPA to set the cap itself wherever the agency sees fit."

According to Carr, Roberts was clear that that there can't be a cap-and-trade program under the authority of Section 111(d). "It's a separate question whether other sections of the Clean Air Act provide authority to use a cap-and=trade mechanism for CO2," he added.

Trading under NAAQS

The real question facing the EPA, Carr said, is whether it can lawfully create a NAAQS for CO2 as it has done for six other key "criteria" pollutants: ground-level ozone, lead, carbon monoxide, sulfur dioxide, nitrogen oxide, and particulate matter.

Because cap and trade is authorized under NAAQS, which Roberts also acknowledged in a footnote, it is possible to have a cap-and-trade program for carbon, Carr said. "I think the question you're asking is, does this decision preclude that? And the answer is yes," he added, referring to Robert's decision to rule very narrowly on EPA's Section 111(d) authority under the Clean Air Act.

The Center for Biological Diversity used the ruling as an opportunity to renew its call on 5 July to persuade the EPA to grant its 2009 petition to list GHGs as the seventh "criteria" pollutant, requiring a nationwide emissions cap in the form of a NAAQS.

It cited Roberts who said "capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal may be a sensible solution to the crisis of the day" — just not under one specific provision of the Act.

In 2021, EPA decided to reconsider the petition after rejecting the Trump administration's denial of it.

Given the increase in visible impacts of the climate crisis since the petition was first filed, CBD urged EPA to act. It said a GHG air quality standard would have a "huge impact" because it would apply across all sectors of the economy, not just fossil fuel power plants. More importantly, the group said states would be given flexibility to choose how they cut pollution to meet the national cap.

Megan Houdeshel, a Clean Air Act attorney with the Salt Lake City-based law firm of Dorsey & Whitney, said the EPA still has some avenues to pursue GHG reductions at power plants. For instance, it can get some GHG reductions under new source performance standards rules for new, modified, and reconstructed power plants under Section 111b of the statute.

"I don't think the EPA is without any recourse, but I do think the EPA will not only need to be creative, but also will need to be careful to draft rules that align with more traditional clean air act emission reduction strategies," Houdeshel said.

Posted 05 July 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.