***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

1 - 1 11/04/11 Draft EO12866EGUGHGNSPSRIA2060-AQ9120111104Ch1.docx

**SECTION 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 relative to the rule and an outline of the chapters of the report. **1 .2**  **Backg round**  Section 111 of the Clean Air Act (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 greenhouse gases 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 [ (74 FR 66,496; Dec. 15, 2009) . Because fossil fuel -fired EGUs contribute significantly to the total domestic CO 2 emissions, EPA is p roposing to regulate these emissions from EGU sources under section 111 of the CAA . Section 111(b) authorizes EPA to issue new source performance standards (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 state plans that contain performance standards for emissions of CO 2 from existing fossil fuel -fired power plants. This action responds to a consent decree requiring EPA to issue an NSPS for greenhouse gases from new fossil -fueled steam boiler generating units by September 30, 2011 and guidelines for state regulations of existing units of the same types by May 26, 2012. This action addresses Section 111(b) for new sources but does not address Section 111(d) existi ng 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 Executive Order 12866 and EPA’s Guidelines for Preparing Economic Analyses, EPA prepared this Regulatory Im pact Analysis for this “ significant regulatory action ” .***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

1 - 2 11/04/11 Draft T h is proposal will not have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the en vironment, public health or safety, or State, local, or tribal governments or communities 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” be cause it “raises novel legal or policy issues arising out of legal mandates . This RIA focuses on the potential costs and benefits of the new source guidelines that are the focus of the proposed action. The proposed rule regulates new and modified 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 (this is due to the lower cost of natural gas units , relatively low growth in electricity demand, and increased use of energy efficiency and renewable energy resources). Because the proposal does not change these projections, it is projected to have no, or negligible, costs or benefits associated with it. For modified sources , EPA believes that based upon the proposed requirements, no sources are likely to trigger these requirements and instead all sources would be covered under the existing source guidelines, therefore, for purposes of this analysis, EPA has assumed that all costs and benefits related to existing sources is covered by the analysis of the existing source emission guidelines that will be addressed in a subsequent action. **1 .**  **4 Regulated Entities**  This action will directly regulate CO 2 emissions from electric gene rating units (EGUs) with capacity greater than 25 megawatts th at commence construction or reconstruction after the issuance of this proposal. **1 .**  **5 Baseline and Years of Analysis**  The rule on which this analysis is based proposes the requirement for new or m odified EGUs to meet reduced levels of GHG emissions. EPA considered baseline Integrated Planning Modeling (IPM) includ ing State rules that have been finalized and/or approved by a state’s legislature or environmental agenc ies . 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$. A ny estimates presented in this re port represent annualized estimates of the benefits and costs of the proposed GHG EGU NSPS rather than the net present value of a stream of benefits and costs in these particular years of analysis .***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

1 - 3 11/04/11 Draft **1 .**  **6 Organization of the Regulatory Impact Analysis**   This report presents EPA’s analysis of the potential benefits, costs, and other economic effects of the proposed Utility GHG Rule to fulfill the requirements of a Regulatory Impact Analysis. This RIA includes the following chapters:

 Chapter 2 , 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 3, Emission Control Strategie s , describes the methods used to control GHG emissions for new sources .  Chapter 4, Electric Power Sector Profile, describes the industry affected by the rule.

 Chapter 5 , Potential Costs, Benefits, Economic and Energy Impacts describes i mpacts of the prop osal .  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.