Home Business Challenges lie ahead for the US EPA’s proposed power plant emissions standards

Challenges lie ahead for the US EPA’s proposed power plant emissions standards

by SuperiorInvest

By Elyse Steiner, Principal Analyst, Wood Mackenzie

On May 8, 2023, the US EPA proposed new carbon emissions standards for coal-fired and natural gas-fired power plants. The new standards are based on power plants installing carbon capture technology (CCUS) or using hydrogen fuel to reduce emissions – as part of the fence line measures. EPA must ensure that these technologies are adequately demonstrated for the energy sector. Furthermore, as the use of fossil fuels decreases, the economic burden of investing in modernization becomes more difficult. Below, Wood Mackenzie analysts address some of the economic, technical and legal challenges EPA must consider in its final rule.

Not all energy markets are the same

In regulated utility markets, retrofit costs are directly passed on to ratepayers after the Public Utilities Commission approves an Integrated Resource Plan (IRP). Utilities include all modernization and conversion costs as part of their IRP proposals. If compliance costs are higher than alternative generation such as renewables, the utility will generally propose to retire those assets to achieve the lowest cost generation mix.


Wholesale markets provide cost recovery by generators offering their capacity to serve the load. In general, thermal units will not operate at a loss unless they market their offerings. For the upgrade to be economic, market returns must cover the cost of the upgrade for the remaining life of the project. Thermal generators are already under pressure from low-cost variable generation, operating at lower capacity factors but relying on them during high-demand, low-variability events. The evolving role of heat generators and their role in reliability is likely to make cost-effective compliance in the power-only market difficult. It is likely that an overhaul of the capacity market will be needed to ensure continuous operation of thermal units.

To ensure resource adequacy under this plan, markets will need to evolve rapidly to compensate for thermal equipment deemed critical to grid reliability. The guaranteed return is likely to result in a greater proportion of thermal producers continuing to operate in the regulated markets than in the wholesale markets due to the reduced risk of stranded assets.

Standards based on emerging technology

IRA 45Q tax credits for CCUS projects have brought new hope to fossil fuel producers looking to reduce their emissions by capturing them. Due to declining utilization, the economic feasibility of CCUS for fossil fuel power plants is generally not attractive, even with a 45Q credit. Exceptions perhaps exist for plants that may have high-capacity capture and high-capacity factors. Unfortunately, as the grids shift towards a higher share of renewable energy, utilization is predicted to decline for most gas and coal-fired power plants.


Capture technologies such as improved sorbents, membranes and self-capture of the combustion of oxygen and fuel, known as the Allam-Fetvedt cycle, could be commercial and transformative. Since the IRA 45Q credit can be claimed if construction begins before 2033, the economy could improve by then and CCUS will become very prominent in the US supply mix.

The low-GHG hydrogen market is also nascent and experiencing hurdles in bringing projects online due to lack of demand. EPA’s proposed guidelines would be a catalyst for low-GHG hydrogen uptake, accelerating and de-risking supply investments. Several utilities have begun pilot demonstration projects that blend hydrogen into existing gas turbines to achieve a low blend percentage by volume. The proposed rule would require gas utilities that choose to decarbonize with low-GHG hydrogen to blend at much higher percentages than current pilots. Blending hydrogen by 30% by 2032 could redefine existing infrastructure. Blending hydrogen to 96% by 2038 would require new infrastructure, the technology of which is still evolving. EPA regulations could accelerate that timeline.

A high legal bar to clear

Although the EPA has used a narrower definition of “system” and fixed the fence problem, there are still a number of challenges and issues that will likely need to be resolved by the court. Opponents of Biden’s newly proposed standards could again argue that they violate the “major issues” doctrine, which proved a compelling argument with the conservative Supreme Court in 2022.


Another requirement is that EPA must demonstrate that the standards are based on measures that have been “adequately demonstrated” for existing sources of air pollution. EPA argues that, along with the IRA, Congress is signaling that these technologies are deployment options and that “adequately demonstrated” does not mean commonly used. Energy companies are likely to argue that CCUS and green hydrogen fuel are expensive, unproven technologies with mixed results.

There is still a long, uncharted road ahead before we have more clarity about the final form of the rule and its future. Meanwhile, the transition to cleaner generation is well under way and emissions in the power sector are already falling as more coal-fired power plants close or switch to gas. Time will tell if the EPA succeeds in establishing permanent carbon standards and accelerating the energy transition.

Source Link

Related Posts

%d bloggers like this: