GHG Regulatory Uncertainties May Hinder Beneficial Uses of CO2

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The AWMA Climate Change Specialty conference has just concluded in the D.C. area. Today we presented on whether EPA’s regulation of GHGs under the PSD permitting program may act as a hindrance to beneficial uses of CO2. Discussions of the PSD program and beneficial uses of CO2 have typically focused upon whether BACT analyses for new or modified sources could ultimately require beneficial uses of CO2 as control technology. This is something that we have examined in a prior law review article, and that we continue to track through our PSD permitting table. However, this presentation will focus upon a different consideration arising from GHG PSD permitting. That is, does the prospect of GHG PSD permitting in the future prevent existing facilities from undertaking projects for the beneficial use of CO2.

EPA’s PSD permitting program for GHGs took effect on January 2, 2011. There are a multitude of GHG sources that were in operation prior to those dates that continue to operate under valid air permits that do not include GHG emission limits. As long as these existing sources do not undertake major modifications, they are not subject to PSD permitting under the Clean Air Act. However, there are many industrial sources that emit relatively pure streams of CO2 that are potentially useful for enhanced oil recovery or other commercial uses. As a result, these sources may find it financially attractive to capture their CO2 emissions for sale and subsequent beneficial use. A source that chooses to do so must confront the question: would cessation of carbon capture in the future if sales are no longer commercially viable subject a previously grandfathered facility to GHG permitting. If so, would such permitting require the facility to continue to operate its CO2 capture equipment?

For an existing facility, PSD permitting is required when a facility undertakes a modification that causes emissions to increase above a specified level. For GHGs, EPA’s Tailoring Rule establishes the levels of emissions that trigger PSD permitting at 75,000 tons per year for sources that are otherwise subject to permitting and 100,000 tons per year for all other sources. Under the New Source Review Regulations, a modification is a change or change in the method of operation that causes an increase in emissions above this amount. Therefore the two key questions for a facility that will capture and sell emissions for a period of time that may wish to vent them in the future are (1) does the cessation of capture constitute a modification of the facility and (2) if so, is there an increase in emissions that requires permitting?

Because a modification includes a “change in the method of operation” a facility that switches from capturing CO2 emissions for sale and subsequent beneficial use back to venting may undertake a modification. In determining whether there is an increase in emissions resulting from the modification, the facility must compare its baseline actual emissions to the projected emissions after the modification. Under the NSR regulations for sources other than power plants, the baseline emissions should be determined by any consecutive 24 month period within the last ten years. Therefore, if a facility has operated carbon capture for beneficial use for eight or fewer years, it is possible that a baseline emissions level including the current venting could be established and permitting would not be required. However, if a facility contemplates a long-term (10 years or more) contract to capture and sell its CO2, it may be forced to adopt a baseline period that includes capture of GHGs.

Another important question for a facility that is considering capture and beneficial use of CO2 is the potential application of EPA’s Reactivation Policy. EPA’s Reactivation Policy establishes a rebuttable presumption that a facility that has not operated for 2 years or more is shut down and that its reactivation would require new permitting. The application of EPA’s Reactivation Policy to the cessation of carbon capture is an open legal question. There are very few cases that address the application of EPA’s Reactivation Policy to whole facilities, and it is even less clear if the policy would be applied to individual emission points within a facility.

In summary, there are a number of unresolved legal questions that a facility wishing to capture and sell CO2 for beneficial uses in the short term but retain the option to return to venting in the long term must grapple with. These uncertainties should be recognized a posing potentially significant barriers to the capture and beneficial use of GHGs from existing sources that do not face GHG permitting obligations under the PSD program.

Posted by Margaret E. Peloso and Matthew Dobbins at 9/11/2013 5:39 PM