Monday, December 05, 2011

Special report: investigation finds concerns were overblown about EPA greenhouse gas permits

You may recall that industry spokespeople have claimed for many months that requiring big polluters to obtain greenhouse gas permits would harm the economy. For instance, when Texas under Governor Rick Perry refused to issue permits -- and the US EPA was forced to step in -- former EPA official (and current power industry lobbyist) Jeff Holmstead asserted "EPA takes forever to do permits."

But now it appears those concerns were overblown, to say the least. The authoritative BNA Daily Environment Report has published a special report detailing its investigation of real-world permit situations.

BNA found businesses were obtaining permits with "few problems." The publication found that 17 major sources of pollution have already obtained greenhouse gas permits this year, and that it has been a "smooth transition" to include greenhouse gases among permitted emissions. Contrary to some fears, the permit requirements did not prompt fuel switching.

Here is the piece Reproduced with permission from Daily
Environment Report, 233 DEN BB-1 (Dec. 5, 2011).
Copyright 2011 by The Bureau of National Affairs,
Inc. (800-372-1033)
www.bna.com

Industries, Regulators Report Few Problems
With Greenhouse Gas Permitting Program
BNA Snapshot
Greenhouse Gas Permitting for Industrial Sources
Key Development: EPA and states have approved 17 greenhouse gas permits for new and modified industrial sources with few problems reported since permitting began Jan. 2.
Potential Impact: Industries still have concerns with how regulators determine the required greenhouse gas controls and conflicts with other air pollution rules.By Andrew Childers
The addition of greenhouse gas emissions to the prevention of significant deterioration permitting process has largely been a smooth transition, industry representatives and state regulators told BNA.
EPA and state regulators have finalized 17 permits through Nov. 21 that limit emissions of greenhouse gases from new and modified industrial sources since the permitting took effect Jan. 2. Another 100 are pending, the agency said.
Industry representatives said the permitting process has gone more smoothly than they may have initially predicted. However, they say they are still concerned about how controls are determined and potential conflicts with other pollutant rules.
“The fact there have been 17 permits approved shows states are really figuring out how to do this,” Margaret Peloso, an attorney at Vinson & Elkins LLP who works on permits for industry clients, told BNA.
Permits Target Efficiencies
PSD requires new and modified sources to obtain permits for emissions of regulated air pollutants and to control those emissions using best available control technology (BACT), determined individually for each source
Permitting includes a review process to determine the optimal controls for each facility, or BACT. The BACT process is a “top down” review that begins by identifying all available control technologies.
For greenhouse gases, that could include expensive and infeasible options such as carbon capture. However, as the review proceeds, it eliminates controls that are infeasible, too expensive, or environmentally inefficient.
EPA said the majority of the permits issued have focused on energy efficiency as a surrogate for greenhouse gas controls, something the agency recommended in its guidance to states (217 DEN A-5, 11/12/10).
Permits issued to date largely require facilities to ensure they are burning fuel as efficiently as possible.
Because the controls are determined for each facility and only 17 permits have been approved in 12 states and one for drilling in the Gulf of Mexico, industries said it is difficult to detect any trends in how EPA and states are applying the BACT controls.
“It's hard to know how this is going to play out until we see more units permitted and different types of units and how the guidance gets applied or not applied by state authorities and EPA to an individual set of circumstances,” said Steve Kohl, a partner at Warner, Norcross & Judd LLP who represented the Wolverine Power Supply Cooperative for two permit applications in Michigan.
However, reducing emissions through efficiency has been the main focus for permits.
EPA also has indicated its preference to have specific emissions limits included in permits, rejecting a permit in Utah that did not include specific greenhouse gas limits.
And EPA went further with a permit it issued recently in Texas. The agency set limits for individual greenhouse gases, rather than a general limit on overall emissions based on their carbon dioxide equivalency.
Permitting ‘Not as Traumatic.'
Permits that have been issued have not required industries to switch fuels or make other changes to their business practices, Peloso said.
“What you're seeing is once states get down to the brass tacks of the doing it, it's not as traumatic as it could be,” she said.
Don Neal, vice president of environment, health, and safety for Calpine Corp., told BNA that the PSD permits issued for other regulated pollutants often included provisions limiting the amount of fuel that could be burned in a year as part of their required pollution controls.
Regulators have been able to convert that restriction into a numeric greenhouse gas emissions limit based on the chemical composition of the fuel, he said.
“No one should have an issue with complying with that because you've already limited, per se,” Neal said.
Calpine received one greenhouse gas permit in February for a 600 megawatt natural gas-fired combined cycle power plant and has three other applications pending (23 DEN A-5, 2/5/10).
Marty Gray, section manager for major new source review at the Utah Department of Environmental Quality, told BNA Dec. 1 that EPA's guidance document and the three permits issued by the federal agency have provided valuable examples of the agency's expectations.
Gray said states are not only examining the efficiency of individual pieces of equipment, but EPA is encouraging them to create a monitoring process to track any decline in efficiency as the units age.
“It's gone pretty smoothly for us once we recognized what EPA's concerns were,” he said.
Michigan Leads in Permitting
Michigan leads all states in permitting, having approved three to date. Iowa has approved two permits while California, Kansas, Louisiana, Minnesota, New York, Pennsylvania, South Dakota, Utah, and Wisconsin have issued one each. EPA has issued permits in California, Texas, and the Gulf of Mexico.
PSD permitting requirements for greenhouse gas emissions began Jan. 2, with industrial facilities required to obtain permits if they also would be required to obtain the permit for other pollutants, such as nitrogen oxides or sulfur dioxide.
As of July 1, new industrial facilities that emit the equivalent of 100,000 tons of carbon dioxide per year and modified sources that increase their emissions by 75,000 tons annually were required to get PSD or Title V operating permits for greenhouse gases regardless of whether they triggered the permitting thresholds for other air pollutants.
EPA had predicted as many as 900 new applications under the permitting requirements, but state regulators have said those estimates were off (111 DEN A-2, 6/9/11).
EPA Criticizes Utah Permit
EPA has kept a close eye on the efficiency measures required by state and local regulators.
“I do think the regulators are paying attention to, ‘Is this really as efficient as it could be?' They're still looking at, ‘Does that equate to an energy efficient unit,' ” Kohl said.
EPA in a March 4 letter criticized a permit proposed by the Utah Department of Environmental Quality for PacifiCorp Energy, which plans to add two natural gas-fired generating units to its existing Lake Side Power Plant in Utah County.
EPA said the proposed permit would have required PacifiCorp to use “high efficiency” gas turbines with heat recovery steam generators rather than set numeric emissions limits on greenhouse gases.
“High efficiency” was never defined sufficiently in the permit, the agency said.
The two new units would double the facility's greenhouse gas emissions to 1.8 million tons per year of carbon dioxide equivalent, according to the facility's permit.
“This proposal of an undefined design standard as BACT, rather than a numerical emission limit, does not satisfy the definition of BACT” under the Clean Air Act or Utah's state implementation plan, EPA said.
The final permit issued to PacifiCorp in May limited the plant's annual greenhouse gas emissions to 950 pounds per megawatt-hour.
Gray said the efficiency requirements in the proposed permit were equivalent of the eventual numeric emissions limit, but Utah added the numeric limit after consulting with EPA.
“We basically tried to follow the guidance EPA had put out for that,” he said. “The only thing we didn't do was establish an actual limit. That's where we had a falling out with EPA. Once they explained the importance of that we went ahead and did that.”
Texas Permit Targets Individual Gases
Most of the permits issued to date have set emissions standards for greenhouse gases on a carbon dioxide-equivalent basis.
However, the permit issued for the Lower Colorado River Authority's Thomas C. Ferguson Power Plant in Texas includes individual emissions limits for methane, nitrous oxide, and sulfur hexafluoride, all greenhouse gases regulated by EPA. Hydrofluorocarbons, perfluorocarbons, and carbon dioxide are the other regulated greenhouse gases (219 DEN A-7, 11/14/11).
Industry representatives said they are closely watching to see if other state regulators set limits on individual greenhouse gases in EPA's wake.
The Lower Colorado permit is “potentially a signal that EPA as a whole is going to be looking for more defined, numeric limitations. How states are going to arrive at those is a very important question,” Peloso said.
EPA is issuing greenhouse gas permits in Texas because the state refused to implement a greenhouse gas permitting process. It is the only state to refuse to update its state implementation plan to include greenhouse gas regulations in its PSD requirements.
While EPA has taken over greenhouse permitting in Texas, the state continues to administer prevention of significant deterioration and new source review permitting for other regulated pollutants.
That places applicants in Texas on a two-track review system.
Calpine has two pending applications in Texas, Neal said.
“It will be interesting to see who issues the permit first,” he said. “So far, based on the discussions we've had with Region 6, things are progressing well.”
Permitting, Nitrogen Rule Could Conflict
Another concern for industries is how the greenhouse gas control requirements will be affected by EPA's more stringent air quality standards for nitrogen dioxide.
The permits typically require facilities to improve how efficiently fuels are burned, reducing emissions of carbon dioxide and other greenhouse gases. However, that improved combustion efficiency tends to increase emissions of nitrogen oxides.
This creates a “tension” in the BACT analysis between the two pollutants, Peloso said.
“In some cases that has caused greenhouse gas BACT not to be as high as it could be,” Peloso said. “That could become particularly significant as the new one hour standard for [nitrogen dioxide] comes into place.”
EPA issued the first hourly national ambient air quality standard for nitrogen dioxide of 0.10 part per million (100 parts per billion) in February 2010 (75 Fed. Reg. 6473; 15 DEN A-4, 1/26/10).
Areas not in attainment of EPA's nitrogen dioxide standards may be forced to accept higher greenhouse gas emissions as a result, Peloso said.
“If you're looking at a site where you have very stringent controls on [nitrogen oxides] and compliance must be achieved through modeling, which makes that level of control more stringent, it's going to force state permitting officials to make some very significant tradeoffs,” she said.
Regulators have successfully dealt with similar conflicts through the BACT process before, Neal said.
The oxidation catalysts used to reduce emissions of volatile organic compounds and carbon monoxide increase emissions of particulate matter, he said.
“That's the beauty of the top-down BACT process. That's what it's designed to do,” Neal said.

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