1 

### Fellner, Christian

From: Hutson, Nick

Sent: Thursday, December 19, 2013 2:50 PM

To: Fellner, Christian

Subject: Please docket - FW: Draft TSD

Attachments: EGU Projects Under Development DRAFT TSD 08-22-13.docx

From: Hutson, Nick

Sent: Friday, August 30, 2013 5:42 PM

To: Frey, Nathan J.

Cc: Culligan, Kevin; Wayland, Robertj; Tsirigotis, Peter

Subject: Draft TSD

A DRAFT version of a TSD entitled “ Fossil Fuel

‐ Fired Boiler and IGCC EGU Projects Under Development: Status and

Approach”

Is attached.

From: Hutson, Nick

Sent: Friday, August 30, 2013 5:36 PM

To: 'Frey, Nathan J.'

Cc: Culligan, Kevin; Wayland, Robertj; Tsirigotis, Peter

Subject: Revised (RLSO) versions of preamble; EPA response

Nathan

Attached to this email are three files:

(1) A PDF version of the redline changes to the preamble

(2) A MSWord version of the redline changes to the preamble

(3) An updated ‘EPA Response’ to the Interagency Comments

In emails immediately following this one, I will send versions of the

...

(1) Revised regulatory language

(2) Revised RIA chapters; and

(3) A DRAFT version of a TSD entitled “ Fossil Fuel

‐ Fired Boiler and IGCC EGU Projects Under Development:

Status and Approach”

We have made many changes in response to comments from OMB and the Interagency Workgroup. We are still

considering some comments. Those are noted in the text and in the EPA Response. We can continue to discuss specific

comments and other aspects of the package once you have had the opportunity to see the edits in these revised

versions.

Have a nice holiday and a relaxing time off next week.2 Regards,

Nick

Nick Hutson, PhD

Energy Strategies Group

U.S. Environmental Protection Agency

Research Triangle Park, NC 27711

(919) 541

‐ 2968

hutson.nick@epa.gov

### DRAFT 8/22/2013

Technical Support Document for the EGU GHG NSPS Proposed Rule

Docket ID No. EPA

‐ HQ

‐ OAR

‐ 2013

‐ 0495

Fossil Fuel

‐ Fired Boiler and IGCC EGU Projects Under Development: Status and Approach

U.S. Environmental Protection Agency

Office of Air and Radiation

August 2013

### DRAFT 8/22/2013

1 I. Summary

II. Background Related to the April 2012 Proposal

a. April 2012 proposal regarding “transitional sources”

b. Comments received on the April 2012 proposal

III. Status of Fossil Fuel

‐ Fired Boiler and IGCC EGU Projects Under Development

a. Overview

b. Individual project discussions

IV. Proposed Approach

a. Description of approach

b. Legal framework

c. Reasons for not applying the 1,100 lb CO 2 /MWh standard

d. Reasons for not proposing an alternate CO 2 standard at this time

I. Summary

In April 2012, pursuant to section 111(b) of the Clean Air Act (CAA), EPA proposed new source

performance standards (NSPS) for greenhouse gas emissions (GHGs) from certain electric generating

units (EGUs), a proposal that is being rescinded coincident with issuance of the current proposal. In the

April 2012 proposal, we proposed that “transitional sources,” defined generally in that proposal as solid

fossil fuel

‐ fired EGU projects that possessed complete Prevention of Significant Deterioration (PSD)

preconstruction permits as of April 13, 2012 and that commenced construction for NSPS purposes by

April 13, 2013, would be treated as existing sources not subject to the then

‐ proposed carbon dioxide

(CO

2 ) standard of performance for new sources. Our principal reason for proposing this approach was a

concern that for solid fossil fuel

‐ fired EGU projects with significant sunk costs and on the verge of

commencing construction, the then

‐ proposed CO 2 standard might not be representative of the “best

system of emission reduction

... adequately demonstrated” (BSER). We identified as “potential

transitional sources” 15 solid fossil fuel

‐ fired projects that we believed had been issued complete PSD

permits by the appropriate permitting authority but had not yet commenced construction for NSPS

purposes.

At this time, EPA believes there is most likely only one proposed fossil fuel

‐ fired boiler or

integrated gasification combined cycle (IGCC) EGU project

– and at most three such projects

– that may

be capable of commencing construction in the very near future and that as currently designed could not

meet the proposed standard of 1,100 pounds of CO 2 per gross megawatt

‐ hour (lb CO 2 /MWh): the

proposed Wolverine project in Rogers City, Michigan. The current proposal does not apply to the

Wolverine project because we have not formulated a view as to whether the project is on the verge of

construction and whether, if the project is on the verge of construction, the 1,100 lb CO 2 /MWh standard

or some other CO 2 standard of performance would be representative of BSER for the project. Instead,

we are inviting comment on these questions, and at the time of finalization of the current proposal (but

not sooner than one year following Federal Register publication of the current proposal), if the

Wolverine project remains under development and has not either commenced construction or been

canceled, we anticipate proposing that the project either be made subject to the 1,100 lb CO 2 /MWh

standard or be assigned to a subcategory with an alternate CO 2 standard.

There are two other fossil fuel

‐ fired boiler EGU projects without carbon capture and storage

(CCS) technology

– the Washington County project in Georgia and the Holcomb project in Kansas

– that

appear to remain under development but whose developers have represented that the projects have

already commenced construction for NSPS purposes. Based solely on the developers’ representations,

the projects would be considered existing sources and thus not subject to the current proposal.

### DRAFT 8/22/2013

2 However, neither developer has sought an EPA determination of NSPS applicability, and if, upon review,

it was determined that the projects have not “commenced construction,” then the projects could be

situated similarly to the Wolverine project. Accordingly, if either developer seeks an EPA determination

of applicability within 120 days following Federal Register publication of the current proposal and EPA

determines that the project has not commenced construction as of the date of publication of the

current proposal, then that project automatically

– without, for example, any supplemental proposal or

re

‐ proposal

– would be addressed in the same manner as the Wolverine project.

The next section of this document provides additional background on the April 2012 proposal

and the comments received in response to that proposal. The remaining sections then address in

greater detail, first, EPA’s understanding of the status of potentially relevant fossil fuel

‐ fired boiler and

IGCC EGU projects currently or recently under development, and second, the regulatory approach

described above.

II. Background Related to the April 2012 Proposal

a. April 2012 proposal regarding “transitional sources”

In the April 2012 EGU GHG NSPS proposal, EPA noted the possibility that for some planned solid

fossil fuel

‐ fired EGU projects, which we termed “transitional sources,” the then

‐ proposed CO 2 standard

might not be representative of BSER. We described transitional sources conceptually as projects that

had significant sunk costs and that were on the verge of commencing construction. Our concern was

that for such a project, imposition of a CO 2 standard would be a fundamental change in regulatory

requirements that could result in the loss of the project’s sunk costs and cause multi

‐ year delays or

abandonment of its imminent plans to construct. We stated that such consequences would be outside

the scope of BSER.

EPA also explained in the April 2012 proposal that we lacked sufficient information on the

details of proposed EGUs’ actual costs and planned construction schedules to determine whether in fact

there were any projects that should be considered transitional sources. Among other uncertainties, we

noted the difficulty of determining in advance whether a project was truly on the verge of construction.

We therefore defined two proxy criteria for determining whether a particular project should be

considered a transitional source. The first criterion was that the project had to possess a complete PSD

preconstruction permit as of Federal Register publication of the proposal (i.e., by April 13, 2012). 1 The

second criterion was that the project had to commence construction within one year of Federal Register

publication of the proposal (i.e., by April 13, 2013). We then identified as “potential transitional

sources” 15 specific proposed solid fossil fuel

‐ fired projects that appeared to have complete PSD

permits and might therefore ultimately qualify as transitional sources for purposes of that proposal if

they were to commence construction by April 13, 2013. We requested comment from the developers of

those projects confirming the status of the projects’ PSD permits, and we also requested comment on

whether any other proposed projects existed that we should have identified as potential transitional

sources. (As discussed below, only two additional developers submitted comments arguing for

treatment of their projects as potential transitional sources.)

EPA did not propose any CO 2 standard of performance for projects meeting the two proxy

criteria, but instead indicated that such projects would be treated as existing sources for purposes of

that GHG NSPS. We noted that in addition to lacking information on which specific projects should be

1 In a variation on the PSD permit criterion, a project with CCS funding support from the Department of

Energy and an expired PSD permit could qualify if it was seeking a PSD permit extension as of Federal

Register publication of the proposal.

### DRAFT 8/22/2013

3 considered transitional sources, we also lacked information needed to determine appropriate alternate

CO 2 standards for such sources. We further explained that there would be limited utility in undertaking

the process of obtaining the information necessary to propose alternate standards given our

expectation that within one year (which we considered a reasonable estimate of the time needed to

develop and propose alternate standards), each of the potential transitional sources either would have

commenced construction, thereby becoming an existing source, or by failing to commence construction

within the required one

‐ year period would have been disqualified from treatment as a transitional

source. If a project did not commence construction by April 13, 2013, but commenced construction

after that date, it would have been considered a new source subject to the GHG NSPS in the same

manner as any other non

‐ transitional new source.

b. Comments received on the April 2012 proposal

Comments on the April 2012 proposal’s “transitional source” provisions expressed a wide range

of supporting and opposing views. Through a final action being published coincident with the current

proposal, EPA is rescinding the April 2012 proposal, rendering moot the perspectives expressed on,

among other issues, the legality of the transitional source approach under that proposal. 2 Nevertheless,

consideration of comments regarding various details of the April 2012 proposal has informed our

approach in the current proposal. For example, we generally agree with comments pointing out that the

relevant costs for purposes of determining BSER are future costs, not sunk costs, as well as comments

taking the position that proposed projects already designed to be capable of physically meeting the

proposed CO 2 standard of performance through the use of CCS should be subject to the standard.

A further potentially relevant issue raised in comments on the April 2012 proposal concerns the

interaction between the April 13, 2013 construction commencement deadline for transitional sources

under the 2012 proposal and the timing of EPA’s process for reconsideration of certain provisions of the

Mercury and Air Toxics Standards for power plants (MATS). 3 The MATS rule established standards of

performance for emissions of hazardous air pollutants (HAP) from new solid fossil

‐ fueled EGUs (among

other sources). Shortly after publication of the April 2012 GHG NSPS proposal, EPA received several

petitions seeking administrative reconsideration of the MATS rule in part to address claims that the

stringency of certain HAP emissions standards for new units exceeded levels at which monitoring

equipment vendors would offer performance guarantees. 4 In subsequent comments on the April 2012

2 Many of the comments submitted on individual solid fossil fuel

‐ fired projects are likewise moot

because the status of most of the projects has changed since the comments were submitted. For

example, several projects appear not to be subject to the current proposal either because they claim to

have commenced construction for NSPS purposes (and therefore would be existing sources if those

claims are correct) or because they have been canceled, and several projects have been redesigned to

use natural gas instead of solid fuel. EPA’s understanding of the current status of the individual projects

is discussed in section III below.

3 “National Emission Standards for Hazardous Air Pollutants From Coal

‐ and Oil

‐ Fired Electric Utility

Steam Generating Units and Standards of Performance for Fossil

‐ Fuel

‐ Fired Electric Utility, Industrial

‐

Commercial

‐ Institutional, and Small Industrial

‐ Commercial

‐ Institutional Steam Generating Units,” 77 FR

9304 (Feb. 16, 2012).

4 See, e.g., Institute of Clean Air Companies, Request for Partial Reconsideration of EPA’s National

Emission Standards for Hazardous Air Pollutants from Coal

‐ and Oil

‐ Fired Electric Utility Steam

Generating Units (Apr. 16, 2012), EPA

‐ HQ

‐ OAR

‐ 2009

‐ 0234

‐ 20176. Similar claims were pursued in

proceedings seeking judicial review of MATS. See, e.g., Joint Motion by Developers of New Solid

‐ Fueled

### DRAFT 8/22/2013

4 GHG NSPS proposal, some EGU developers claimed that construction delays due to the MATS

‐ related

equipment vendor guarantee issue and uncertainty as to the ultimate MATS emissions standards could

prevent potential transitional sources from commencing construction by April 13, 2013 and could

thereby make it impossible to qualify as a transitional source under the GHG NSPS proposal. 5

In July 2012, EPA announced that some of the HAP emissions standards for new units would be

reconsidered and we indicated our intent to complete that reconsideration process before April 2013.

Reconsidered standards were proposed in November 2012 and were signed by the Administrator in

March 2013. 6 While uncertainty regarding the stringency of the reconsidered MATS standards was

therefore resolved prior to the April 13, 2013 construction commencement deadline for transitional

sources under the April 2012 GHG NSPS proposal, we acknowledge that the existence of that

uncertainty for most of the year leading to the deadline could have increased developers’ difficulty in

completing arrangements necessary to commence construction of their proposed projects. As discussed

above, our purpose in setting that one

‐ year period for commencement of construction was to

determine which proposed projects were truly on the verge of construction and therefore merited

treatment as transitional sources. To the extent that our own actions related to the MATS rule may

have hampered developers’ efforts to commence construction during the one

‐ year period designated in

the April 2012 proposal, our purpose in establishing that one

‐ year period was frustrated.

III. Status of Fossil Fuel

‐ Fired Boiler and IGCC EGU Projects Under Development

a. Overview

In the April 2012 proposal, EPA identified 15 proposed solid fossil fuel

‐ fired projects as

“potential transitional sources.” These were projects that appeared to us, based on then

‐ current

information, to be EGUs with complete PSD permits that might be capable of commencing construction

in the very near future. We invited comment from developers of these “potential transitional sources”

regarding the status of the projects’ PSD permits, and developers of ten of the projects commented. We

also invited comment from other developers who believed that their projects should or might qualify for

treatment as transitional sources, and we received comments of that nature regarding two additional

projects. This section addresses the current status of each of these 17 projects. 7

EPA’s current understanding of the projects’ development status is summarized in Table 1. As

shown in the table, several of the projects claim already to have commenced construction for NSPS

purposes, which would (if those claims are correct) make those projects, if completed, existing sources

not subject to the proposed standard. 8 Several other projects have been converted to or replaced by

Electric Generating Units, White Stallion Energy Center, LLC v. EPA, No. 12

‐ 1100 (D.C. Cir. filed Apr. 27,

2012).

5 See, e.g., Comments of Deseret Generation & Transmission Co

‐ operative et al., (June 25, 2012), EPA

‐

HQ

‐ OAR

‐ 2011

‐ 0660

‐ 10021.

6 The reconsidered standards were published in the Federal Register in April 2013. 78 FR 24073 (Apr. 24,

2013).

7 EPA is unaware of any other proposed fossil fuel

‐ fired boiler or IGCC EGU project relevant to this

discussion: i.e., a new source for NSPS purposes, at a stage of development comparable to the projects

discussed here, that would be incapable as currently designed of achieving the proposed 1,100 lb

CO 2 /MWh standard.

8 One of these projects, Texas Clean Energy, as currently designed would also be capable of meeting the

proposed 1,100 lb CO 2 /MWh standard.

### DRAFT 8/22/2013

5 natural gas combined cycle (NGCC) projects; we consider these projects as currently designed, if

completed, capable of meeting the proposed CO 2 standard applicable to NGCC units. Several other

projects have been canceled or lack effective PSD permits; we do not consider these projects capable of

commencing construction in the very near future (assuming, contrary to present indications, that the

developers decide to resume active development efforts). One of the projects is not subject to the

proposed standard because it is not an EGU.

Table 1: Apparent Development Status of “Potential Transitional Sources” Identified in April 2012

GHG NSPS Proposal and Related Comments *

Project (State) Type CCS Apparent Development Status

1. Wolverine (MI) CFB No Remains under development; does not claim to have

commenced construction

2. Washington County (GA) SCPC No Claims to have commenced construction

3. Holcomb (KS) SCPC No Claims to have commenced construction

4. Two Elk (WY) PC No Claims to have commenced construction; state agency has

apparently accepted claim

5. Texas Clean Energy (TX) IGCC Yes Claims to have commenced construction; also capable of

meeting proposed CO 2 standard

6. Cash Creek (KY) IGCC Yes Converted to NGCC project

7. Good Spring (PA) IGCC Yes Converted to NGCC project

8. Mesaba (MN) ** IGCC No Converted to NGCC project

9. De Young (MI) CFB No Replaced by NGCC project

10. Taylorville (IL) IGCC Yes Canceled

11. Trailblazer (TX) SCPC Yes Canceled

12. Coleto Creek (TX) SCPC No Canceled

13. Limestone (TX) SCPC No Canceled

14. White Stallion (TX) CFB No Canceled

15. Las Brisas (TX) ** CFB No Canceled

16. Bonanza (UT) CFB No PSD permit never effective; developer has also identified

project to DOE as canceled or indefinitely postponed

17. Power County (ID)

‐‐ Yes Not an EGU

*Technology abbreviations: CCS = carbon capture and storage; CFB = circulating fluidized bed; IGCC =

integrated gasification combined cycle; NGCC = natural gas combined cycle; PC = pulverized coal; SCPC =

supercritical pulverized coal

** Developer submitted comments on the April 2012 proposal arguing for treatment of the project as a

potential transitional source

### DRAFT 8/22/2013

6 Based on the information summarized in the table, it appears that there is only one proposed

fossil fuel

‐ fired boiler or IGCC EGU project

– the Wolverine project in Rogers City, Michigan

– that may

be capable of commencing construction in the very near future and that as currently designed could not

meet the proposed 1,100 lb CO 2 /MWh standard. However, there are two additional proposed projects

– the Washington County project in Georgia and the Holcomb project in Kansas

– that appear to remain

under development and whose current designs lack CCS. The developers of these two additional

projects have represented that the projects have commenced construction for NSPS purposes, and

based on those representations, the projects would be considered existing sources not subject to this

rulemaking. However, we recognize that if, upon review, it were to be determined that the projects

have not in fact commenced construction for NSPS purposes, they could be situated similarly to

Wolverine for purposes of the current proposal. 9 The discussions of individual projects below begin with

these three projects.

b. Individual project discussions

1. Wolverine (Michigan)

This proposed circulating fluidized bed EGU without CCS apparently remains under

development. The project’s PSD permit was issued in 2011 and in December 2012 the project received a

permit extension through June 29, 2014. 10 In contrast to the Washington County and Holcomb projects,

EPA is unaware of any representations by the developer of the Wolverine project that construction has

already commenced. Given the developer’s recent efforts to extend the air permit, and the absence of

other information regarding either commencement of construction or project cancellation, we consider

this project’s status as one of continued pre

‐ commencement development.

EPA has conflicting information regarding whether the Wolverine project should be considered

on the verge of construction. As noted above, the project was issued a PSD permit and the developer

has taken steps to extend that permit fairly recently. But despite the permit extension, it is unclear

whether this project is being actively pursued. In January 2012, the developer informed local leaders

that the project was being placed on hold, attributing the decision to an inability to obtain guarantees

from air pollution control equipment vendors that the plant would be able to meet the HAP emissions

standards finalized by EPA in December 2011. 11 As discussed in section II.b. above, EPA finalized revised

HAP emissions standards in March 2013. Public statements made by employees of the developer in

January 2013, shortly after the project’s permit extension and after proposal but before finalization of

the revised HAP emissions standards, appear to indicate that at that time there were still no immediate

9 Although the Two Elk project likewise lacks CCS and has not requested an applicability determination,

EPA does not consider this project to be situated similarly to the Washington County and Holcomb

projects, as further discussed below.

10 See Letter from G. Vinson Hellwig, Chief, Air Quality Division, Michigan Department of Environmental

Quality, to Brian L. Warner, Wolverine Power Supply Cooperative, Dec. 18, 2012.

11 See Jim Dulzo, As Coal Plant Teeters, Groups Mount Legal Attack

, Michigan Land Use Institute blog,

Feb. 13, 2012, http://www.mlui.org/energy/news

‐ views/news

‐ views

‐ articles/as

‐ coal

‐ plant

‐ teeters

‐

groups

‐ mount

‐ legal

‐ attack.html (quoting Eric Baker, CEO of Wolverine Power Cooperative: “We are not

convinced that we can get any vendor to guarantee an emission rate that would achieve that new

proposed level

.... What that means is that we are not going to move forward with the engineering

... with the detailed design and bidding process because

... the emission rates are virtually unachievable at

this point.”).

### DRAFT 8/22/2013

7 plans to commence construction. 12 The project may face litigation over the December 2012 air permit

extension. 13 We also note that since initially proposing the project, the developer has acquired or

agreed to acquire capacity in three existing coal

‐ fueled plants, at least in part meeting the developer’s

apparent objective of fuel diversification. 14 In summary, we are currently uncertain whether this project

is or is not on the verge of construction.

Similarly, EPA has conflicting information on the question of whether and, if so, with what

degree of difficulty this project could be redesigned to meet the proposed 1,100 lb CO 2 /MWh standard.

As currently designed, the project does not incorporate CCS technology and would be unable to achieve

the standard. Moreover, in a BACT analysis performed by the state permitting authority for purposes of

the project’s air permit it was concluded that CCS was not technically feasible. 15 However, in 2010 the

developer submitted a proposal to the Department of Energy for funding to support a version of the

project that did incorporate CCS technology. 16 Although the developer apparently did not propose CCS

deployment at a scale that would have enabled the project to meet the 1,100 lb CO 2 /MWh standard, we

view that proposal as strong support for the technical compatibility of CCS at some scale with the

project’s currently proposed site, fuel type, and combustion technology. We do not have information

on the degree of design changes that might be required to allow the project to deploy CCS at a scale

sufficient to meet the proposed CO 2 standard or on the consequences of such changes for the project’s

development schedule.

12 See, e.g., Jordan Travis, Wolverine Waiting for EPA to Make Next Move

, Alpena News, Jan. 11, 2013,

http://www.thealpenanews.com/page /content.detail/id/524035/Wolverine

‐ waiting

‐ for

‐ EPA

‐ to

‐ make

‐

next

‐ move.html?nav=5004 (quoting Ken Bradstreet, director of community and government affairs for

Wolverine Clean Energy Venture: “Quite frankly, it seems at this point to be highly unlikely, but we’re

going to explore it until it’s obviously not doable”); Michael Walton, Permit Extended for Coal Plant

Project Construction

, Traverse City Record

‐ Eagle.com, Jan. 13, 2013, http://record

‐ eagle.com/local/x1746077955/Permit

‐ extended

‐ for

‐ coal

‐ plant

‐ project

‐ construction (quoting Nancy

Tanner, spokesperson for Wolverine: “Wolverine hasn’t made a decision to move forward and before

proceeding would evaluate the project to ensure it is a competitive power supply option”).

13 See Jim Dulzo, Permit Is Renewed, but Rogers City Coal Plant Still Stalled

, Michigan Land Use Institute

blog, Jan. 7, 2013, http://www.mlui.org/energy/news

‐ views/news

‐ views

‐ articles/permit

‐ is

‐ renewed

‐

but

‐ rogers

‐ city

‐ coal

‐ plant

‐ still

‐ stalled.html.

14 In late 2010, Wolverine purchased approximately 150 MW of capacity in two coal plants in Indiana

and Ohio. FirstEnergy Corp. Press Release, FirstEnergy Sells 6.65 Percent Interest in Ohio Valley Electric

Corporation

, Dec. 28, 2010, http://investors.firstenergycorp .com/phoenix.zhtml?c=102230&p=irol

‐

newsArticle&ID =1510989&highlight=. In late 2012, Wolverine agreed to purchase a share of a 344

‐ MW

Michigan coal plant. We Energies Press Release, We Energies, Wolverine to Enter into Joint Ownership

of Presque Isle Power Plant

, Nov. 27, 2012,

http://wecnews.wisconsinenergy.com /news/newsrel/pages/newsrelease_188.

15 The permit sets a CO 2 emission rate limit of 2.1 lb CO 2 /kWh (gross), or 2,100 lb CO 2 /MWh (gross).

Michigan Department of Environmental Quality, Permit to Install 317

‐ 07, Wolverine Power Supply

Cooperative, Inc., at 27 (rev. July 12, 2011), available at

http://www.deq.state.mi.us/aps/do wnloads/permits/finpticon/2007/317

‐ 07_Rev1.pdf.

16 H. Hoffman et al., Expansion of Michigan EOR Operations Using Advanced Amine Technology at a 600

MW Project: Wolverine Carbon Capture and Storage Project (July 13, 2010), available in the docket.

### DRAFT 8/22/2013

8 EPA is not applying the current proposal to the Wolverine project, nor are we proposing an

alternate CO 2 standard for the project at this time, because we do not have clear information as to

where the project stands in the development process and therefore have not formulated a view as to

whether the project is on the verge of construction. Nor have we formulated a view regarding whether

the 1,100 lb CO 2 /MWh standard or some other CO 2 standard would be representative of BSER for the

project if it is on the verge of construction. We are taking comment on these questions and anticipate

proposing at a later time that the project either be made subject to the 1,100 lb CO 2 /MWh standard or

be assigned to a subcategory with an alternate CO 2 standard, if the project has not already commenced

construction for NSPS purposes (thereby becoming an existing source) or been canceled. This approach

is discussed further in section IV below.

2. Washington County (Georgia)

In April 2013, the developer of this proposed supercritical pulverized coal EGU without CCS

announced the execution of contracts for fabrication and erection of the project’s boiler, as well as the

intention to execute a contract for construction of the balance of the facility by September 2013. 17 The

execution date of the boiler contracts was one day before the April 13, 2013 date by which the project

would have had to commence construction in order to qualify as a transitional source under the

proposed April 2012 EGU GHG NSPS, and statements by the developer show the developer’s intent for

the project in fact to qualify as a transitional source under that proposal. 18 EPA views these

announcements and statements as clear indications of the developer’s intent for the project to be

treated as having commenced construction for NSPS purposes in April 2013, which (if correct) would

make the project an existing source for purposes of the current proposal.

The developer of the Washington County project has not sought an applicability determination,

and EPA is not making such a determination in the current proposal or in this document. Based on the

developer’s representations discussed above, at this time we are treating the project as having

commenced construction for purposes of the current proposal. However, as indicated in the proposal

and discussed further in section IV below, we are also providing a limited opportunity for the developer

to seek an applicability determination which could result in the Washington County project being

addressed in the same manner as the Wolverine project. We note that if the developer does not seek

17 “POWER4Georgians, LLC, today announced it executed a contract on April 12 with IHI Corporation, a

leading international boiler manufacturer, for fabrication of the boiler for Plant Washington, a 850

‐ MW

clean

‐ coal energy facility being developed near Sandersville, in Washington County. Also on April 12,

POWER4Georgians entered into a contract with Zachry Industrial, Inc., one of the leading engineering

and construction companies in the U.S., for erection of the boiler. POWER4Georgians expects to

execute a construction contract for the balance of the facility by September 2013.” Power4Georgians

Press Release, Power4Georgians Executes Contract for Plant Washington Boiler

, Apr. 15, 2013,

http://www.power4georgians. com/docs/P4G%20Release%20

‐ %20Boiler%20Contracts%2004

‐ 13

‐ 13%20FINAL.pdf.

18 “[T]he plant’s developer signed key contracts on April 12 to purchase and erect a boiler, which he said

means Plant Washington remains in compliance with a certain part of the rule that allows them to

bypass any new carbon dioxide limits.... ‘[W]e’re a transitional source [].’” Maggie Lee, Plant

Washington Future Unclear Due to Emissions Fight

, Macon Telegraph, Apr. 14, 2013,

http://www.macon.com/2013/04/14/2438122/deadline

‐ fails

‐ to

‐ resolve

‐ plant.html (quoting Dean

Alford, spokesperson for Power4Georgians).

### DRAFT 8/22/2013

9 an applicability determination, nothing in this rulemaking binds EPA to the position that the Washington

County project has commenced construction for NSPS purposes.

3. Holcomb (Kansas)

In February 2013, the developer of this proposed supercritical pulverized coal EGU without CCS

informed EPA that the developer considers the project to have commenced construction for NSPS

purposes. 19 The developer had previously submitted comments on the April 2012 GHG NSPS proposal

stating that contracts for both the steam generator (i.e., the boiler) and the steam turbine/generator

had already been awarded. 20 We are aware that this project faces pending state court litigation over

the validity of its air permit that could delay or possibly prevent completion of the project. 21 We are also

aware of federal court rulings that would require preparation of an environmental impact statement as

a prerequisite to obtaining any necessary further project approvals from the Rural Utilities Service, a

requirement which presumably could likewise delay or otherwise impact the project. 22 We further note

that in an October 2012 resource plan update submitted by the project’s principal sponsor to state

regulators, no new coal

‐ fired project (i.e., the Holcomb project or any other coal

‐ fired project) is

included among the new generation resources added to the sponsor’s portfolio throughout the 20

‐ year

planning horizon under any of the eight planning scenarios evaluated, suggesting the absence of any

final determination to complete the project. 23 Nevertheless, we view the developer’s statements as

clear indications of the developer’s intent for the project to be treated as having already commenced

construction for NSPS purposes, which (if correct) would make the project an existing source for

purposes of the current proposal.

EPA notes that the developer of the Holcomb project has not sought an applicability

determination, and we are not making such a determination in the current proposal or in this document.

Based on the developer’s representations discussed above, at this time we are treating the project as

having commenced construction for purposes of the current proposal. However, as indicated in the

proposal and discussed further in section IV below, we are also providing a limited opportunity for the

developer to seek an applicability determination which could result in the Holcomb project being

addressed in the same manner as the Wolverine project. We note that if the developer does not seek

an applicability determination, nothing in this rulemaking binds EPA to the position that the Holcomb

project has commenced construction for NSPS purposes.

19 “We believe that we have done enough to ‘commence construction’ within the meaning of the [April

2012] Proposed Rule and thus qualify Holcomb 2 as a ‘transitional source’....” Letter from Barbara Walz,

Senior Vice President, Tri

‐ State Generation & Transmission Association, to Janet McCabe, Principal

Deputy Assistant Administrator, EPA Office of Air and Radiation, Feb. 13, 2013, available in the docket.

20 Comments of Tri

‐ State Generation & Transmission Ass’n on April 2012 GHG NSPS Proposal at 9 (June

25, 2012), EPA

‐ HQ

‐ OAR

‐ 2011

‐ 0660

‐ 9845.

21 Sierra Club v. Moser, No. 105,493 (Kan. argued Aug. 31, 2012).

22 Sierra Club v. U.S. Dept. of Agric., 841 F.Supp.2d 349, 357

‐ 60 (D.D.C. 2012), appeal dismissed

, 716 F.3d

653, 660 (D.C. Cir. 2013).

23 Tri

‐ State Generation and Transmission Ass’n, Electric Resource Plan Annual Progress Report at 13 &

tbl.2 (Oct. 31, 2012), available in the docket. There were five planning scenarios with assumed cost

adders for CO 2 emissions and three scenarios without such cost adders. Id. at 10

‐ 11 & tbl.1.

### DRAFT 8/22/2013

10 4. Two Elk (Wyoming)

This proposed pulverized coal EGU without CCS was originally issued a PSD permit in 1998. 24

The permit was subsequently revised and reissued twice, most recently in 2003. 25 Responding to a

deadline set by the Wyoming Department of Environmental Quality (WY DEQ), the developer took

actions in 2005 that apparently were subsequently accepted by WY DEQ as sufficient to constitute

commencement of construction. 26 Citing those actions, in comments on the April 2012 proposal the

developer claimed the project was an existing source and exempt from that proposal on that basis. 27

Whether the project has engaged in sufficiently continuous construction activities since 2005 to prevent

its PSD permit from lapsing has been a matter of dispute. 28 However, it is not necessary to resolve that

dispute for purposes of this proposed rule: if construction timely commenced and has been continuous

and the permit is therefore valid, EPA agrees with the developer that the project should be considered

an existing source not covered by this rule. On the other hand, if the permit has lapsed because of

insufficiently continuous construction activity, then the project could not be considered to be capable of

commencing construction in the very near future and should be treated like any other new source if the

developer were to resume development efforts.

The developer of the Two Elk project has not sought an applicability determination from EPA,

and we are not making such a determination in the current proposal or in this document. Based on the

developer’s representations discussed above, at this time we are treating the project as having

commenced construction for purposes of the current proposal. We view the WY DEQ’s apparent

acceptance of the developer’s position that the project commenced construction in 2005 as

distinguishing the project from the Washington County and Holcomb projects, and we therefore are not

providing a similar opportunity for the developer to seek an applicability determination which could

result in the Two Elk project being addressed in the same manner as the Wolverine project. However,

we note that nothing in this rulemaking binds EPA to the position that the Two Elk project has

commenced construction for NSPS purposes.

5. Texas Clean Energy (Texas)

The developer of this proposed IGCC with CCS has announced the execution of contracts to

commence construction. 29 Commencement of construction for NSPS purposes prior to the date of the

current proposal would make the project an existing source not subject to the proposal. In fact, some of

these contracts were executed before the April 2012 GHG NSPS proposal, indicating that the project

might have been an existing source even for purposes of that earlier proposal. 30 The developer has also

24 See Joint Stipulation and Settlement at 1, In the Matter of the Appeal of the Revocation of Permit No.

CT

‐ 1352B Two Elk Generation, No. 07

‐ 2601 (Wyo. Envtl. Quality Council filed Nov. 21, 2007).

25 See id. at 2.

26 See id.

27 Comment of Two Elk Generation Partners at 2

‐ 3 (June 22, 2012), EPA

‐ HQ

‐ OAR

‐ 2011

‐ 0660

‐ 9798.

28 See, e.g., id. at 3.

29 Summit Power Group Press Release, Summit’s Texas Clean Energy Project Reaches Major Milestone

with Signed EPC and O&M Contracts

, Feb. 14, 2012,

http://www.texascleanenergyproject.com/2012/summits

‐ texas

‐ clean

‐ energy

‐ project

‐ reaches

‐ major

‐

milestone

‐ with

‐ signed

‐ epc

‐ and

‐ om

‐ contracts/.

30 See Summit Power Group, Update on TCEP to US EPA at 5 (Apr. 11, 2013), available in the docket.

### DRAFT 8/22/2013

11 executed contracts with purchasers for the project’s outputs of electricity, CO 2 , and urea. 31 The

developer did not submit comments on the April 2012 proposal but elsewhere has indicated that the

project would achieve CO 2 emission rates well below the currently proposed 1,100 lb CO 2 /MWh

standard. 32

The developer of the Texas Clean Energy project has not sought an applicability determination

from EPA, and we are not making such a determination in the current proposal or in this document.

Based on the developer’s representations discussed above, at this time we are treating the project as

having commenced construction for purposes of the current proposal. We view the project’s ability to

meet the 1,100 lb CO 2 /MWh standard as distinguishing the project from the Washington County and

Holcomb projects, and we therefore are not providing a similar opportunity for the developer to seek an

applicability determination which could result in the Texas Clean Energy project being addressed in the

same manner as the Wolverine project. However, we note that nothing in this rulemaking binds EPA to

the position that the Texas Clean Energy project has commenced construction for NSPS purposes.

6. Cash Creek (Kentucky)

This proposed IGCC with CCS has been re

‐ proposed by the developer as an NGCC. 33 EPA

believes that new NGCCs should generally be considered capable of meeting the applicable CO 2

standards in the current proposal.

7. Good Spring (Pennsylvania)

This proposed IGCC with CCS has been re

‐ proposed by the developer as an NGCC. 34 EPA

believes that new NGCCs should generally be considered capable of meeting the applicable CO 2

standards in the current proposal.

8. Mesaba (Minnesota)

The developer of this proposed IGCC without CCS submitted comments on the April 2012

proposal claiming that the project should be considered a potential transitional source because,

although the project did not have a PSD permit as of the date of that proposal, the project had met

other development milestones that the developer viewed as equally deserving of the treatment offered

in that proposed rule to sources possessing PSD permits. 35 However, even before submitting those

comments, the developer had already re

‐ proposed the project as an NGCC, rendering the claims in its

comments moot. 36 EPA believes that new NGCCs should generally be considered capable of meeting the

applicable CO 2 standards in the current proposal.

31 See id. at 6.

32 See id. at 8 (projecting CO 2 emission rate of 228 lb/MWh).

33 See Kentucky Division for Air Quality, Permit Number: V

‐ 09

‐ 006 R1, Cash Creek Generating Station, at

26 (Nov. 21, 2012), available at

https://dep.gateway.ky.gov/eSearch/ Search_AI_Detail.aspx?AgencyID=40285.

34 See EmberClear Corp. Press Release, Good Spring Power Project Increases to 300 MW

, May 17, 2012,

available at www.sedar.com (search for EmberClear Corp. filings).

35 Comment of Thomas A. Micheletti on behalf of Excelsior Energy, Inc. (June 11, 2012), EPA

‐ HQ

‐ OAR

‐

2011

‐ 0660

‐ 8885.

36 See Letter from Thomas A. Micheletti, Co

‐ CEO, Excelsior Energy, to Burl Haar, Minnesota Public

Utilities Commission, May 31, 2012, available at

### DRAFT 8/22/2013

12 9. De Young (Michigan)

This proposed circulating fluidized bed EGU without CCS has apparently been replaced by an

NGCC project. The developer, a municipal utility, had proposed to build the project for its own use.

However, the utility subsequently determined that building an NGCC would be more economically

attractive, and the city council approved the NGCC alternative. 37 While EPA is unaware of any official

announcement that the coal

‐ fueled project has been canceled, EPA believes that the utility considers

the new NGCC project a replacement resource, not an incremental resource, and is no longer pursuing

the original coal

‐ fueled project.

10. Taylorville (Illinois)

Cancellation of this proposed IGCC with CCS has been announced by its developer. 38

11. Trailblazer (Texas)

Cancellation of this proposed supercritical pulverized coal EGU with CCS has been announced by

its developer. 39

12. Coleto Creek (Texas)

This proposed supercritical pulverized coal EGU without CCS has apparently been canceled.

While EPA has not located any official cancellation announcement, the developers did not submit

comments on the proposed rule, their websites provide no recent information on the project, and a

website formerly dedicated to the project is no longer active. 40 Further, a periodic report prepared by

the regional transmission organization responsible for the region in which the project was located has

described the project as “cancelled” and removed it from the organization’s list of planned future

resources. 41

https://www.edockets.state.mn.us /EFiling/edockets/searchDocumen ts.do?method=showPoup&docum

entId={E08B277D

‐ A35B

‐ 47D9

‐ 8743

‐ 8798EE1FB462}&documentTitle=20125

‐ 75185

‐ 01.

37 Holland City Council Resolution in Support of Holland Board of Public Works Recommendations on

Base Load Generation and Renewable Resources (R2012

‐ 97), Dec. 5, 2012, available at

http://www.cityofholland.com/sites/defa ult/files/fileattachments/r2012.97.pdf.

38 See, e.g., Tenaska Drops Taylorville Coal

‐ Plant Project

, St. Louis Post

‐ Dispatch, June 21, 2013,

http://www.stltoday.com/news/state

‐ and

‐ regional/illinois/tenaska

‐ drops

‐ taylorville

‐ coal

‐ plant

‐ project/article_e5e2e58f

‐ e01b

‐ 559e

‐ 93d5

‐ d6069ef5d6c9.html.

39 See, e.g., John Mangalonzo, Tenaska Abandons Coal Plant Project Near Sweetwater

, Abilene Reporter

‐

News, June 21, 2013, http://www.reporternews.c om/news/2013/jun/21/tenaska

‐ abandons

‐ coal

‐ plant

‐

project

‐ near/.

40 The website of one of the developers has a page on the project with a single news story dating to the

2008 filing of the project’s air permit application. http://www.stec.org/C oleto2/News.aspx. The link on

this page labeled “Visit the Coleto Creek 2 Site” directs to an inactive page.

41 Electric Reliability Council of Texas, Report on the Capacity, Demand, and Reserves in the ERCOT

Region at 6 (Dec. 2012), available at http://www.ercot.com/news/presentations/#osp.

### DRAFT 8/22/2013

13 13. Limestone (Texas)

Cancellation of this proposed supercritical pulverized coal EGU without CCS has been announced

by its developer. 42

14. White Stallion (Texas)

Cancellation of this proposed circulating fluidized bed EGU without CCS has been announced by

its developer. 43

15. Las Brisas (Texas)

The developer of this proposed circulating fluidized bed EGU without CCS submitted comments

on the April 2012 proposal claiming that, contrary to EPA’s view at the time of the proposal, the project

did possess a complete PSD permit as of the proposal date and should have been listed in that proposal

as a potential transitional source. 44 EPA does not agree with this claim. While a PSD permit was issued

for the project in January 2011, that permit did not address GHG emissions, as was required for PSD

permits at that time. In any event, the claim is moot, as cancellation of the project has been announced

by its developer. 45

16. Bonanza (Utah)

This proposed circulating fluidized bed EGU without CCS never possessed an effective PSD

permit. A permit was issued by EPA Region 8 in 2007 but was appealed to EPA’s Environmental Appeals

Board (EAB) before it took effect, and in November 2008 the EAB remanded the permit. 46 No further

action on the permit has been taken since the remand, nor has there been any public indication of

development activity since that time. Because this project lacked an effective PSD permit as of the

publication of the April 2012 proposed rule, EPA believes that the listing of the project in that proposal

as a potential transitional source was an error.

In 2012, the developer twice made public statements claiming that the project remained under

development. During litigation over EPA’s MATS rule in April 2012, the developer submitted a joint

motion with several other developers claiming that all of them were “actively developing new solid

fossil

‐ fueled electric generating stations” that would be subject to the MATS new

‐ unit standards. 47 Then

in June 2012, the developer submitted comments on the April 2012 EGU GHG NSPS proposal asserting

that it has been waiting for EPA to act on its remanded permit and claiming that it “wishes to move

42 Letter from Craig R. Eckberg, NRG Energy, to Mike Wilson, Texas Commission on Environmental

Quality, Nov. 20, 2012, available in the docket.

43 See, e.g., Plans for Coal

‐ Fired Power Plant in Texas Canceled

, Power Engineering, Feb. 15, 2013,

http://www.power

‐ eng.com/articles/2013/02/plans

‐ for

‐ coal

‐ fired

‐ power

‐ plant

‐ in

‐ texas

‐ canceled.html.

44 Comment of John A. Riley on behalf of Las Brisas Energy Center (June 25, 2012), EPA

‐ HQ

‐ OAR

‐ 2011

‐

0660

‐ 9977.

45 Letter from John A. Riley, Attorney for Las Brisas Energy Center LLC, to Mike Wilson, Texas

Commission on Environmental Quality, July 29, 2013, available in the docket.

46 In re Deseret Electric Power Cooperative, 2008 WL 5572891 (EAB 2008).

47 Joint Motion of Developers of New Solid fossil

‐ fueled Electric Generating Units at 2, White Stallion

Energy Center, LLC v. EPA, No 12

‐ 1100 (D.C. Cir. Apr. 27, 2012).

### DRAFT 8/22/2013

14 forward with construction.” 48 However, contrary to these public statements, in its 2011 Form 860 filed

with the Energy Information Administration of the Department of Energy, the developer reported the

project as “canceled, indefinitely postponed, or no longer in resource plan.” 49 Therefore, EPA believes

that development on this project has not been proceeding actively and that the project cannot be

considered to be capable of commencing construction in the very near future for this reason as well.

17. Power County (Idaho)

This proposed project was permitted in 2009 as a non

‐ EGU that would not sell electricity. 50 EPA

now believes that the listing of this project in the April 2012 GHG NSPS proposal as a potential

transitional source was an error. If completed in accordance with the 2009 permit, the project would

not be subject to the CO 2 standard under this proposed NSPS, which applies only to EGUs.

IV. Proposed Approach

a. Description of approach

The 1,100 lb CO 2 /MWh standard of performance proposed for other new fossil fuel

‐ fired boiler

and IGCC EGUs is not proposed to apply to the Wolverine EGU project in Rogers City, Michigan, nor is

EPA proposing an alternate CO 2 standard for the project at this time. Based on current information, the

Wolverine project appears to be the only fossil fuel

‐ fired boiler or IGCC EGU project presently under

development that may be capable of commencing construction for NSPS purposes in the very near

future and that, as currently designed, could not meet the 1,100 lb CO 2 /MWh standard. However, in the

face of conflicting information, we have not formulated a view as to where this project stands in the

development process, i.e., whether it is on the verge of construction, or whether this CO 2 standard or

some other CO 2 standard would be representative of BSER for this project. We are inviting comment on

these questions. At the time of finalization of the current proposal (but not sooner than one year

following Federal Register publication of the proposal), if the Wolverine project remains under

development and has not either commenced construction or been canceled, we anticipate proposing

that the project either be made subject to the 1,100 lb CO 2 /MWh standard or be assigned to a

subcategory with an alternate CO 2 standard.

There are two other fossil fuel

‐ fired boiler EGU projects without CCS

– the Washington County

project in Georgia and the Holcomb project in Kansas

– that appear to remain under development but

whose developers have represented that the projects have commenced construction for NSPS purposes.

Based solely on the developers’ representations, the projects would be existing sources and thus not

subject to the current proposal. However, if, upon review, it was determined that the projects have not

48 Supplemental Comments of Deseret Generation & Transmission Co

‐ operative at 3 (June 25, 2012),

EPA

‐ HQ

‐ OAR

‐ 2011

‐ 0660

‐ 10016.

49 Within the 2011 EIA Form 860 zip file available at

http://www.eia.gov/electricity/data/eia860/index.html, see file “GeneratorY2011.xls”, tab “Ret_IP”, row

2023 (identifying “status” of Bonanza unit 2 as code “IP”) and file “LayoutY2011.xls”, tab “Reference

Tables I”, Table 3c “Other Generator Status Codes” (defining code “IP” as “Planned new generator

cancelled, indefinitely postponed, or no longer in resource plan”).

50 Idaho Dept. of Env. Quality, Permit to Construct No. P

‐ 2009

‐ 0127, Southeast Idaho Energy LLC, at 5

(Nov. 30, 2009), available at http://www.deq.idaho.gov/media/492273

‐ se_idaho_energy_power_count y_ptc_1109_statement.pdf.

### DRAFT 8/22/2013

15 commenced construction, the projects could be situated similarly to the Wolverine project. 51

Accordingly, if either developer seeks an EPA determination of applicability within 120 days following

Federal Register publication of the current proposal and the project is found not to have commenced

construction for NSPS purposes, then that project automatically

– without, for example, any

supplemental proposal or re

‐ proposal

– would be addressed in the same manner as the Wolverine

project. 52

If the Wolverine project commences construction for NSPS purposes before EPA has proposed a

new source CO 2 standard applicable to the project pursuant to CAA section 111(b), the project, if

completed, would be an existing source subject to any CO 2 standard promulgated for existing sources in

its source category pursuant to CAA section 111(d). The same would be true of the Washington County

and Holcomb projects if they are addressed in the same manner as the Wolverine project.

b. Legal framework

1. Relevant provisions of CAA section 111

CAA section 111(b) establishes a process of a few basic steps that EPA must follow when setting

a standard of performance for new sources. First, the Administrator must “publish

... a list of categories

of stationary sources.” Section 111(b)(1)(A). Next, the Administrator must “[propose]

... federal

standards of performance for new sources within [the source] category,” and then “promulgate

... such

standards with such modifications as he deems appropriate.” Section 111(b)(1)(B). In carrying out this

process, “[t]he Administrator may distinguish among classes, types, and sizes within categories of new

sources for the purpose of establishing such standards.” Section 111(b)(2).

Once the Administrator promulgates standards for new sources under section 111(b), the states,

consistent with EPA regulatory requirements, must take action under section 111(d) to establish

requirements for “any existing source for any air pollutant (i) [that falls into specific categories] but (ii)

to which a standard of performance under this section would apply if such existing source were a new

source....” Section 111(d)(1).

Section 111 also contains several definitions relevant to these procedural provisions. A “new

source” is defined as “any stationary source, the construction or modification of which is commenced

after the publication of regulations (or, if earlier, proposed regulations) prescribing a standard of

performance under this section which will be applicable to such source.” Section 111(a)(2). 53 An

51 As discussed in section III above, although the developers of the Two Elk and Texas Clean Energy

projects have also claimed to have commenced construction and likewise have not requested EPA

determinations of NSPS applicability, EPA does not consider these two projects to be situated similarly

to the Washington County or Holcomb projects (or, by potential extension, to theWolverine project).

52 In this event, there will not be any proposed standard “which will be applicable to such source” within

the meaning of CAA section 111(a)(2), and to the extent that the current proposal did, until the time of

the applicability determination, apply to that project, the proposal should be considered automatically

to be withdrawn as it applies to that project as of the time of the applicability determination.

53 The CAA does not include a definition of “commenced” for these purposes, but EPA’s framework

regulations promulgated under section 111 define the term as follows: “ Commenced means, with

respect to the definition of new source in section 111(a)(2) of the Act, that an owner or operator has

undertaken a continuous program of construction or modification or that an owner or operator has

entered into a contractual obligation to undertake and complete, within a reasonable time, a continuous

program of construction or modification.” 40 CFR § 60.2.

### DRAFT 8/22/2013

16 “existing source” is defined as “any stationary source other than a new source.” Section 111(a)(6).

Finally, a “standard of performance” is defined as “a standard for emissions of air pollutants which

reflects the degree of emission limitation achievable through the best system of emission reduction

which (taking into account the cost of achieving such reduction and any nonair quality health and

environmental impact and energy requirements) the Administrator determines has been adequately

demonstrated.” Section 111(a)(1).

2. Authority and precedents for not promulgating standards of performance for all sources in a

source category

As already noted, EPA is not proposing a CO 2 standard applicable to the Wolverine project (and

potentially the Washington County and/or Holcomb projects). In the April 2012 proposal, EPA carefully

explained the legal basis for concluding that CAA section 111 does not require us to address all new

sources each time we propose standards of performance for a source category. This statutory

interpretation continues to be sound in the circumstances of the current proposal:

The EPA interprets the CAA provisions described above to authorize the EPA not

to promulgate a standard of performance for [the Wolverine project]. Under section

111(b)(1)(B), once the EPA lists a category of sources, the EPA is required to propose

and promulgate standards of performance for new sources in that category. The EPA is

not, however, required to promulgate standards of performance that cover all new

sources. This is clear from the directive in section 111(b)(1)(B), which requires that the

EPA propose standards of performance “for new sources” within the category, but does

not require that the EPA propose such standards for all new sources or for any new

source. The EPA may fulfill that directive by proposing standards that cover some, but

not all, sources that newly commence construction or modification.

Similarly, the term “new source” in section 111(a)(2) is defined to incorporate

the limitation that the EPA must propose or promulgate a standard applicable to the

source for the source to be considered “new.” That is, section 111(a)(2) defines a “new

source” as any source for which construction or modification commences after the EPA

proposes “a standard of performance

... which will be applicable to such source.” By its

terms, this provision contemplates that the EPA may not propose a standard of

performance applicable to certain sources, and that if the EPA does not, those sources

would not be considered to be “new source[s]” and therefore would not be subject to

any new source standard of performance.

Thus, these provisions do not, by their terms, mandate that the EPA propose

standards for each and every source in the source category. Under Chevron step 1,

these provisions do not unambiguously require that the EPA propose standards of

performance for all sources in the source category. We read these provisions as

according the EPA some measure of discretion to determine not to set standards for a

particular portion of the source category, where appropriate, bounded by the principle

of rationality. If these provisions are read to be ambiguous as to whether the EPA has

discretion to propose and promulgate standards of performance for all sources in the

source category, we believe it reasonable to read the provisions to provide such

discretion in appropriate circumstances and that such reading is entitled to deference

under Chevron step 2. In addition, interpreting these provisions to give the EPA the

discretion not to propose and promulgate standards covering all sources in a category

under appropriate circumstances

– such as those present here

– is consistent with the

### DRAFT 8/22/2013

17 case law that authorizes agencies to establish a regulatory framework in an incremental

fashion, that is, a step at a time. [footnote]

[footnote: As the U.S. Supreme Court recently stated in Massachusetts v. EPA

,

549 U.S. 497, 524 (2007): “Agencies, like legislatures, do not generally resolve massive

problems in one fell regulatory swoop;” and instead they may permissibly implement

such regulatory programs over time, “refining their preferred approach as

circumstances change and as they develop a more nuanced understanding of how best

to proceed.” See Grand Canyon Air Tour Coalition v. FAA

, 154 F.3d 455 (D.C. Cir. 1998);

City of Las Vegas v. Lujan

, 891 F.2d 927, 935 (D.C. Cir. 1989); National Ass’n of

Broadcasters v. FCC

, 740 F.2d 1190, 1209

‐ 14 (D.C. Cir. 1984).]

77 FR at 22425

‐ 26.

Following that discussion in the April 2012 proposal, EPA cited multiple NSPS precedents where

we have proposed or promulgated standards for fewer than all sources in a source category, precedents

that we believe likewise continue to apply in the context of the current proposal:

In applying section 111 over the past several decades, there have been a

number of rulemakings in which the EPA has promulgated new source performance

standards that do not cover all sources within the relevant source category that newly

commence construction or modification. Some examples include the following: (i) In an

early NSPS, involving lime kilns, the EPA promulgated an NSPS for certain types of kilns,

but not for all types of sources that remained within the relevant source category. The

D.C. Circuit, in its opinion reviewing the rule, noted this state of affairs, without

expressing concerns. National Lime Ass’n v. EPA

, 627 F.2d [416,] 426 & n.28 [(D.C. Cir.

1980)] (noting that “of the various types of kilns that may be used in the calcination of

limestone, only rotary kilns are regulated by the standards,” and not “the vertical kiln;

the rotary hearth kiln; and the fluidized bed kiln”). (ii) In the EPA’s initial promulgation

of NSPS regulations for petroleum refineries, the EPA did not promulgate standards of

performance for certain units, including fluid coking units, delayed coking units, and

process heaters, instead promulgating standards of performance for those units

subsequently. See 40 CFR § 60.100a(a); “Standards of Performance for Petroleum

Refineries: Proposed Rules,” 72 FR 27178 (May 14, 2007). (iii) Similarly, in the EPA’s

recent revision of the NSPS regulations for coal preparation and processing plants, the

EPA “expand[ed] applicability of the existing NSPS by revising the definitions of thermal

dryers, pneumatic coal

‐ cleaning equipment, and coal. It also establishe[d] work practice

standards for open storage piles. The final rule amend[ed] the definition of thermal

dryer for units constructed, reconstructed, or modified after May 27, 2009, to include

both direct and indirect dryers drying all coal ranks (i.e., bituminous, subbituminous,

lignite, and anthracite coals) and coal refuse.” “Standards of Performance for Coal

Preparation and Processing Plants,” 74 FR 51950, 51952 (Oct. 8, 2009). (iv) In subpart

KKKK of the NSPS regulations, the EPA promulgated regulations for the source category

of stationary combustion turbines. The EPA did not promulgate regulations for turbines

with smaller than 10 MMBtu/h heat input, emergency units, or combustion turbine test

cells. 40 CFR §§ 60.4305(a), 60.4310(a),(d). (v) For other source categories, the EPA also

declined to propose and promulgate standards of performance for the smaller sources.

For example, for the source category of metal furniture coating operations, the EPA did

not apply standards of performance to metal furniture surface coating operations that

use less than 3.842 liters of coating (as applied) per year. 40 CFR § 60.310(b). (vi) In

### DRAFT 8/22/2013

18 proposing standards of performance for natural gas processing plants, the EPA proposed

standards for only two of the three emission points in the plants (“storage emission

sources” and “equipment leaks”) and declined to propose standards for the third

emission point (“process emission sources”) on grounds that “[b]est demonstrated

control technology has not been identified for [the latter] sources.” “Standards of

Performance for New Stationary Sources; Onshore Natural Gas Processing Plants in the

Natural Gas Production Industry, Equipment Leaks of VOC,” 49 FR 2636, 2637 (Jan. 20,

1984).

77 FR at 22426.

c. Reasons for not applying the proposed 1,100 lb CO 2 /MWh standard

In the current proposal, EPA is not proposing that the 1,100 lb CO 2 /MWh standard apply to the

Wolverine project. As indicated in the summary of CAA requirements above, EPA may not apply a

standard of performance to sources unless that standard reflects the “best system of emission reduction

[BSER]

... adequately demonstrated” for those sources. We have not formulated a view at this time

regarding whether CCS is BSER for the Wolverine project, and we therefore do not propose at this time

that the 1,100 lb CO 2 /MWh standard apply to the project. Two principal sources of uncertainty underlie

our present inability to form a view on whether the proposed standard should apply to the Wolverine

project: first, our uncertainty regarding whether the project is on the verge of construction, and second,

our uncertainty regarding the opportunity costs that might be created if the project were required to

comply with the proposed standard (in the event that we were to decide that such opportunity costs are

relevant for purposes of determining BSER). Each of these uncertainties is further described below.

As discussed above in section III.b.1, EPA has conflicting information regarding where the

Wolverine project stands in the development process. Specifically, our information indicates that the

developer has made recent efforts to extend the project’s permit, but has also acquired other coal

‐ fired

generating capacity and has made statements suggesting that there are no immediate plans to

commence construction of this project. (To the extent that the developer was delayed by the MATS

reconsideration process, discussed above in section II.b., our own actions may have contributed to the

uncertainty.) Because of this conflicting information, we are uncertain whether the project should be

considered to be on the verge of construction or not. This is a threshold uncertainty that drives what

further questions we would need to address in order to determine whether the proposed 1,100 lb

CO 2 /MWh standard or some other standard would be BSER for the project. For example, if the project is

not on the verge of construction, we believe it would be situated similarly to any other proposed fossil

fuel

‐ fired boiler EGU project for purposes of the CO 2 standard. On the other hand, if the project is on

the verge of construction, there could be other factors

– notably opportunity costs

– that would

distinguish the project from other proposed EGU projects and that might have relevance for the

determination of BSER. 54

54 In the April 2012 proposal, EPA indicated that not only opportunity costs (from potential delays and

cancellation) but also unusually high sunk costs were a factor leading us to view “transitional sources” as

distinct from other sources. We received comments both strongly supporting and strongly opposing our

discussion of sunk costs as a relevant consideration. Some of these comments noted that sunk costs are

not a “cost of achieving such reduction” relevant to the determination of BSER but instead, consistent

with economic theory, should be ignored for purposes of prospective decision making in the context of

the BSER definition. In the current proposal, we do not rely on sunk costs as a basis for distinguishing

the Wolverine project from other projects under development.

### DRAFT 8/22/2013

19 EPA’s uncertainty regarding whether the project is on the verge of construction creates an

additional area of uncertainty concerning the opportunity costs that might result from making the

project subject to a particular proposed CO 2 standard of performance. Imposition of a CO 2 standard

implicates a proposed EGU’s fundamental site, fuel, and technology choices much more directly than

imposition of standards for criteria or HAP pollutants because the latter can be addressed by post

‐

combustion controls that can more easily be redesigned into an already planned plant without bringing

those earlier fundamental choices into question. 55 If the Wolverine project truly is on the verge of

construction in order to meet a valuable near

‐ term resource need or market opportunity, and if

complying with the 1,100 lb CO 2 /MWh standard would require changes to the project’s fundamental

site, fuel type, or combustion technology choices that could not be accomplished without a degree of

delay that would cause that valuable opportunity to be missed, then making the project subject to the

standard could entail high opportunity costs. 56 The question of whether the Wolverine project would

experience opportunity costs of this nature is therefore dependent on whether the project is on the

verge of construction (among other factors).

Under CAA section 111(a)(1), a determination of BSER must “tak[e] into account the cost of

achieving such reduction....” One possible interpretation of this language is that opportunity costs of the

nature just described could be a type of cost relevant to the determination of BSER. EPA has not yet

decided whether to adopt this interpretation, as the interpretive question arises only if there is a project

on the verge of construction, which remains uncertain. However, assuming we did decide to adopt this

interpretation, in order to formulate a view on BSER for the Wolverine project we would need to

formulate a view on the magnitude of opportunity costs that might be imposed on the project. Our

ability to do so is impeded in part by our threshold uncertainty regarding whether the project is on the

verge of construction, as just discussed, and is further impeded by our lack of information concerning

the degree of difficulty the project would face in adapting its design to incorporate CCS and the

associated consequences for the project’s development schedule, as discussed in section III.b.1 above.

For these reasons, we have not at this time formulated a view regarding whether CCS is BSER for the

project and the project should therefore be made subject to the 1,100 lb CO 2 /MWh standard, or instead

CCS is not BSER for the project and the project should therefore be assigned to a subcategory with an

alternate CO 2 standard.

d. Reasons for not proposing an alternate CO 2 standard at this time

EPA is also not proposing at this time any alternate CO 2 standard of performance for the

Wolverine project. Section 111 can reasonably be read not to require EPA to propose a standard of

performance when faced with the specific circumstances presented by the Wolverine project (and if

similarly situated, the Washington County and/or Holcomb projects) in this rulemaking. Those

circumstances include, first, the near

‐ term uncertainties regarding the project’s development schedule

and potential opportunity costs and the consequences of those uncertainties for determining BSER, as

discussed above; second, the significant uncertainty as to whether the project will actually ever be

completed; and third, the fact that if the project is not made subject to new

‐ source standards of

55 We also noted this distinction in the April 2012 GHG NSPS proposal. 77 FR 22425.

56 In the April 2012 proposal, EPA expressed a concern that imposition of a CO 2 standard might

excessively burden even projects capable of meeting the standard by disrupting those projects’ business

plans. After consideration of comments received on this point, we now believe that this concern was

overstated, and that projects capable of meeting the standard should be required to do so.

### DRAFT 8/22/2013

20 performance established pursuant to section 111(b), it would become subject to existing

‐ source

standards of performance established pursuant to section 111(d).

The first circumstance just listed, concerning the project’s near

‐ term uncertainties and the

consequences for BSER, was discussed above. The only additional point to be made on this

circumstance is that those uncertainties affect EPA’s ability to determine not only whether the 1,100 lb

CO 2 /MWh standard is appropriate, but also what alternate CO 2 standard might be appropriate instead.

With respect to the second circumstance, the uncertainty whether the project will ever be

completed, there has already been extensive discussion above of the fact that, based on present

information, the Wolverine project appears to be the only fossil fuel

‐ fired boiler or IGCC EGU project

that may be capable of commencing construction for NSPS purposes in the very near future and that, as

currently designed, could not meet the 1,100 lb CO 2 /MWh standard. We have also discussed our

conflicting information on whether this project actually should be considered on the verge of

construction, and we have pointed out that if the project in fact is not on the verge of construction, then

the project would be situated similarly to any other new fossil fuel

‐ fired boiler EGU project, which would

make the 1,100 lb CO 2 /MWh standard appropriate if the project were eventually built. The same

information that suggests the Wolverine project in fact may not be on the verge of construction likewise

can be interpreted as suggesting that the project may never be built at all. Either of these situations

–

deferred construction or outright cancellation

– would make development of an alternate CO 2 standard

unnecessary. The CAA does not require EPA to establish standards for non

‐ existent source types, and

there is a considerable possibility that any EPA resources spent to develop an alternate CO 2 standard for

the Wolverine project at this time would be wasted. (Similarly, there is no justification for expending

resources at this time to develop alternate CO 2 standards for the Washington County and Holcomb

projects, whose developers have represented that the projects are existing sources not subject to this

rulemaking.)

With respect to the third circumstance, if the Wolverine project (and possibly the Washington

County and/or Holcomb project) were to commence construction before an applicable new

‐ source CO 2

standard of performance is proposed, the project would become an existing source for purposes of any

future CO 2 standard of performance applicable to existing sources under CAA section 111(d). This fact

distinguishes the current situation involving CO 2 emissions from situations involving emissions of criteria

pollutants, because no CAA section 111 standards of performance are established for existing sources of

criteria pollutants. Applicability of a section 111(d) standard for CO 2 emissions would mitigate any

negative impact that might arise from not covering the project under the proposed 1,100 lb CO 2 /MWh

standard. Indeed, it is possible that a section 111(d) standard would be similarly stringent as any

alternate GHG standard of performance that could have been developed for the Wolverine project

consistent with retaining the project’s ability to commence construction in the very near term.

Finally, as noted in the current proposal, EPA anticipates resolving the development status and

proposing a CO 2 standard for the Wolverine project (and possibly the Washington County and/or

Holcomb project) at the time of finalization of the current proposal (but not sooner than one year

following Federal Register publication of the proposal). Based on information available at that time, the

approach could take the form of applying the 1,100 lb CO 2 /MWh standard applicable to other new

sources or subcategorizing with alternate CO 2 standards. However, we again note the possibility that

the project (or projects) will either have been canceled or will no longer be a new source at the time the

current proposal is finalized. If that is the case, it will be unnecessary to propose a standard.