Environmental update

Environmental update

November 04, 2010 | By Andrew Giaccia in Washington, DC|New York

The election results in California mean that the state’s greenhouse gas cap-and-trade program remains on track for an expected launch in 2012.

California voters rejected Proposition 23, which would have suspended certain greenhouse gas emission limits and regulations until the unemployment rate in California drops below 5.5% for four consecutive quarters.

The California greenhouse gas program regulates all but de minimis stationary sources of emissions. A 2006 law requires the California Air Resources Board or “CARB” to adopt regulations that would reduce carbon emissions to 1990 levels by the year 2020. It has issued a draft framework for a cap-and-trade program. Its plan would limit facilities like power plants that collectively emit about 85% of greenhouse gas emissions in California.

Starting in 2012, covered entities emitting more than 25,000 metric tons of CO2-equivalent per year would be required to submit allowances or offset credits to cover their emissions each year. The cap would be set initially at predicted emissions in 2012 and would ratchet down through 2020. Up to 8% of a covered entity’s allowances may be offset credits. Offset credits are created from approved projects, like reforestation, that reduce greenhouse gases.

The draft framework is set up with three, three-year compliance periods. Covered entities would be required to submit allowances and offsets for every metric ton of CO2-equivalent emitted. Electric utilities that serve retail customers would receive allowances free of charge, but each year the utilities would have to resell these allowances and use the proceeds for the benefit of retail ratepayers. CARB also plans to link the California cap-and-trade program with similar programs in six other western states and four Canadian provinces through the “Western Climate Initiative.” CARB is accepting comments until December 15, 2010 and will hold a public hearing on December 16, 2010 to consider adopting the program.

Cooling Water

Existing power plants in the United States that use oncethrough cooling water systems may require significant retrofitting to comply with regulations the US Environmental Protection Agency is expected to release as early as February. These regulations will implement section 316(b) of the Clean Water Act. That section requires “effluent limitations that will assure protection and propagation of balanced, indigenous population of shellfish, fish, and wildlife.” Power companies will have to install “best technology available” or its equivalent to minimize harm to fish and shellfish and their eggs and larvae from water intake structures.

In 2007, the US appeals court for the 2nd circuit sent regulations setting requirements for cooling water intake structures at existing power plants under section 316(b) back to the Environmental Protection Agency for more work. The decision was in a case called Riverkeeper, Inc. v. EPA. The court said EPA improperly rejected closed-cycle cooling as the best technology available. It was not clear whether EPA properly weighed cooling tower costs and benefits when drafting the regulations.

Some expect the new regulations to be out in draft in February 2011 and for the final rules to be issued in July 2012. In the absence of federal regulation, states determine best technology available on a case-by-case basis.

In March 2010, the New York State Department of Environmental Conservation issued a draft policy establishing wet closed-cycle cooling or its equivalent as the best available technology for existing industrial facilities using intake structures that withdraw at least 20 million gallons per day of contact or non-contact cooling water from waters in New York state. The draft policy describes wet closed-cycle cooling as a system designed to withdraw the smallest amount of water to support contact and/or non-contact cooling uses within a facility. A closed-cycle cooling system uses between 93 and 98 percent less water than a once-through cooling system. The water is usually sent to a cooling canal, channel, pond, or tower to allow waste heat to be dissipated to the atmosphere and then is returned to the system. New source water (makeup water) is added to the system to replenish losses that have occurred due to cooling tower blow-down, drift and evaporation.

In cases where wet-cycle cooling is not available—for example, because of real estate constraints—facilities in New York will be required to achieve at least a 90% reduction in both entrainment and impingement mortality of what would be achieved with a wet closed-cycle cooling system. Although the guidance contemplates an exception for existing power plants that have operated at less than 15% of capacity over a five-year averaging period, the New York draft policy suggest some such power plants may still need to reduce operations, use a combination of operational measures (like seasonal outages, installation of screening mechanisms or variable-speed pumps) or even shut down completely.

It is not clear whether New York will phase in any best technology available requirements or even “grandfather” facilities that comply with, or are in the process of complying with, earlier best technology available determinations from being required to comply with a new standard. The state is expected to issue its final policy shortly.

Climate Change and the Wind Industry

We are often asked what regulations that the US Environmental Protection Agency issued to control greenhouse gases—and that may still be blocked by Congress— mean for the wind market in the United States. Perhaps the best way to look at this is to break the question into three subquestions. First, will there ultimately be any EPA action on greenhouse gas regulation?

EPA did not just issue one rule. It had to issue three to set up the greenhouse gas regulatory program, and there are more steps still to be taken, particularly a decision about what is best available control technology for controlling greenhouse gas. Every action taken by EPA so far has been challenged in court, and there will be a very different Congress next year. Thus, look for delays in implementation while the regulations are challenged in court and a possibly subject to a moratorium on enforcement by Congress. Second, are the EPA greenhouse gas regulations even the main threat to coal?

It is almost impossible to build new baseload coal plants because of more stringent environmental regulations and general community opposition to coal. There are already some other major EPA air programs that could have a significant effect on coal facilities, including the new air transport rule that requires significant reductions in SO2 and NOx emissions in roughly the eastern half of the United States and the upcoming emissions standards for mercury and other hazardous air pollutants from coal plants.

Finally, how much more help will wind developers need or be able to take advantage of? If Congress adopts a national clean energy standard, or even if it does not, given the number of states that require utilities to deliver an increasing percentage of their electricity from renewables, it looks like there will already be substantial demand for wind energy going forward.

The question then becomes how much additional wind capacity developers can really build and how much can the grids tolerate? Sites with little to no environmental concerns are becoming harder and harder to find, and new rules and litigation about bat, migratory bird, eagle and similar issues suggest that the siting pressures could get even more severe. Putting it all together, the wind industry should get a moderate boost ifthe EPA greenhouse gas regulations are not blocked by Congress and energy prices are driven up to the point where new marginal wind projects are desirable, but the real boost would come from a Kyoto- or EU-type trading program that would create a new source of value for new projects. That is not going to happen anytime soon, except at the regional level.