1 Climate
-NSPS
-EGU/ proposal
-draft/OMB Nov 4 2011/transitional/revised draft
-02
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- 12+KC **Transitional Source s**  **– Revised Draft**  B. Requirements for Transitional Sources 1. Overview In today’s proposed rulemaking, the EPA is not proposing a standard of performance for proposed coal
- fired power plants that have received an approved PSD permit by , and that commence construction within a year after , the date of th is proposal. We call these sources “transitional sources” and, for convenience, we call all new sources that are subject to the standard of performance we propose in this rulemaking “non
- transitional sources.” The EPA is aware of approximately 18 sources that could potentially qualify as transitional sources because they have obtained PSD permits but have not yet commenced construction, although many are not expected to commence construction within the one
- year period. Seven of these have PSD permits that incorporate CCS . Without this different treatment, a transitional source would be sub ject to the new source standard of performance when it does commence construction, even though it has already incurred costs to receive a PSD permit , often times, purchased land and taken other steps p reparatory to commence construction in the very near future, but in at least some cases has not2

attempted to incorporate the controls that the EPA would now be requirin g for new coal
- fired EGUs under the new source standard of performance . In this event, the high costs of possibly relocating the project, revising its permit and other plans to meet the standard of performance could well oblige the proposed EGU to, in effect, start over, so that its prior expenditu res would be lost. As a result, we consider that the costs to the transitional sources of complying with the standard of performance to be significantly higher than for non
transitional sources, and therefore we do not consider that standard of performance to be appropriate for transitional
sources. Rather, we consider that CO2 emissions from transitional sources should be limited only to the extent that they would be limited as the source complies with its PSD permit. This approach is consistent with the costs faced by transitional sources. It is also consistent with principles of equitable treatment of transitional sources. In addition, it helps to assure the reliability of the electrical system by allowing some of the plants that the industry had intended to go forward to go forward. **2. Requirem ents for Transitional Sources**  In this action, we make clear that our proposed standard of performance for non
- transitional sources is not3

applicable to transitional sources, which we define as coal
- fired power plants that have received approval for their c omplete PSD preconstruction permits by the date of this proposal, and that commence construction within a year of date of this proposal. 1 Although transitional sources would not be subject to CO2 emissions controls under CAA section 111, they would be sub ject to CO2 emissions limits due to any CO2 limits in the source’s PSD permit. If the source received the permit prior to January 2, 2011, the permit may not include CO2 limits. In this case, as a practical matter, CO2 emissions would be limited by whatever design or operating constraints are imposed on the source under the PSD permit. For example, if the PSD permit requir es that the source be constructed at a supercritical level of effi c iency, then CO2 emissions can be expected to be limited to approximately 1800 l b s CO2/MWh because, as noted, that is the level of CO2 emissions associated with that type of EGU. For purpose s of this treatment of transitional
sources , the date o f this proposal is the date of

1 We note that there may be some proposed natural gas
- fired EGUs that are similarly situated to the coal
- fired transitional sources because the natural
- gas fired sources have received PSD permits but have not commenced construction by the date of this proposal. Because they are new gas
- fired EGUs, we expect that they will be able to meet the requirements of the proposed new source standard of performance, so that there is no need to consider whether they merit special treatment.4

publication in the Federal Register of this proposed notice of rulemaking . The 12
-month period would not be extended for any reason, including because of any challenges to the permit that may be brought in any court or agency. We also note that b ecause transitional sources would not be s ubject to any proposed standard of performance, they would not be considered “new source[s],” under CAA section 111(a)(2). Instead, they would be considered to be “existing source[s],” under section 111(a)(6). As a result, they would be subject to any requirements promulgated for existing sources under section 111(d) and related state plans. **3 .**  **EPA Policy**  As noted, EPA proposes that non - transitional source fossil
- fired power plants that commence construction after the date of proposal are subject to the standard of 1,000 lbs CO2/MWh , and EPA proposes to base this standard on EPA’s identification of natural gas combined cycle (NGCC) as the “ best system of emission reduction . . . adequately demonstrated. ” CAA section 111(a)(1) (BSER) . Commenters have point ed out that there is a group of proposed coal
- fired power plants that, by the date of this proposal, will have already received PSD permit s and that may have taken other action preparatory to constructing5

(including purchasing land) such that they are pois ed to commence construction in the very near future. The EPA is aware that owners or operators of approximately 18 proposed new coal
- fired EGUs have obtained permits under the CAA PSD program for the EGUs, but have not “commenced construction”, as that te rm is defined under 40 CFR 60.2 (discussed below) . Seven of these newly proposed EGUs are permitted for CCS , and the remaining ones are not . Available information indicates that a small number of these sources have taken additional preconstruction steps and therefore may be in a position to commence construction in the very near future. For instance, several sources have signed contracts for electricity, CO2, or other products. For instance, the Texas Clean Energy Project has contracts for its sulfur di oxide, CO2, and electricity. 2 It is the policy of the EPA that this small group of transitional sources should be treated as separate and distinct from the other proposed or future power plants , that is, the non
- transitional sources, which are much greater in number , and for which we propose the 1,000 lb CO2/MWh standard. As we explain elsewhere, in justifying this proposed standard, owners or operators contemplating construction of non - tr ansitional base
- load power plants

2 http://www.texascleanenergyproject.com/news
-room /6

have choices: they can choose the type of facility and therefore may construct either a NGCC plant or a coal
- fired plant, and if they choose the latter, they have choices as to siting and other considerations so as to be able to install CCS. As a result, f or these sources, NGCC constitutes the BSER , and the 1,000 lb s CO2/MWh emission limit reflects that BSER and therefore is the appropriate standard of performance under section 111 . Moreover, as a policy matter, for t hose that choose to construct a coal
f ired unit , they may choo se to construct the plant in a place and a manner that allows installation of CCS, either at the time of construction or, in accordance with the 30
- year averaging proposal, some years down the road. In contrast, transitional sources are different ly situated. They have already incurred substantial costs in permitting and taking other steps preparatory to commencing construction as coal
- fired power plants , often including purchasing land for the new facility , in most cases without CCS . Counting these sunk costs, converting their plant to NGCC would be more expensive than for non
- transitional sources, and as a result, NGCC does not constitute the BSER for them. As for CCS , for the transitiona l sources that are not designed for CCS, as a practical matter, it would be extremely difficult if not impossible for such a source7

to proceed with construction without substantial re
- design of the project in order to install CCS and thereby be in compliance with the 1,000 lb s CO2/MwH standard. There are several reasons for this. First, captured CO 2 must be sequestered or used. If this was not considered as part of the original site selection, it provides additional challenges to the sources’ ability to adopt CCS. Second, if CCS was not considere d in the original project design, space considerations may make it difficult to accommodate in the facility’s design. Third, the requirement to use CCS could necessitate a change in the very generation technology that a source may choose to use. For instan ce, instead of building a pulverized coal boiler, IGCC technology may be more appropriate. This is not to say that CCS could not be added to a project at this stage. Projects like the AEP Mountaineer project have shown that CCS can be successfully retrofit ted on an existing plant. However, unlike in an existing facility where retrofit decisions must take into account previously made design decisions, in a facility in the pre
- design phase, there is more opportunity for cost savings from re
- designing the whol e project, rather than just designing it as a retrofit. It bears emphasis that t he requirements created by the new source standard in today’s action are fundamentally8

different from post
- combustion controls required to meet new source standards for conve ntional pollutants. Those controls could be much more easily redesigned into a planned plant without changing the plant’s basic underlying characteristics (such as type of unit or even location). CCS is more fundamental to both the design and siting of a
u nit, and therefore would likely involve fundamental changes to the underlying project. This is much more difficult in a project that has progressed through the permitting stage and is very close to commencing construction than it would be in other types of projects. Considerations in addition to costs also support our treatment of transitional sources. These include equitable considerations : Transitional sources have incurred significant expenses and undertaken a long planning period, as a result they have more invested in their current plans, and as a result of all that, they have an equitable claim to being allowed to proceed without requirements other than those in their PSD permits. These considerations also include promotion of t he reliability of th e electricity system. Owners or operators of transitional sources have planned them and are on the verge of commencing construction of them because they perceive a demand for the electricity the sources would generate. The EPA’s modeling9

of the electrici ty industry in the foreseeable future forecasts a potential reduction in supply as older coal
fired EGUs are retired. Allowing these few transitional sources to proceed as planned

– including generally on the time schedule planned
-- would promote reliabi lity. As noted, we propose to define transitional sources to include sources that, besides having a complete PSD permit by the date of proposal, commence construction within 12 months of the date of proposal. This one year period gives effect to the policy of limiting transitional source treatment to sources that, as of the date of proposal, have incurred the expenses necessary so that they are poised to commence construction in the very near future . In light of the complex of requirements, which range from siting to financing, needed to commence construction of the large and expensive type of project that a power plant is, any proposed source that does commence construction within the relatively short period of 12 months of the date of proposal qu alifies as having been poised to commence construction as of the date of proposal. It is those sources that would be most disadvantaged by being subjected to the standards of performance proposed in today’s rulemaking. On the other hand, 12 months is long enough to give transitional sources a reasonable period to commence10

construction in accordance with the terms of their permit. Any proposed source that does not commence construction within 12 months cannot be said to be similarly situated. Finally, as a matter of policy, a lthough transitional sources would not be subject to the 1,000 standard lbs CO2/MWh for new sources, it is EPA’s policy that transitional sources would become subject to the requirements EPA intends shortly to promulgate for existing
so urces. **4. Legal approach.**  In this section, we describe our legal approach for implementing the transitional source policy. First, we note that we considered the approach of treating transitional sources as a separate subcategory and proposing a standard of performance for them at what we call a “ no - further
control level. ” For practical reasons that we describe, we rejected this approach. Second, we discuss our basis for the approach we are taking, which is to not propose a standard of performance for these sources. We discuss the relevant CAA section 111 requirements and our interpretation of them, and we then apply that interpretation to our approach.
**a. Consideration of approach of**  **s eparate standard of**  **performance**11 EPA considered treating transitional sources as a

separate subca tegory of new sources and proposing a standard of performance for that subcategory. Under CAA section 111(b)(2), discussed further below, EPA is authorized to subcategorize sources within categories of new sources to establish standards of performance. I n this case, EPA may well have proposed , in light of the transitional sources’ sunk costs, that the BSER for these sources would be the controls to which they would be subject under the terms of their PSD permits, and no further controls under section 111. 3 EPA would then have determined the emission rate for each transitional source that reflected that source’s level of CO2 emissions in accord with the terms of its PSD permit. This emission rate would have constituted the “no
- further
- control” standard of performance. Note that under this approach, each transitional source would have received an emission limit distinct to that source. However, t his approach would give rise to practical problems: As noted, many of the 18 potential transitional sources have a PSD permit that does not regulate CO2

3 This type of standard of performance could take one of several different forms, such as a standard that would not limit the source’s CO2 emissions, or a standard that the transitional source itself would identify as equaling the emission limit it would achieve through compliance with the applicabl e terms of its permit.12

because GHGs were not subject to PSD until the January 2, 2011 effective date of the first regulatory action controlling CO2 emissions under the CAA. Par ticularly for those sources , this approach could have created uncertainty as to what EPA would promulgate as the emission rate in the final standard of performance. This is because since these sources’ permits do not specify a CO2 limit, EPA would have to develop limits based on the design of the unit (including the project’s type of technology and fuels), EPA does not have all the information necessary to make such determinations at this time. In addition, all transitional sources, even those whose PSD permits do establish a CO2 limit, would face uncertainty as to what final standard EPA would promulgate . This uncertainty would stem from (i) the possible wide range of design of transitional sources and the consequent complexity of EPA’s task , coupled with the relatively short (12
-month) period of time for rulemaking, in establishing an individual standard of performance for each source; and (ii) the fact that the public could well comment on the proposed standard of performance and EPA, based on those
comme nts, could finalize standard s of performance different than proposed, which may be more difficult for the t ransitional s ources to meet.13 The uncertainties that the sources could experience as

to what the final standards of performance would entail could well deter those sources from commencing construction until EPA promulgated the final standard of performance. Such delay would defeat the policy underlying EPA’s approach to transitional source s , which is to allow these sources favorable treatment only i f they commence construction within 12 months of proposal. If they are deterred from commencing construction until after the final rule , they may have lost that 12
-month window. We have other concerns besides these practical problems over th e approach of treating transitional sources as a subcategory of new sources and establishing a standard of performance for them. This approach would provide little, if any, environmental benefit because the standard of performance would not provide further control b eyond the limits of the sources’ PSD permits. In fact, this approach could be detrimental from an environmental standpoint because by treating the transitional sources as new sources, EPA could not treat them as existing sources and as a result, could not subject them to possible regulation under the existing source standard that EPA expects soon to promulgate.14

**b. Adoption of approach of not proposing a standard of performance**  In light of the practical difficulties just described , EPA is not proposing any standard of performance applicable to t ransitional s ource s . As a result, by the terms of CAA section 111, these sources cannot be treated as new sources and therefore cannot be subject to a new source standard of performance under CAA section 111(b). Ins tead, they would remain subject to the constraints imposed by their PSD permits. In addition, they would be considered to be existing sources, and therefore in the future, they would be subject to any requirements EPA may promulgate for existing sources u nder CAA section 111(d). This approach is consistent with the provisions of CAA section 111. **(i) . Key provisions of CAA section 111**  The key provisions of CAA section 111, for present purposes, are as follows: Under section 111(b)(1)(A), as the first step in the process of promulgating regulations under section 111, t he Administrator must “publish ... a list of categories of stationary sources.” Then, 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.” Section15

111(b)(1 ) (B). Section 111(b)(2) goes on to provide that

“ [t] he Administrator may distinguish among classes, types, and sizes within categories of new sources for the purpose of establishing such standards.” A “new source” i s defined
as “any stationary source, the construction or modification of which is commenced after [EPA propo ses] a standard of performance ... which will be applicable to such source.” Section 111(a)(2) . 4 Once the Administrator promulgates standards for new sources under CAA section 111(b), the Administrator must take action under CAA section 111(d) to establish requirements for “any existing source for any air pollutant (i) [that falls into specified categories] but (ii) to which a standard of performance under this section would

4 The CAA does not include a definition of the term “commenced” for these purposes , but t he EPA framework regulations promulgated under section 111 define this term as follows: Commenced means, with respect to the definition of new s ource 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 60.2.16

apply if such existing source were a new source ... .” Section 111(d)(1). An “e xisting source” is defined as “any stationary source other than a new source.” Section 111(a)(6). **(ii). I**  **nterpretation of key provisions of CAA section 111**  EPA interprets these provisions as follows: Under section 111(b)(1)(B), o nce EPA lists a category of sources, EPA is required to propose and promulgate standards of performance for new sources in that category . 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 EPA propose standards of performance “for new sources” within the category, but does not require that EPA propose such standards for all new sources or for any new source. 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 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 EPA proposes17

“a standard of performance ... which will be applicable to such source.” By its terms, this provision contemplates that EPA may not propose a standard of performance applicable to certain sources, and that if EPA does not, those sources would not be considered to be “ new source [ s ]” and therefore not subject to any new source standard of performance. In fact, in a number of prior rulemakings under section 111, EPA has limited the applicability of its proposed and final standards of performance to certain groups of new sources , and has not attempted to cover all sources that newly commence construction or modification. For example, one of the first categories of sources that EPA regulated under section 111 was fossil
- fired power plants, but from the beginning, EPA imposed an emi ssions threshold, so that sources that newly commence construction or modification but that emit below that threshold would not be subject to any standard of performance . Similarly, in other section 111 rulemakings, EPA has proposed and promulgated rulemakings that apply standards of performance to certain emission units in a category, but not to all of those emission units. In some cases, EPA has subsequently proposed or promulgated additional rulemakings that apply18

standards of performance to more of the emission units in the category . Section 111(b)(2) authorizes EPA to “distinguish among classes, types, and sizes within categories of new sources for the purpose of establishing such standards.” In other words, once EPA selects the set of sources for which to propose regulations, EPA may establish subcategories among those new sources and promulgate different standards for those subcategories. Strictly speaking, this authorization to subcategorize is limited to “new sources,” which, again, are sou rces newly commencing construction or modification and for which EPA proposes or promulgates a standard of performa nce; and this authorization to subcategorize does not apply in the case of sources that are not “new sources” because EPA does not propose or promulgate a standard of performance applicable to them. Any source that is not a “new source”

– either because of the time that it commences construction or modification or because EPA has not proposed or promulgated a standard of performance applicable to it

– is considered an existing source, under section 111(a)(6). In general, existing sources of certain pollutants are subject to requirements that EPA promulgates under section 111(d).19

**(iii) .**  **A**

**pplication to transitional sources** In this action, EPA is not proposing a standard of performance for transitional sources and as a result, by the terms of CAA section 111, transitional sources would not be considered new sources and therefore would not be subject to any standard of performance for new source s. In contrast, EPA is proposing a standard of performance for
non - transitional sources, one that is based EPA’s proposed determination that NGCC is the BSER for those sources, and, as a policy matter, that for coal
- fired EGUs, CSS is a compliance option. As noted, the record that supports this proposal for non
- transitional sources is based on the costs of those controls to those sources. T ransitional sources have different cost considerations because of the costs they have already incurred to obtain the ir PSD permits and to take whatever other steps necessary for them to commence construction in the very near future. 5 These cost considerations support EPA’s policy that transitional sources should remain subject to whatever CO2 emission limits are included in, or result from compliance with, their PSD permits, but that no

5 EPA intends that its treatment of transitional and non
-transitional sources is severable from each other and considers that severability is logical because of the record
-based differences between the two types of sources and because there is no interdependency in EPA’s treatment of the two types of sources. This statement concerning severability for these components in this rulemaking should not be construed to have im plications for whether other components in this rulemaking are severable.20

further control of CO2 under the new source provisions of CAA section 111(b) is merited. EPA is not actually subcategorizing transitional sources under 111(b)(2) because by its terms th at provision authorizes subcategorizing only for new sources (that is, sources for which EPA propos es a standard of performance ). Nor is EPA proposing a no
- further
- control standard of performance because, as noted, of the practical concerns that such a sta ndard would deter transitional sources from commencing construction and thereby defeat the policy that transitional source treatment should apply to sources that commence construction within 12 months of the proposal. Even so, t he approach that EPA is taki ng for transitional
sources of not proposing a standard of performance has much the same effect as proposing a no
- further
- control standard of performance and is supported by the same cost considerations. As noted, other supporting considerations include e quitable and reliability. Our approach of not proposing regulations for transitional sources is consistent with the terms of the provisions of section 111 and is consistent with the purposes of CAA section 111. As noted, under the terms of section 111, EPA is not required to propose or promulgate standards of performance for all sources in a source21

category that newly commence construction, and therefore EPA is not required to propose a standard of performance f or transitional sources. Transitional sources are a small group of sources with a distinct profile of costs, CO 2 emissions, and equitable concerns. In any event, EPA’s approach for these sources is, in key ways, consistent with proposing a standard of per formance for them. As noted, under EPA’s approach, transitional source would, as a matter of practice, face limits on their CO 2 emissions that stem from either any explicit CO2 limits in their PSD permit or, if none, the operational limits associated with compliance with the terms of their PSD permit . Any more stringent limits for CO 2 emissions could not be justified for these particular sources because such limits would require them to substantially redesign the source to meet the new limits. As noted, thi s would be true if we required the source to meet a 1,000 lb/MWh standard requiring CCS. It would also be true if we required limits even slightly tighter than those that the unit was currently designed to meet, because efficiency (and thus CO 2 emissions) are a n integral part of unit design. We recognize that this approach of not proposing a standard of performance for transitional sources could raise the question of whether this approach is consistent22

with the requirement implicit in the definition of “new source” under CAA section 111(a)(2) that a source be subject to a standard of performance when it commences construction after the date of proposal for that standard. We believe the approach is consistent with, and does not circumvent , that requirement . As noted, CAA section 111 does not require that all sources that newly commence construction be treated as new sources, and in past section 111 rulemakings, EPA has not applied the standards of performance that it proposes and promulgates to all sources t hat newly commence construction in a source category. Moreover, a s noted, t ransitional sources are a small group of sources and they have a distinct profile. In addition, we note that section 111 allows other approaches under which EPA may encourage sources to commence construction as soon as possible and avoid the applicability of a standard of performance. For example, in this case, EPA could have issued an advance notice of proposed rulemaking (ANPR) stating that EPA intends to propose a standard of performance for all fossil
- fired power plants within 12 months, and further stating that EPA did not expect to provide any special treatment for coal
fired power plants that as of the date of proposal (again, 12 months hence), had received a PSD permit and taken other23

action to preparatory for commencing construction, but had not yet commenced construction. This ANPR approach would have had a similar effect, so f ar as transitional sources are concerned, as the treatment of transitional sources in today’s rulemaking. However, it would also have had the effect of delaying by 12 months EPA’s establishment of standards of performance for non
- transitional sources. Ac cordingly, this ANPR approach would not achieve EPA’s policy objectives, and EPA does not take this approach. But the fact that this ANPR approach is consistent with section 111 suggests that the approach that EPA is taking in this rulemaking is also cons istent with section 111.