***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

1 - 1 **CHAPTER 1 INTRODUCTION AND BAC**  **KGROUND 1**  **.1 Introduction**  In this action, EPA seeks to address the climate and health effects of GHGs, specifically CO 2, emitted from fossil fuel -fired electricity generating units. This document presents the expected economic impacts of the proposed EGU GHG NSPS rule through 20 20 . 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 rule d 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 CO 2 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 CO 2 from new sources. Section 111(d) requires that, upon finalization of the CO 2 NSPS for new sources, st ates must submit to the EPA plans that establish standards of performance for emissions of CO 2 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 . Deta ils of the settlement agreement can be found on the EPA website. 1 This 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 . ” T h is 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***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

1 - 2 way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or co mmunities and is therefore not an “economically significant rule . ” However, u nder 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 . ” T his 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 . T his 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 CO 2 emissions from EGUs with capacity greater than 25 MW th at 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 t he date of this proposal. **1.5 Regulated Pollutant**  This rule proposes to limit CO 2 emissions from affected sources. EPA is proposing these requirements because CO 2 is a GHG and power plants are the country’s largest stationary source emitters of GHGs. I n 20 09 , EPA found that by causing or contributing to climate change,

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.***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

1 - 3 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 ( N 2 O ) (and to a lesser extent, methane ( CH 4 ) ) 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 ( NO X ) control. EPA is not proposing separate N 2 O or CH 4 emission limits or an equivalent CO 2 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 effe ctive 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 us es the Integrated Planning Model (IPM) , includ es state rules that have been finalized and/or approved by a state’s legislature or environmental agenc ies . Ad ditional 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$. A ny estim ates 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.***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

1 -4  Chapter 5 , Costs, Benefits, Economic and Energy Impacts describes i mpacts 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.