The fledgling carbon capture and hydrogen industries are eyeing a decadeslong boost if a new EPA proposal on power sector emissions passes muster in the courts.
The nearly 700-page proposal unveiled Thursday is a sweeping crackdown on coal and natural gas emissions with requirements that may force power companies to install carbon capture and storage (CCS) technology or co-fire with hydrogen. It’s a complicated approach that carves out specific requirements for plants based on fuel source, fuel volume and retirement plans.
Announcing the proposal at the University of Maryland, EPA Administrator Michael Regan said climate change and more destructive weather patterns have created “a pivotal point in human history.”
“At EPA, we’re taking decisive climate action under the Clean Air Act,” Regan told the crowd. “When finalized, these technology standards are expected to avoid 617 million metric tons of carbon dioxide by the year 2042.”
The U.S. power sector produced 1,539 million metric tons of carbon last year, according to the U.S. Energy Information Administration. EPA is not regulating emissions fully out of the sector by 2035, the year President Joe Biden is targeting for 100 percent net-zero emissions in the power sector. But Regan and other administration officials insist the draft standards, combined with other administration programs like the Inflation Reduction Act, will help to ensure the U.S. meets that goal.
The rule got mixed reviews across the energy sector but pleased some carbon capture developers.
“Renewables alone cannot meet baseload energy demands, which is why industry efforts to efficiently decarbonize fossil fuel power generation are so important,” said Danny Rice, the incoming CEO of Net Power, a company that is working on a utility-scale gas power plant with near-zero emissions.
Most environmental groups are also rallying behind the standards. Dan Lashof, the U.S. director of the World Resources Institute, told E&E News that the plan will make expected emissions reductions in the power sector “a little faster and much more certain.”
Others are taking aim at the CCS requirements, however, and say the rule doesn’t go far enough.
“Setting the standard with reference to carbon capture and storage doesn’t automatically render the rule illegal, but we have plenty of problems with CCS,” Jason Rylander, legal director of the Climate Law Institute at the Center for Biological Diversity. “It’s not a solution to the climate emergency. It does not work.”
But the most serious challenges to the standards, if finalized, are likely to come from industry. The Chamber of Commerce says the standards would go “too far, too fast.”
Expected legal challenges will likely center on whether EPA is illegally forcing companies to switch the fuels they use and whether the agency is properly classifying CCS and hydrogen as “adequately demonstrated” technologies.
Here are four questions to watch on EPA’s draft rule:
If finalized, is the rule legal?
Fossil fuel industries and their allies are signaling they’re preparing to sue the agency if the standards are finalized (see related story).
Part of the emerging legal strategy resembles challenges to the Obama-era Clean Power Plan. Last year, the Supreme Court struck down that regulation, determining in a 6-3 ruling that EPA lacked the authority to require “generation shifts.” That’s a term used in both the Obama-era rule and the Supreme Court decision that refers to mandates on power companies to switch to less-emitting fuel sources such as wind and solar.
In the Clean Power Plan, EPA said generation shifts represent a “best system of emission reduction.” Now, the agency is saying CCS and hydrogen, in certain circumstances, are the best system for power plants.
Some energy attorneys indicated Thursday they are laying the groundwork to challenge the EPA rule based on that “generation shift” standard.
“CCS or [hydrogen] are used to set an emissions limit,” Scott Segal, an industry lawyer at Bracewell LLP, said in an email, referring to the draft standards. “These [technologies] are not equally available or cost-effective in all locations. So, for some — maybe many — plants, emissions levels set at that stringency are de facto generation-shifting mandates.”
But Cara Horowitz, the executive director of the Emmett Institute on Climate Change and the Environment at the UCLA School of Law, said the generation shifting legal approach is “not a great argument, but it’s an argument that will be had.”
Meanwhile, the Clean Air Act requires that the best system of emission reduction, in this case CCS and hydrogen, be “adequately demonstrated.” With zero carbon capture projects installed at utility-scale power plants in the U.S., some analysts say that could be a tough sell in the courts.
“Lots of folks are going to focus on the case that EPA is making for CCS being adequately demonstrated and not too expensive,” Horowitz said.
Still, supporters say they’re confident EPA is staying within the confines of the Supreme Court decision last year.
“I think they’ve done everything they can to shore up the legal case here,” Lashof said. “It’s impossible to predict how this will go as it goes through the courts at the end of the day. But I think the argument is not going to be whether they had the authority to set this kind of rule. It’s probably going to be more around their interpretation of terms like ‘adequately demonstrated.’”
Meanwhile, the massive infrastructure build-out required for nationwide CCS installations subjects EPA to another, closely related legal challenge. That infrastructure build-out could mean that EPA is regulating outside the “fence line,” a reference to the actual property of a power plant, in violation of last year’s Supreme Court decision, Segal said.
“Carbon capture, to be effective as a control system, must be attached to a pipeline and ultimately to a sequestration site, both of which are well outside the fence line,” Segal said.
Environmental attorneys are aiming to stamp out that argument, likening CCS technology to legal requirements for power plant scrubbers and baghouses, which already purge sulfur dioxide from flue gas produced by coal combustion.
“It’s a scrubber that gets bolted onto the power plant. Every time you capture pollution or need water to cool down a pollution control, you have to deal with disposal,” Jay Duffy, litigation director for the Clean Air Task Force, said on a call with reporters Thursday. “This is no different than the baghouses and the scrubbers and all the other emission reduction technologies, where there are those sorts of issues.”
“We feel confident that this is well within the limits of an inside the fence approach,” he said.
Does the rule have a CO2 pipeline problem?
Even if courts determine the rule passes the beyond-the-fence line test, there still could be challenges with carrying captured carbon dioxide to a storage spot.
Pipelines are in place now to transport some CO2, but advocacy groups and other analysts said EPA’s draft rule will lead to a greater build-out, as power facilities aren’t always close to storage locations.
EPA’s proposed standards “would certainly lead to needing more pipeline infrastructure for CO2 transport,” Rudra Kapila, senior policy adviser for carbon management at Third Way, a think tank, said in an interview.
Yet, building those pipelines means engaging with a large number of affected landowners, the Energy Department said in a report last month. Proposed CO2 pipelines in the Midwest — although tied to ethanol — have faced pushback from landowners and opponents to eminent domain, for example.
Federal and state policies that incentivize CO2 pipelines are “far ahead” of safety regulations, said Bill Caram, executive director of the group Pipeline Safety Trust.
There are “outstanding issues” around the pipelines that need to be addressed, like ensuring the CO2 in a pipeline doesn’t contain “corrosive and toxic impurities” and adding an odorant to alert the public in the event of a rupture, Caram said in an email Thursday.
Another issue is how far CO2 pipelines should be from communities, said Jim Walsh, policy director at Food & Water Watch, an advocacy group.
“We should not be building any of these CO2 pipelines until we are at a point where” health and safety concerns around the conduits have been addressed, Walsh said.
Proponents of CO2 pipelines maintain that they have a strong safety record and have welcomed plans by the Pipeline and Hazardous Materials Safety Administration, a Transportation Department agency, to strengthen safety regulations.
Later this month, the agency is hosting a two-day public meeting in Iowa to inform rulemaking and share information about CO2 safety, according to a document published last month in the Federal Register.
Meanwhile, to tackle climate change, the Biden administration and private sector are eyeing permanent geologic storage. CCS supporters say injection of CO2 underground has been tested for more than a half-century. A DOE-backed project in Illinois, for instance, injected large amounts of captured carbon dioxide underground from an ethanol plant into geological formations.
But EPA’s draft rule Thursday comes amid pushback over how long the agency is taking to issue permits for Class VI wells, which are used to inject CO2 underground into deep formations for long-term storage. Experts say the wells will be critical to expanding CCS deployment in the United States.
Louisiana is poised to become the third state — after North Dakota and Wyoming — to secure top regulatory authority over the wells.
Will EPA’s clean hydrogen standard work?
Many gas plants could comply with the EPA rule by burning a blend of natural gas and low-carbon hydrogen. In 2032, 30 percent of the blend would have to be low-carbon hydrogen. In 2038, that proportion would rise sharply to 96 percent low-carbon hydrogen.
The requirement would apply to new stationary combustion turbines as well as large existing ones — meaning those that generate over 300 megawatts of power and have a capacity factor of greater than 50 percent. EPA said it was soliciting public comments on how to treat smaller, less frequently used combustion turbines, which were exempted in its proposal.
But EPA’s rule differs from existing federal law in how to define low-carbon hydrogen. Burning the fuel in turbines releases little or no emissions, but producing hydrogen is currently a high-emissions process.
The new proposal would require power plants to source hydrogen made with little or no greenhouse gas footprint — or what the agency referred to as “low-GHG” hydrogen.
The agency’s definition of “low-GHG” hydrogen is stricter than one previously set by Congress when it created the first tax credit for clean hydrogen production in the Inflation Reduction Act.
Under the EPA rule, clean hydrogen production should release no more than 0.45 kilogram of CO2 equivalent for every kilogram of hydrogen. That would kick in in 2032.
Under the Inflation Reduction Act, companies can claim tax credits for the fuel while emitting up to nine times more than EPA’s standard — 4 kilograms of CO2 equivalent, until the tax credit expires in 2032.
EPA also left open the question of how power plants would prove that their hydrogen is produced with low or no carbon. The agency said it was requesting public comment on possible approaches, including the “mechanisms and documentary evidence that should be required … to demonstrate compliance.”
EPA’s proposal comes after Congress created major new subsidies and programs to encourage clean hydrogen. The 2021 infrastructure law set aside $8 billion for the first big demonstration projects, known as hydrogen hubs. The Inflation Reduction Act also created the first tax credit for low-carbon hydrogen production.
Those supports are part of a far-ranging series of industry policies, authored largely by Democrats, to launch a new industry for low-carbon hydrogen.
Whether that will happen is unclear. But EPA argues in the rule that low-carbon hydrogen is feasible to make, transport, store and consume cleanly and cheaply in large volumes by the early 2030s, because of actions by Congress.
Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association, said he was “encouraged” that EPA had sought to make hydrogen a key fuel for power plants.
EPA emissions rules have always been “the domain of the independent power and utility world,” he noted. Hydrogen companies will now have to find out where their fuel fits in as a compliance tool, he added.
“There’s a lot of uncharted waters about how this will roll out and the degree to which hydrogen can be made available,” said Wolak.
EPA also suggested that it would “closely follow” protocols being developed by the Treasury Department for measuring and reporting the life-cycle emissions associated with clean hydrogen production.
Treasury has faced pressure over how it plans to establish tax credit eligibility for renewable or “green” hydrogen.
That version of the fuel is typically understood as being made from water using renewable electricity. Some prospective producers want to stretch the definition by using electricity from the grid, meaning the electricity could be sourced from fossil fuel generators and offset through renewable buys.
Environmentalists and some researchers have warned that using grid electricity to drive green hydrogen production could lead to elevated greenhouse gas emissions. Several of those groups have urged Treasury to institute a complex suite of conditions, including requiring hydrogen producers to match their hourly power consumption to the hourly power generation from new sources of clean power located close by on the same regional grid.
That idea is opposed by major trade groups representing zero-carbon power generators, investor-owned utilities and prospective hydrogen producers, which say that overly tight restrictions from Treasury could slow the growth of a clean hydrogen industry.
Mike O’Boyle, senior director for electricity at think tank Energy Innovation, said Treasury’s guidance on that issue would face renewed scrutiny given EPA’s suggestion that it would follow Treasury’s lead.
Treasury’s rules “are even more important now,” said O’Boyle, whose group has pushed for strict conditions on hydrogen producers.
Will hydrogen tied to CCS qualify?
EPA’s definition of hydrogen with a minimal greenhouse gas footprint would theoretically permit hydrogen producers to use any production technique, as long as associated emissions fell within the limits.
That means “blue” hydrogen, made from natural gas and paired with carbon capture systems, could theoretically be one of the production pathways. Fossil fuel companies and some hydrogen advocates say blue hydrogen could be clean and economical faster than green hydrogen.
Shannon Angielski, president of the Clean Hydrogen Future Coalition, said in an email that she expected members to be able to make blue hydrogen while meeting EPA’s definition for a low-greenhouse gas version of the fuel. The coalition’s membership includes the American Gas Association, oil and gas producers like Exxon Mobil, and hydrogen companies like Linde.
EPA hinted at difficulties for blue hydrogen producers, however.
In the rule, it noted the possibility of methane emissions occurring in the extraction, production and transport of natural gas used as a blue hydrogen feedstock. When natural gas is being reformed to make blue hydrogen, emissions are also “difficult to capture at high rates economically,” the agency said.
Hydrogen made from water and electricity — including varieties that use renewables, nuclear or hydropower — appeared “most likely” to meet its emissions criteria, EPA said.
Some of the nation’s largest gas and electric utilities have indicated they want some form of hydrogen to serve as a low-carbon substitute for natural gas in their power plants.
NextEra’s Florida Power & Light, for instance, has said it intends to retrofit 16 gigawatts’ worth of its existing natural gas generators to burn 100 percent green hydrogen as part of a zero-carbon plan for 2045.
Southern California Gas is also proposing to build a dedicated hydrogen pipeline in the Los Angeles Basin that would help convert up to four gas power plants to hydrogen made from wind and solar power.
O’Boyle of Energy Innovation said he wasn’t sure whether most utilities would view hydrogen or carbon capture as their preferred way to comply with EPA’s proposal.
But hydrogen would likely appear to some extent, he said. “Utilities have already started making the case to their regulators,” said O’Boyle.
Reporters Peter Behr and Lesley Clark contributed.
