Carbon Pollution Emission Guidelines for Existing Stationary Sources

December 1, 2014

U.S. Environmental Protection Agency Attention Docket ID No. EPA–HQ–OAR–2013–0602 EPA Docket Center, U.S. EPA, Mailcode: 28221T 1200 Pennsylvania Avenue, NW Washington, DC 20460

Re: Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generation Units, Proposed Rule, Docket ID No. EPA–HQ–OAR–2013–0602; FRL–9910-86-OAR, 79 Fed. Reg. 34,830 (June 18, 2014)

The American Chemistry Council, American Forest & Paper Association, American Fuel & Petrochemical Manufacturers, American Iron and Steel Institute, American Petroleum Institute, American Wood Council, Brick Industry Association, Corn Refiners Association, Council of Industrial Boiler Owners, Electricity Consumers Resource Council, National Association of Home Builders, the National Association of Manufacturers, National Lime Association, National Oilseed Processors Association, Portland Cement Association, The Fertilizer Institute, and the U.S. Chamber of Commerce, (collectively, “the Associations”) appreciate the opportunity to submit the following comments in response to the Environmental Protection Agency’s (“EPA’s”) proposed Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generation Units, Docket ID No. EPA–HQ–OAR–2013–0602; FRL–9910-86-OAR, 79 Fed. Reg. 34,830 (June 18, 2014) (hereinafter, the “proposed rule” or “proposed ESPS”).

The Associations represent the nation’s leading energy, agriculture, and manufacturing sectors that form the backbone of the nation’s industrial ability to grow our economy and provide jobs in an environmentally-sustainable and energy-efficient manner. Significantly, the Associations both represent, and are reliant upon, electric utilities, which will be directly regulated and impacted by the EPA’s proposed ESPS governing carbon emissions. EPA, in the proposed ESPS, asserts unprecedented jurisdiction over electricity production and dispatch, as well as retail demand for electricity by the Associations’ member companies. The Associations are key and necessary stakeholders regarding any regulation that impacts energy and which may impact manufacturers directly or indirectly in the future. For the reasons described below, we believe the proposed rule far exceeds the authority delegated to EPA by Congress and would have profoundly adverse consequences on both industry and the economy. We therefore urge EPA to withdraw the proposed rule and to engage instead in a process with all interested stakeholders regarding the development of a lawful and reasonable rule that will allow U.S. companies to remain competitive in the global marketplace.

EPA is proposing this rulemaking as a key component of the President’s Climate Action Plan, which identifies a wide range of actions that the administration is implementing to address the challenges of climate change. In proposing to achieve greenhouse gas (“GHG”) emission reductions from existing electricity generating units (“EGUs”) in the proposed ESPS, however, EPA for the first time in the more than 40 year history of the Clean Air Act (“CAA”) is bootstrapping unprecedented, newfound legal powers onto its existing legal authority without the necessary legislative amendment. This self-enacted authorization would elevate the Agency to the most influential and pervasive federal regulator of not just the environment, but the generation, distribution, and utilization of electricity in the nation. Such a role reaches far beyond the bounds of the CAA, and the very mission of EPA as an agency established to reduce air pollution and not as a regulator of the nation’s electricity grid.

At its core, the proposed ESPS is built upon a fundamental, novel, and flawed legal assumption that the CAA authorizes EPA to hold a single regulated entity liable for the actions and inactions of unrelated third parties operating at other facilities, other energy sectors, and even other industrial sectors. In turn, EPA indicates that those third parties similarly can be held liable by States in a legally enforceable manner to account for GHG reductions sought by the fossil fuel-fired EGU sector. As described below, neither Congress nor the courts have authorized such an expansive interpretation of the Clean Air Act that would enable EPA to implement a de facto, economy-wide federal regulation of the entire electricity sector in the United States.

Indeed, in critical respects, EPA is effectively commanding the States both as to how they must generate and dispatch electricity as well as how they must regulate demand for electricity. Despite EPA’s references to flexibility, in practice, the emission reduction targets EPA has proposed can only be met if States mandate construction of EPA’s preferred sources of electricity and then abandon current use of economic dispatch priorities in favor of EPA’s preferred dispatch order, without regard to the costs to the States, utilities, and consumers. To meet EPA’s emissions targets, States will also need to implement renewable energy policies at EPA’s direction and mandate aggressive retail demand reduction programs. In many instances, these changes would require a State to enact a host of new laws because existing laws do not permit the types of regulatory actions desired by EPA, thereby dictating federal energy policies on inherently State-centric issues. Nowhere in the Clean Air Act did Congress provide EPA with the authority to commandeer State police powers in this way—nor could it, as such mandates violate the Tenth Amendment. Indeed, the Federal Power Act (“FPA”) delicately divides authority over the electricity sector between States on the one hand and the Federal Energy Regulatory Commission (“FERC”) on the other, leaving no space for EPA to regulate.

The Associations strongly oppose EPA’s approach in the proposed ESPS both because of the irreparable harm it will cause to electricity generation, reliability, and costs—if not to the economy as a whole—and because of the extraordinary precedent that EPA is proposing to create. Departing from the established approaches to Section 111(d) the Agency has taken for scores of years, EPA cannot bootstrap its own authority for the first time to read away the entire premise on which the Clean Air Act is based—that regulated entities are accountable for actions specifically at their facilities and their facilities only, and cannot be held liable for unrelated actions and actors beyond the fence line of those facilities and in sectors that are not even subject to the rule at issue. Nor can EPA commandeer State regulatory authority over local electricity markets—EPA has no authority to regulate electricity generation, dispatch and demand and EPA cannot force States to restructure their electricity markets to suit EPA’s preferences.

If EPA proceeds to finalize the ESPS in this form, it will be ushering in a new regulatory era where it will be able to regulate any entity in full disregard for the specific facility and technology-based limits that are the touchstone of Section 111’s approach to regulation of stationary sources. Like any other rulemaking, in the proposed ESPS, EPA must work within the bounds of the tools that exist and not effectively amend its own authority in new ways that Congress has not authorized. As the Supreme Court recently reminded EPA, “[w]hen an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy’ ... we typically greet its announcement with a measure of skepticism.” Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427, 2444 (2014) (“UARG”) (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159 (2000)).

The Associations’ specific comments are summarized below:

  • The proposed rule exceeds EPA’s authority because Congress did not intend EPA to use Section 111(d) as a means to exercise regulatory control over the entire electricity sector.
  • The proposed rule should be withdrawn because it is harming the Associations’ members. EPA’s proposed compliance schedules are unreasonably short and, at a minimum, EPA must eliminate the interim emission reduction targets to allow States to reduce emissions over a reasonable time period. To meet EPA’s aggressive 2020 emission reduction targets, utilities and the States must take immediate action to implement heat rate improvements and construct new energy infrastructure. The Associations’ manufacturing members will be harmed through higher electricity prices, the risk of power outages, and competition for raw materials such as natural gas.
  • EPA is not authorized to expand regulation of fossil fuel-fired EGUs under Section 111 to include existing sources under Section 111(d) because EGUs are already subject to regulation under Section 112.
  • EPA cannot regulate a source category under Section 111 until it has first made a source- and pollutant-specific endangerment determination and significance finding, which it has not done here.
  • EPA’s regulation of existing sources under Section 111(d) is inextricably tied to its regulation of new sources under Section 111(b), and EPA unlawfully deviates from the proposed standards of performance for new sources in this proposed rule.
  • EPA cannot establish binding emission rate targets because the plain language of the Clean Air Act directs the States—not EPA—to establish standards of performance. Further, the emission reduction targets proposed by EPA are contrary to the FPA and the Tenth Amendment.
  • EPA’s proposed emission reduction targets are unlawful because they are not based on an adequately demonstrated best system of emission reduction (“BSER”) for fossil fuel-fired EGUs. The plain language of Section 111, EPA’s past practice, and the structure of the Clean Air Act as a whole all confirm that EPA cannot look beyond the fence line when conducting a BSER analysis. Further, to the extent that there is any ambiguity in Section 111(d), which the Associations dispute, EPA cannot use that ambiguity to regulate and restructure the entire electricity sector.
  • EPA’s proposed emission reduction targets are arbitrary and capricious because EPA fails to consider key issues that call into question the aggressive emission reductions EPA proposes for each of the four Building Blocks.
  • EPA may not use Section 111(d) to impose binding legal obligations on entities that are not part of the source category subject to regulation.
  • EPA may not base its BSER analysis and emissions rate reduction targets on beyond the fence line emission reductions that EPA lacks authority to implement as part of a federal implementation plan.
  • EPA may not simultaneously regulate modified and reconstructed sources as new sources subject to Section 111(b) and as existing sources under Section 111(d) because those categories are defined in a mutually exclusive manner in Section 111.
  • EPA’s proposal to regulate simple cycle turbines in the same manner as combined cycle turbines is arbitrary and capricious due to the fundamentally different role that simple cycle turbines play within the United States’ energy portfolio.
  • EPA’s proposal to include industrial combined heat and power (“CHP”) units is arbitrary and capricious and fails to fully account for the environmental benefits that CHP offers. EPA must modify the applicability criteria to exclude industrial CHP units.
  • EPA’s assessment of the costs and benefits of the proposed rule are arbitrary and capricious because EPA relies on a defective Social Cost of Carbon (“SCC”) document that, among other flaws, relies on international harms associated with GHG emissions without complying with the proper procedures under Section 115 or evaluating the potential for international leakage of CO2 emissions. In addition, EPA fails to conduct whole economy modeling, and inappropriately considers benefits associated with the reduction of non-GHG pollutants. Further, before finalizing the proposed rule, EPA must convene a Small Business Advocacy Review panel to evaluate how the proposed rule will affect small businesses.
  • To promote flexibility, EPA should allow EGUs to incorporate voluntary emission reductions implemented by third parties as part of a compliance program.
  • By prohibiting States from incorporating existing GHG reduction programs into their implementation plans, EPA is inappropriately constraining the States’ flexibility to implement plans to reduce CO2 emissions from the electricity sector.
  • EPA’s applicability criteria for offsets in State implementation plans unfairly penalize States and affected EGUs that have taken early action to reduce GHG emissions.
  • EPA must ensure that any sources that may be subject to binding obligations under a portfolio approach are exempted from any future Section 111 standards of performance that may be issued for other source categories.
  • Before finalizing the rule, EPA must develop and permit public comment on rules for measuring and verifying emission reductions associated with renewable energy and energy efficiency programs.
  • Before finalizing the proposed rule, EPA must provide additional, detailed guidance to the States regarding the conversion of rate-based emission reduction targets into mass-based standards.
  • EPA has appropriately included multi-year compliance periods that provide some relief from unforeseen circumstances that could increase emissions in a given compliance year.
  • EPA appropriately concluded that carbon capture and sequestration is not BSER for existing coal-fired EGUs.
  • EPA has violated Section 307(b) by failing to include in the rulemaking docket key data on which it relies in setting the State emission reduction targets.
  • EPA must base the final rule on representative baseline data by considering data from additional years besides 2012.
  • EPA’s reliance on projects receiving federal funding under the Energy Policy Act of 2005 is arbitrary, capricious, and unlawful.
  • EPA must impose the same applicability criteria for existing sources under Section 111(d) that it imposes for newly constructed sources in the same source category under Section 111(b).
  • EPA cannot rely on untimely notices of data availability and other technical support documents to cure defects in its original proposal.
  • EPA must not expand the Section 111 GHG regulations to any other source category.