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CHAPTER 1

INTRODUCTION AND BACKGROUND

1.1 Introduction

In this action, EPA seeks to address the climate and health effects of GHGs, specifically 

CO2, emitted from fossil fuel-fired electricity generating units. This document presents the 

expected economic impacts of the proposed EGU GHG NSPS rule through 2020. This chapter 

contains background information on the rule and an outline of the chapters of the report.

1.2 Background

Section 111 of the CAA requires performance standards for air pollutant emissions from 

categories of stationary sources that may reasonably contribute to endangerment of public 

health or welfare. In April 2007, the Supreme Court ruled that GHGs meet the definition of an 

“air pollutant” under the CAA. This ruling clarified that the authorities and requirements of the 

Act apply to GHGs. As a result, EPA must make decisions about regulation of GHGs under 

certain provisions of the Act, including section 111. EPA issued a final determination that GHG 

emissions endanger public health and welfare in the Endangerment and Cause or Contribute 

Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act (74 FR 66,496; Dec. 

15, 2009). Because fossil fuel-fired EGUs contribute significantly to domestic CO2 emissions, EPA 

is proposing to regulate these emissions from EGU sources under section 111 of the CAA.

Section 111(b) authorizes EPA to issue NSPS for CO2 from new sources. Section 111(d) 

requires that, upon finalization of the CO2 NSPS for new sources, states must submit to the EPA 

plans that establish standards of performance for emissions of CO2 from existing fossil fuel-fired 

power plants. This action responds to a proposed settlement agreements EPA entered into in 

December 2010 to issue rules that will address greenhouse gas emissions from fossil fuel-fired 

power plants. Details of the settlement agreement can be found on the EPA website.1This 

action addresses Section 111(b) for new sources but does not address Section 111(d) existing 

sources at this time. Existing sources will be addressed in a separate action at a later date by 

the EPA.

1.3 Regulatory Analysis 

In accordance with Executive Order 12866 and EPA’s Guidelines for Preparing Economic 

Analyses, EPA prepared this RIA for this “significant regulatory action.” This proposal will not 

have an annual effect on the economy of $100 million or more or adversely affect in a material 

 

1

http://www.epa.gov/airquality/ghgsettlement.html
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way the economy, a sector of the economy, productivity, competition, jobs, the environment, 

public health or safety, or State, local, or tribal governments or communities and is therefore 

not an “economically significant rule.” However, under EO 12866 (58 FR 51,735, October 4, 

1993), this action is a “significant regulatory action” because it “raises novel legal or policy 

issues arising out of legal mandates.”

This RIA addresses the potential costs and benefits of the new source guidelines that are 

the focus of the proposed action. The proposed rule regulates new and reconstructed sources. 

EPA does not attribute any costs or benefits to those parts of the standards. For new sources, 

EPA (and other energy modeling groups such as EIA) do not project new coal builds without 

federally-supported CCS in the analysis period. This is due in part to the low cost of baseload 

NGCC capacity relative to coal capacity, relatively low growth in electricity demand, and use of 

energy efficiency and renewable energy resources. Furthermore, absent this rule, any new 

NGCC that may be built is expected to have an annual emission rate in compliance with the 

standard. Because the proposal does not change these projections, it is expected to have no, or 

negligible, costs or monetized benefits associated with it. 

1.4 Regulated Entities

This action will directly regulate CO2 emissions from EGUs with capacity greater than 25 

MW that commence construction or reconstruction after the issuance of this proposal.2

As described in the preamble, EPA does not have information indicating that affected 

EGUs would undertake modifications, and is thus not proposing any standards for 

modifications. As a result, EGUs that undertake pollution control projects or other physical or 

operational changes would continue to be treated as existing sources and regulated through an 

existing source standard in the future. Additionally, EPA is not proposing a standard of 

performance for transitional sources as long as they commence construction within 12 months 

from the date of this proposal.

1.5 Regulated Pollutant

This rule proposes to limit CO2 emissions from affected sources. EPA is proposing these 

requirements because CO2 is a GHG and power plants are the country’s largest stationary 

source emitters of GHGs. In 2009, EPA found that by causing or contributing to climate change, 

 

2

For purposes of this rule, covered EGUs do not include simple cycle combustion turbines. In addition, units 

subject to emission requirements under CAA section 129 would not be subject to requirements under this 

proposed rule.
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GHGs endanger both the public health and the public welfare of current and future 

generations.

EPA is aware that other GHGs such as nitrous oxide (N2O) (and to a lesser extent, 

methane (CH4)) may be emitted from fossil-fuel-fired EGUs, especially from coal-fired 

circulating fluidized bed combustors and from units with selective catalytic reduction and 

selective non-catalytic reduction systems installed for nitrogen oxide (NOX) control. EPA is not 

proposing separate N2O or CH4 emission limits or an equivalent CO2 emission limit because of a 

lack of available data for these affected sources. Additional information on the quantity and 

significance of emissions and on the availability of cost effective controls would be needed 

before proposing standards for these pollutants.

1.6 Baseline and Years of Analysis

The rule on which this analysis is based proposes the requirement for new or 

reconstructed EGUs to achieve lower levels of GHG emissions. The baseline for this analysis, 

which uses the Integrated Planning Model (IPM), includes state rules that have been finalized 

and/or approved by a state’s legislature or environmental agencies. Additional legally binding 

and enforceable commitments for GHG reductions considered in the baseline are discussed in 

Chapter 5 of this RIA.

All analysis is presented for a compliance year on or before 2020 and all estimates are 

presented in 2007$. Any estimates presented in this report represent annualized estimates of 

the benefits and costs of the proposed EGU GHG NSPS rather than the net present value of a 

stream of benefits and costs in these particular years of analysis.

1.7 Organization of the Regulatory Impact Analysis

This report presents EPA’s analysis of the potential benefits, costs, and other economic 

effects of the proposed EGU GHG NSPS to fulfill the requirements of a Regulatory Impact 

Analysis. This RIA includes the following chapters:

 Chapter 2, Control Strategies, defines the source categories affected by the proposal 

and describes the control strategies and regulatory alternatives for these source 

categories.

 Chapter 3, Defining the Climate Change Problem and Rationale for the Rulemaking, 

describes the effects of GHG emissions on climate and offers support for EPA 

undertaking this rulemaking.

 Chapter 4, Electric Power Sector Profile, describes the industry affected by the rule.
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 Chapter 5, Costs, Benefits, Economic and Energy Impacts describes impacts of the 

proposal.

 Chapter 6, Statutory and Executive Order Impact Analyses, describes the small 

business, unfunded mandates, paperwork reduction act, environmental justice, and 

other analyses conducted for the rule to meet statutory and Executive Order 

requirements.