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The United States Environmental Protection Agency (“EPA”) published this week its two proposed regulations addressing greenhouse gas (“GHG”) emissions from existing fossil fuel-fired Electric Generating Units (“EGUs”): (i) the Carbon Pollution Standards for Modified and Reconstructed Stationary Sources (“GHG Standards”); and (ii)the Carbon Pollution Emission Guidelines for Existing Stationary Resources (“GHG Guidelines”). The proposed GHG Standards directly impose carbon dioxide (“CO2”) emission limits on certain “affected” modified or reconstructed EGUs. The GHG Guidelines establish CO2 reduction goals for states and provide guidance on the plans that the States must develop to comply with these goals.

These rules emanate from the June 25, 2013 Presidential Memorandum that directed the EPA to address carbon pollution from the power sector. Comments to these rules may be submitted to the EPA by October 16, 2014. The EPA will be conducting four hearings: July 29, 2014 in Atlanta, Georgia, and in Denver, Colorado, July 30, 2014 in Washington, DC, and July 31, 2014 in Pittsburgh, Pennsylvania.

The proposed GHG Standards set forth CO2 emission limits from certain affected EGUs: (1) modified or reconstructed fossil fuel-fired utility boilers and Integrated Gasification Combined Cycle (“IGCC”) units; and, (2) modified or reconstructed natural gas-fired stationary combustion turbines. EGUs owned by municipalities, the federal government or Native American Tribal Governments are subject to the new CO2 performance standards. Consistent with the CO2 performance standards proposed for newly constructed natural gas-fired stationary combustion turbines on January 8, 2014, the GHG Standards are in the form of “limits to units of mass of CO2 per unit of gross energy output.” Compliance will be calculated based on the sum of the emissions for all operating hours divided by the sum of the useful energy output over a rolling 12-operating-month period. However, the EPA is soliciting comment on the possibility of utilizing net output-based standards and calculating compliance on a calendar year rather than a 12 operating-month period. The GHG Standards are proposed under the authority of the Clean Air Act (“CAA”) section 111(b).

The proposed GHG Guidelines comprise two elements: (i) state-specific goals for reductions of CO2 emissions from existing fossil fuel-fired EGUs, and (ii) guidelines for states to follow in developing plans to achieve the state-specific goals. The EPA believes this rule will by 2030 reduce carbon dioxide emissions from 2005 levels by approximately 30%, nationally. EPA’s proposed goals are expressed in the form of state-specific, adjusted output-weighted-average pounds of CO2 per net MWh from all affected fossil fuel-fired EGUs (i.e., rate-based goals). States are authorized to translate the form of the goal from the EPA proposed rate-base goals to a mass-based form (e.g., a cap on tonnage of CO2 emissions). States may achieve their goals individually or through a regional compliance approach as long as the translated goals achieve the same degree of emission limitation. The states may choose to develop plans that place full responsibility for actions achieving reductions entirely upon emitting EGUs (e.g., allowance trading programs). Alternatively, the states may develop plans under which the state itself takes responsibility in emission reductions through measures and policies such as demand-side energy efficiency programs and adoption of renewable portfolio standards. The GHG Guidelines are proposed under the authority of the CAA section 111(d).

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