***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

ES - 1 **EXECUTIVE SUMMARY** This R egulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of the proposed Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources fo r Electric Utility Generating Units (herein referred to as EGU GHG NSPS). **ES .**  **1 Background and Context of Proposed Rule**  The proposed EGU GHG NSPS will limit greenho use gas emissions (GHG) from new fossil fuel fired electric generating units (E GU) constructed in t he United State s in the future. 1 This rulemaking will apply to carbon dioxide (CO 2 ) emissions from new electric generating sources that exceed 25 megawatts (MW) in capacity. The United States Environmental Protection Agency ( EPA ) is proposing requirements for these sources because CO 2 is a GHG and power plants are the country’s largest stationary source emitters of GHGs . As stated in the EPA’s Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act (74 FR 66, 518 ; Dec. 15, 2009) and summarized in Chapter 3 of this RIA, the anthropogenic buildup of GHGs in the atmosphere is very likely the cause of most of the observed global warming over the last 50 years. This action is taken in response to a proposed se ttlement agreement entered into on December 23, 2010 to issue rules that will deal with GHGs from certain fossil fuel -fired EGUs . The statutory authority for this action is the Clean Air Act (CAA) section 111(b) , which covers the regulat ion of new, modified, and reconstructed sources. For the purposes of this rule , a new source is one that commences construction after the publication of th e proposed rule , other than those sources EPA has classified as “transitional” sources described later in this RIA . A reconstructed source is generally defined as an existing source that conducts extensive replacement of components and is treated as a new source under CAA section 111. A m odification is any physical change in, or c hange in t he method of operation of, a source that increases the amount of any air pollutant emitted by the source or results in the emission of any air pollutant not previously emitted. EPA is not proposing a standard of performance for a group of sources it is cal ling transitional sources as long as they commence construction 2 within 12 months from the date of

1 F or purposes of this rule, covered EGUs do not include simple cycle combustion turbines. In addition, units subject to emission requirements under the CAA solid waste combustion provisions ( S ection 129 ) would not be subject to requirements under this proposed rule. 2 EPA’s regulations define “commenced construction” as, in general, undertaking a continuous program of construction or entering into a binding contract to do so (40 CFR 51.165).***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

ES - 2 this proposal. Transitional sources are affected EGUs that have received approval for their complete Prevention of Significant Deterioration ( PSD ) preconstruction permits, but that have not “commenced construction” by the date of today’s proposed rulemaking. EPA is aware of approximately 1 5 transitional sources, six of which are expected to utilize carbon capture and sequestration (CCS) technology . CAA section 111(d) covers regulat ion of existing stationary sources that are not regulated under other parts of the CAA (i.e., pollutants regulated under NAAQS requirements or NESHAP r equirements) and to which a n ew source performance stan dard ( NSPS ) would apply if such existing source were a new source. This rulemaking affects CAA section 111(b) new sources of GHG emissions from fossil fuel -fired EGUs but does not address GHG emission s from existing sources. EPA is currently examining options for developing CO 2 emission guidelines that will be used by states to develop plans establishing standards of performance as required by CAA section 111(d). CAA Section 111 (b) requires that this standard be reviewed every eight years, thus this re gulatory requirement will likely be reviewed and potentially revised after the 2020 tim eframe. The refore, this economic analysis focuses on benefits and costs of this proposal for the years through 2020. This proposed rule is consistent with the President ’s goal to ensure that “by 2035 we will generate 80 percent of our electricity from a diverse set of clean energy sources - including renewable energy sources like wind, solar, biomass and hydropower, nuclear power, efficient natural gas , and clean coal.” 3 Additionally, this rule demonstrates to other countries that the United States is taking action to limit GHGs from its largest emissions sources, in line with our international commitments. The impact of GHGs is global, and U.S. action to reduce GHG emis sions complements ongoing programs and efforts in other countries. **ES .**  **2 Summary of Proposed Rule**  This proposal requires that all new fossil -fuel fired units that exceed 25 MW in capacity be able to meet an emission rate standard of 1 , 000 pounds of CO 2 p er megawatt hour (lbs CO 2/MWh) calculated over a rolling 12 - month period . It also proposes an alternative compliance option that would allow units to meet the 1 , 000 lbs CO 2/MWh standard using a 30 - year averaging period. These standards could be met eithe r by natural gas combined cycle (NGCC) generation with no additional GHG control or coal -fired generation using CCS. T he base case modeling EPA performed for this rule (as well as modeling that EPA has performed for

3 “Blueprint for a Secure Energy Future . ” March 30, 2011 . Available online at: http://www.whitehouse.gov/sites/default/files/blueprint_secure_energy_future.pdf***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

ES - 3 other recent air rules) project that, even in the absence of this action, new fossil -fuel fired capacity constructed through 2020 will most likely be natural gas combined cycle capacity . Alternatively, with available federal funding and appropriate market condition s coal -fired capaci ty with CCS could also be built . Any projected combustion turbine capacity would not be affected by this rule. Analys e s performed both by EPA and the U.S. Energy Information Administration (EIA) 4 project that generation technologies other than coal (including natural gas and renewable sources) are likely to be the technology of choice for new generating capacity due to current and projected e conomic market conditions. This means that technologies planned for new sources currently envisioned by owners and operators of EG U s will meet the regulatory requirements of this NSPS or are not covered by the NSPS . **ES .**  **3 Key Findings of Economic Analysis**  As explained in detail in this document, energy market data and projections support the conclusion that , even in the absence of this rule , existing and anticipated economic conditions in the marketplace will lead electricity generators to choose technologies that meet the proposed standards . Therefore, based on the analysis presented in Chapter 5 , EPA anticipate s that the proposed EGU GHG NS PS will result in negligible CO 2 emission changes, energy impacts, quantified benefits , costs , and economic impacts by 2020. Accordingly, EPA also does not an t icipate this rule will have any impacts on the price of electricity, empl oyment or labor markets, or the US economy. Nonetheless, this rule may have several important beneficial effects described below . This NSPS provides legal assurance that any new coal -fired plants must limit CO 2 emissions. Rather than relying solely on changeable energy market conditions to provide low emissions from new power plants in the future, this rule prevents the possible construction of uncontrolled, high - emitting new sources that might continue to emit at high levels for decades, contributing to accumulation of CO 2 in the atmosphere. In Chapter 5 of this RIA, we present a sensitivity analysis indicating that even in the unlikely event that market conditions change sufficiently to make the construction of new conventional coal -fired units economical from the perspective of private investors, the level of avoided negative health and environmental effects expected would imply net social benefits from this proposed rule. The rule will reduce regulatory uncertainty by defining section 111(b) requirements for limiting GHG from new EGU sources . In addition, EPA intends this rule to send a clear signal about the future of CCS technology that, in conjunction with other policies such as Department

4 Annual Energy Outlook ( AEO ) 2009 - 2012.***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

ES - 4 of Energy (DOE) financial assistance, the agency estimates will support development and demonstration of CCS technology from coal -fired plant s at commercial scale , if that financial assistance is made available and under the appropriate market conditions . Carbon capture also has the potential to help to improve U.S. energy production through enhanced oil recovery, as highlighted by a series of regional assessments conducted for DOE. 7

7 U.S. Department of Energy. DOE web page, “Ten Basin - Oriented CO2 - EOR Assessments Examine Strategies for Increasing Domestic Oil Production . ,” Available online at: http://www.fossil.energy.gov/programs/oilga s/eor/Ten_Basin - Oriented_CO2 - EOR_Assessments.html .