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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. Based on the 

analysis presented in Chapter 5, expected and anticipated economic conditions will lead 

electricity generators to choose technologies that meet the standard. As a result, this proposed 

rule is expected to have no, or negligible, costs or monetized benefits associated with it. 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 whether to regulate GHGs under 

certain provisions of the Act, based on relevant statutory criteria. 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.

This action responds to a proposed settlement agreement 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 standards for new sources but does not address 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, Executive Order 13563, and EPA’s Guidelines 

for Preparing Economic Analyses, EPA prepared this RIA for this “significant regulatory action.” 

 

1

http://www.epa.gov/airquality/ghgsettlement.html
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This proposal is not anticipated to 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 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.” As a matter of 

policy, however, EPA has attempted to provide a thorough analysis of the potential impacts of 

this rule, consistent with requirements of the Executive Orders, and will continue to analyze the 

potential impacts of this rule between the proposed and final rule.

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 sources. EPA does not 

anticipate that any costs or quantified benefits will result from those parts of the standards. 

For new sources, EPA (and other energy modeling groups such as EIA2) do not project that any 

new coal capacity without federally-supported CCS will be built in the analysis period. This is 

due in part to the low cost of base load NGCC capacity relative to coal capacity, relatively low 

growth in electricity demand, and use of energy efficiency and renewable energy resources.

This conclusion holds under a range of sensitivity analyses as well as in EPA’s baseline scenario. 

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, costs3or quantified benefits associated with 

it. Chapter 5 of this RIA also provides an illustrative analysis of the levelized cost of electricity 

and environmental damages associated with representative new conventional coal and natural 

gas combined cycle units, under a range of natural gas price assumptions. That analysis, along 

with information on historical4and projected5gas prices, indicates that this standard is highly 

likely to have no costs or benefits; that there is some small probability that the standard 

 

2

AEO 2009-2012.

3

Because of existing and anticipated trends in the marketplace, EPA does not project that any generators expected 

to be built within the time frame of our analysis will have to install additional controls to meet the proposed 

standard. Additionally, because new generators would already be required to monitor and report their CO2

emissions under the information collection requirements contained in the existing part 75 and 98 regulations 

(40 CFR part 75 and 40 CFR part 98), any additional monitoring or reporting costs from this proposal should be 

negligible. Costs are only incurred if there has been a violation and a source chooses to take advantage of the 

affirmative defense, in which the source can show that the violation was caused by a malfunction and the 

source took necessary actions to minimize emissions. See Chapter 6 for more details on monitoring and 

reporting costs.

4

EIA. U.S. Natural Gas Prices. Available online at: http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_a.htm.

5

AEO 2009-2012. 
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produces net benefits; and that the probability that the standard results in net costs to society 

is exceedingly low. 

1.4 Regulated Entities

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

MW that commence construction after the issuance of this proposal.6

As described in the preamble, EPA does not have enough information on potential 

reconstructions in order to issue a standard at this time. As a result, in today’s action, the EPA is 

not including a proposal for reconstructions. Instead, we solicit comment on how we should 

approach reconstructions and, depending on the information we receive, we may propose and 

finalize a standard for reconstructions at a later time. Additionally, EPA does not have 

information indicating that affected EGUs would undertake modifications, and is thus not 

proposing any standards for modifications. EPA is taking comment on this and in the future may 

choose to set a standard for modifications that is different than that for existing sources. 

Finally, 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, 

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.

 

6

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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1.6 Baseline and Years of Analysis

The rule on which this analysis is based proposes the requirement for new 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 through the year 2020 and all estimates are 

presented in 2007$. Because we expect similar economic conditions leading up to the year of 

analysis, we also would not anticipate costs or benefits in any year prior to 2020. 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.

 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.