Emissions Performance Standards

Memorandum submitted by Professor Richard Macrory (EPS 02)

Submission from Richard Macrory, Hon, QC, Professor of Environmental Law, Faculty of Law, University College London and Director, UCL Carbon Capture Legal Programme.

1. I am director of the UCL Carbon Capture Legal Programme which aims to provide authoritative and independent analysis of legal developments relevant to the regulation of carbon capture and storage. Its freely accessible resource site (http://www.ucl.ac.uk/cclp/) is designed to provide a comprehensive collection of legal and policy material relevant to CCS, with a particular emphasis on Australia, Europe, and the United States, the jurisdictions to date that have seen the most development in this area. The views expressed here are personal.

CO2 Performance Emissions Standards

2. As far I am aware, the only CO2 performance emission standards currently in existence are those found a small number of States in the USA. The appendix provides a summary of the provisions and the industries to which they apply. There are currently two models underlying the design of emission performance standards for CO2 – one based on equivalent emissions form combined-cycle gas turbine plants with the figure of 1100 lbs CO2/MWh being adopted; the other is based on the percentage of CO2 emissions captured and sequestered.

3. California led the way with legislation passed in September 2006 (Senate Bill (SB) 1368) with more detailed regulations made in the following year. The legislation did not specify an emission standard in numerical terms as such, but required that the performance level must be no higher that the emissions rate of a combine-cycle gas turbine plant. The California Public Utilities Commission subsequently determined this to be 1100 lbs CO2/MWh based on a review of emissions from combined-cycle gas turbine plants. The standard reflects the emission levels of older existing plants compared to the emission limits of around 800 lbs CO2/MWh that can be reached by new natural gas combined cycle plant (Rubin (2009)). Meeting the standard for a new efficient coal fired plant would require a CO2 emission reduction of between 30 and 40% (ibid).

The main motivation behind the California legislation appears have been the view of both the legislature and the California Public Utilities Commission that greenhouse gas controls would inevitably tighten up in the future and that emission performance standards were needed now to protect the ratepayer from higher costs at a later date. According to Simpson and Hausauser (2009) "Both the California Legislature and the California Public Utilities Commission (CPUC) concluded that if utilities or other load-serving entities were allowed to enter into new long-term commitments with high-greenhouse gas (GHG) emitting power plants, California ratepayers would be exposed to high costs of retrofits (or the need to purchase expensive offsets) under future emission control regulations. California ratepayers would also be exposed to potential supply disruptions when these high-emitting facilities are taken off line for retrofits, or retired early, in order to comply with future regulations"

The State of Washington modelled its 2007 legislation largely on the Californian law, and contains a performance standard of the lower of 1) 1,100 pounds of GHG per MWh; or 2) the average available GHG emissions output as determined and updated by the Washington Department of Community, Trade & Economic Development which is obliged to carry out a survey every five years of new combined cycle gas turbines available and offered for sale in the US.

Oregon’s 2007 legislation also follows the Californian model applying a performance standard of 1100 lbs CO2/MWh to baseload power stations. New Mexico’s 2007 legislation adopts the same standard for CO2 but with additional financial incentives in the form of text credits for certain plants.

4. Montana’s 2007 legislation adopts a different approach to defining an emission performance standard which is more explicitly aimed at carbon capture and storage. Applying essentially to coal fired generating stations to be constructed after 1 January 2007, it requires that the facility must capture and sequester 50% of the carbon dioxide produced. In terms of actual emissions this appears to be slightly tighter than the Californian approach. The 2009 legislation of Illinois is also focussed on carbon capture and storage standards, and requires state utilities and electricity suppliers to obtain 5% of their power from the proposed Taylorville clean coal facility with a goal of 25% of electricity for CCS coal-fuelled power stations by 2025. A clean coal facility is defined as one that sequesters 50% of CO2 emissions if commencing operations before 2016, 70% for those commencing operations between 2016/17, and 90% for post 2017 plants.

Legality of National Emission Performance Standards under EU Law

5. The 2003 EU Emissions Trading Directive (2003/87/EC) amended the 1996 Directive on Integrated Pollution and Prevention Control (IPPC) (96/61/EC) by providing that where greenhouse gas emissions from a plant subject to IPPC permit requirement fell within the EU Emissions Trading Scheme, "the permit shall not include an emission limit value for direct emissions of that gas unless it is necessary to ensure that no significant local pollution is caused." The European Commission legal services argued that this meant that a national CO2 emissions performance standard for a plant subject to the ETS scheme would be illegal under Community law.

6. In January of this year, Derrick Wyatt QC and I were commissioned by WWF to write a legal opinion analysing the meaning of the amendment and whether the Commission was correct in its view. In particular we were aware that both the IPPC Directive and the ETS Directive had been made under the environmental provisions of the Treaty, and that Art 193 of the Treaty permits Member States to impose stricter standards in relation to such measures. One of the issues was whether a rpovision in a Directive could exclude the operation of this Treaty provision. In the event it was not necessary to rely upon Art 193, and we concluded that Member States still possessed the freedom to impose nation emission standards under non-IPPC laws, and that the European Court of Justice would uphold this view if it came before them. But we felt that the position should be made absolutely clear in any subsequent revision or replacement of the IPPC Directive.

7. The legal opinion was made public to the European Parliament during its debates this year on the Industrial Emissions Directive, which will replace the IPPC Directive, and as a result agreed an amendment to the Industrial Emissions Directive giving Member States the residual discretion to impose national emission standards.

8. In June this year, during the co-decision procedure, agreement has been reached between Member States and MEP on the Directive leading to its 2nd Reading in Parliament in July, and likely agreement by Council (ENDS Report 425 June 2010 p 55). Article 9 of the agreed text provides again that "Where emissions of a greenhouse gas from an installation are specified in Annex I to Directive 2003/87/EC in relation to an activity carried out in that installation, the permit shall not include an emission limit value for direct emissions of that gas, unless necessary to ensure that no significant local pollution is caused" . But then the Preamble provides that, "(10)  In accordance with Article 193 of the Treaty on the Functioning of the European Union (TFEU), nothing in this Directive prevents Member States from maintaining or introducing more stringent protective measures, for example greenhouse gas emission requirements, provided that such measures are compatible with the Treaties and the Commission has been notified ".

9. It is clear then national greenhouse emission standards are legal, provided they are not discriminatory and are notified to the Commission. Case-law of the European Court of Justice indicates that the level of standards adopted by Member States under the stricter standards provisions is left to their discretion and not subject to an overarching Community principle of proportionality – see Case C-6/03 Deponiezweckverband Eiterkopfe ECR 2005 I-2753

Impact of National Emission Performance Standards

10. Emissions trading schemes , such as that for SO 2 in the United States , have generally allowed for local emissions standards to prevent local pollution or unfair burdens being carried by some localities. Indeed the European ETS Scheme allowed for national emissions standards to deal with ‘significant local pollution’ , though in the case of greenhouse gases it is difficult to envisage the circumstances in which this might apply.

11. It is perhaps rather less easy to predict the impact of national emissions standards on an emissions trading scheme operating throughout the European Union. If only one or two countries introduce such standards, and industries requiring to comply with such standards are still permitted to hold and trade in any allocated allowances, then the immediate effect on overall greenhouse reduction targets is likely to be neutral. Industries subject to standards will have surplus allowances to sell on the market allowing industries in countries without such standards to emit up to the limits of the allowances purchased. The addition of extra allowances on the market may well depress the price, reducing the economic incentive for investment in abatement as an alternative route for meeting obligations.

12. The main purpose of introducing national emission performance standards is to quicken the pace of investment in abatement technology on the assumption that the ETS scheme cannot itself deliver the correct price signals within the time-scales required by policy-makers dealing with climate change , or with the consistency required by industry for long-scale large investment. Assuming that the performance standard does encourage such investment , then its main impact on the emissions trading scheme is likely to be felt when the overall caps are calculated for the next trading period . Emission performance standards can drive technological innovation and in fields such as N O x reduction for power plants , they have led to dramatic reductions in costs. (Taylor et al 2003, Yeh et a l 2005). The actual operational experience and availability of abatement technology, albeit in one or two countries, is likely to encourage a tightening of overall caps, leading to an overall reduction of greenhouse gases. But it follows that the integrating the timing of the introduction and implementation of a national emission performance standard in relation to the next trading periods under the EU ETS Scheme may be signicant.

13. It is also important to ensure that the design and application of an emission performance standard does not have a perverse or unintended effect. For example, if an emission standard applied only to coal-fired power stations within the United Kingdom, and generators still retained the option of choosing the type of power station they invested in, there might well be a greater investment in gas fired powered stations if that were a less expensive or troublesome option. If the emission standard for coal - fired stations was essentially the same as the rate of emissions reached by combined cycle gas powered stations (the approach currently adopted under the Californian model), then presumably from a purely climate change perspective a move to gas at the expense of coal is neutral in policy terms. But if an additional policy objective is security and/or diversity of supply, then it is clearly important that the introduction of an emission performance standard does not have unintended consequences. In the absence of portfolio requirements obliging suppliers to purchase certain proportions of electricity from coal-fired stations, then the introduction of selected performance standards might well give rise to significant shifts. For a start it is therefore probably important that the performance standard for greenhouse gases applies equally to generating stations or other processes whatever the source of power.

Richard Macrory

September 2010

References

E Rubin (2009) A Performance Standards Approach to Reducing CO2 Emissions from Electric Power Plants Pew Center on Global Climate Change, Washington DC

C Simpson and B Hausauer (2009) Emission Performance Standards in Selected States Regulatory Assistance Project , November 2009, Washington DC

M Taylor, E Rubin, and D Hounshell Effect of Government Actions on Technological Innovation for SO2 Control Environmental Science and Technology 37 5427-4534

S Yeh, E Rubin, M Taylor and D Hounshell (2005) Technology Innovations and Exeprience Curves for Nitrogen Dioxide Control Technologies Journal of Air and Waste Management Association 55-1827-1838

I am grateful to Richard Foulsham of the UCL Carbon Capture and Legal Programme for his

assistance in preparing the Table in the Appendix and sourcing US material.


APPENDIX

Summary of CO2 Emission Performance Standard currently in force

In force

Plant type

Regulated entity

Mechanism

Level

CCS Specified

California

SB1368

Y

Baseload

Utilities subject to Commission approval

Approval of power purchase agreement (PPA)

1100 lbs/CO2/MWh

Not compulsory but does count as not emitted

Illinois

SB1987

Y

Coal only

EPS: The Taylorville facility and any facility that achieves the standard

Portfolio: Utilities subject to Commission approval.

EPS: Ability to take advantage of preferential PPA if they meet the EPS. Portfolio: Imposed on all utilities

Prior to 2016, those that capture 50% of emissions.

Yes, as the law is targeted at a CCS station – Taylorville.

Montana

HB25

Y

Coal only

Utilities subject to Commission approval

Approval of PPA and investments.

Capture 50% of emissions

Yes – required to meet the standard

Washington

SB6001

Y

Baseload

Utilities

Approval of PPA and investments.

1100 lbs/CO2/MWh

Not compulsory but does count as not emitted

Oregon

HB3283

SB101

Y

Baseload & non baseload

Utilities

Approval of PPA

Baseload: 1100 lbs/CO2/MWh

Non baseload gas 675 lbs/CO2/MWh

There appears to be an exemption but it is not explicit

New Mexico

SB0994

Y

Coal only

Private investor

Tax credit

1100 lbs/CO2/MWh

Not compulsory but does count as not emitted