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EPA Issues Guidance for Making BACT and Other PSD Determinations for GHGs

12.01.2010

By Larry Kane, Attorney, Bingham Greenebaum Doll LLP

On November 10, 2010, the U.S. Environmental Protection Agency (EPA) issued a guidance document for permitting of greenhouse gas (GHG) emissions under the PSD and Title V permit programs of the Clean Air Act. The document, entitled “PSD and Title V Permitting Guidance for Greenhouse Gases” (referred to herein as GHG Guidance),1notwithstanding its 97 pages, is rather thin on practical guidance to prospective permit applicants. The primary focus of the Guidance is on BACT analyses under PSD. The principal points to be gleaned from the Guidance regarding BACT determinations for GHGs is a primary emphasis on promotion of energy efficiency in industrial processes and add-on controls and on carbon capture and sequestration (CCS) as a (theoretically) available add-on control option to be considered.

A significant policy position dealing with the transition to GHG permitting is subtly explained in the Guidance. Specifically, the Guidance states that PSD permits that are issued prior to January 2, 2011, are not required to contain conditions pertaining to GHG emissions, regardless of whether such permits do not become effective or a final agency action for purposes of judicial review until after January 2, 2011.2 While the discussion of this point focuses on federally issued permits, the statement is made that a similar approach may be appropriate in states with SIP-approved PSD programs that have analogous administrative procedures.

Turning to a more detailed summary of the GHG Guidance, three general topic areas are addressed. First, the PSD applicability provisions established by EPA’s GHG Tailoring Rule are reviewed. Second, a lengthy discussion is provided of the elements of a top-down BACT determination, with particular emphasis on special considerations arising for BACT determinations for GHGs. Finally, the third topic area is an examination of applicability of Title V permit obligations to sources of GHGs and several related Title V permitting issues.

After reviewing various background actions leading to the prospective regulation of GHGs under the CAA, the Guidance provides a general summary of PSD applicability provisions under federal PSD regulations.

PSD APPLICABILITY FOR GHG-EMITTING PROJECTS

With this backdrop, the Guidance offers a synopsis of the effects of the GHG Tailoring Rule on PSD applicability determinations for projects with significant GHG emissions. This includes a review of the manner of calculating GHG mass-based emissions and CO2e-based emissions. A review of the two-step phased implementation of PSD applicability requirements for GHGs is provided, including tables and flow charts for GHG applicability decisions for new sources and modified sources. These tables and flow charts are intended to illustrate the provisions of the Tailoring Rule through a more graphic format.

BACT ANALYSIS

The GHG Guidance provides a lengthy discussion of BACT analyses as applied to GHGs as a regulated NSR pollutant. The discussion begins with a general review of BACT requirements as established under the CAA and the federal PSD regulations. The “top-down” approach to BACT determinations long promoted by EPA guidance is recommended to state permitting agencies with SIP-approved PSD programs for use in determining BACT for GHGs.3 However, EPA acknowledges that such state permitting agencies are not required to employ the top-down methodology and may use a different approach so long as the alternate method produces BACT decisions that comply with relevant statutory and regulatory requirements. The bulk of the Guidance relating to BACT determinations involves a detailed review of the five steps in applying the top-down methodology with specific consideration of the application of these steps in the context of GHG sources subject to PSD.

   • Focus on Energy Efficiency

Before embarking on the five steps of the top-down method, EPA describes a general emphasis on the importance “in BACT reviews for permitting authorities to consider options that improve the overall energy efficiency of the source or modification”.4 This emphasis is based on the general observation that a more energy efficient technology will consume less fuel and generate a lower rate of combustion-related pollutants. Moreover, it is one of the few readily available tools for GHG control.

A further recommendation made in the Guidance to facilitate evaluations of energy efficiency in the context of BACT reviews is the use of an evaluative tool referred to as “performance benchmarking.” The underlying concept of benchmarking can be understood as the use of a reference standard for energy efficiency, with defined indicator values for key factors or characteristics, as a basis of comparison with emission units or sources to be evaluated. EPA also identifies some technical resources to assist in the performance benchmarking of the energy efficiency of various facilities. The main example provided is EPA’s ENERGY STAR program, under which benchmarking tools for specific industrial sectors called plant Energy Performance Indicators have been developed.5 A further resource includes the sector-specific Energy Guides that have been developed for certain industrial sectors for unit and process level evaluations. Appendix J of the GHG Guidance includes references to additional resources.

   • Step 1 of BACT Review – Identify All Available Control Options

EPA describes the first step in the top-down process for BACT review is to identify all “available” control options. EPA goes on to describe available control options as those control technologies and techniques (including lower emitting processes) “that have potential for practical application to the emissions unit and the regulated pollutant under evaluation,” regardless of “the source type in which the demonstration [of that technology] has occurred.”6 EPA emphasizes that consideration of available control options should include controls determined through ‘technology transfer’ to have been applied “to source categories with exhaust streams that are similar to the source category in question.”7 Consideration of available control options should include not only add-on controls but also inherently lower-emitting processes, practices and designs. A limitation on consideration of the latter component of available control options is that EPA has acknowledged that a list of possible control options under Step 1 of BACT review is not required, as a general matter, to include inherently lower polluting processes “that would fundamentally redefine the nature of the source proposed by the permit applicant.” However, EPA references recent EAB decisions on this subject indicating that a permitting agency should take a “hard look” at an applicant’s proposed design to distinguish those design elements that are inherent to the applicant’s purpose from other design elements that may be altered “to achieve pollutant emission reductions without disrupting the applicant’s basic business purpose for the proposed facility.”8 Determinations of the “redefining the source” issue are said to be within the discretion of a permitting agency.

      GHG-Specific Considerations for Step 1

EPA remarks that the Guidance for this topic is “focused on energy efficiency and carbon capture and storage (CCS) because these control approaches may be applicable to a wide range of facilities that emit large amounts of CO2.”9 The Guidance further observes that, “The application of methods, systems, or techniques to increase energy efficiency is a key GHG-reducing opportunity that falls under the category of ‘lower-polluting processes/practices’.”10

Consequently, the Guidance makes the following statement:

EPA encourages permitting agencies to use the discretion available under the PSD program to include the most energy efficient options in BACT analyses for both GHG and non-GHG regulated NSR pollutants. While energy efficiency can reduce emissions of all combustion-related emissions, it is a particularly important consideration for GHGs since the use of add-on controls to reduce GHG emissions is not as well-advanced as it is for most combustion-derived pollutants. [Emphasis added.] 11

Following this recommendation, EPA acknowledges that,

Initially, in many instances energy efficient measures may serve as the foundation for a BACT analysis for GHGs with add-on pollution control technology and other strategies added as they become more accessible. [Emphasis added.]12

The GHG Guidance groups energy efficiency options that should be considered in Step 1 of the BACT analysis into the following two categories:

   (1) Technologies or processes that maximize the efficiency of the individual emissions unit; and

   (2) Options that could reduce emissions from a new greenfield facility by improving the utilization of thermal energy and electricity that is generated and used on site.

To reduce the evaluation of possible options in the second category to more manageable dimensions, the Guidance provides that the evaluation need not include an assessment of “each and every conceivable improvement that could marginally improve the energy efficiency of the new facility as a whole”. Instead, the recommended approach is that BACT analyses for greenfield facilities should focus on the efficiency of equipment that uses the largest amounts of energy. 13

A further recommendation of the Guidance is that permit applicants for new facilities propose options consisting of “an overall category or suite of techniques to yield efficiency in energy utilization” that could more readily evaluated and rated by permitting agencies and the public “against established benchmarks”.14

Notably, the Guidance states that EPA classifies CCS as an add-on pollution control technology that is “available” for large CO2-emitting facilities, including, e.g., fossil-fuel-fired power plants and industrial facilities with high-purity CO2 streams and, thus, CCS should be included in the Step 1 list of available options for BACT consideration for GHG emissions from such facilities. Regardless of inclusion during Step 1, technical feasibility and excessive cost considerations may result in elimination of CCS during Step 4 of the analysis in many cases.

Finally, a hyperbolic understatement is provided by the Guidance where EPA concedes that, in the initial round of PSD permit reviews for GHGs, background information about various emission control strategies may be limited and technologies may still be under development. As better information on control approaches is developed, it will be included in EPA’s new online tool, the GHG Mitigation Measures Database, which is said to list specific performance and cost data on current and developing GHG control measures.

   • Step 2 of BACT Review – Eliminate Technically Infeasible Options

The second step of the top-down BACT analysis provides an opportunity to eliminate potentially applicable control options that are demonstrated to be technically infeasible for application by the source under review. EPA considers a control technology to be technically feasible if it has been demonstrated in practice or is available and applicable to the type of source under review.

The Guidance reviews definitions of key terms for this phase of the analysis, such as “demonstrated”, “availability”, and “applicability”. A control technology is deemed to have been “demonstrated” if it has been installed and successfully operated on the source type in question. If the technology has not been demonstrated for the source type, the question then becomes whether it is available and applicable. A technology is considered “available” when it can be procured through commercial suppliers. If the technology can also reasonably be installed and operated on the type of source under review, it is considered “applicable”. Generally, EPA holds that a technology should remain under consideration if it has been applied to a pollutant-bearing gas stream of similar chemical and physical properties.

          o GHG-Specific Considerations for Step 2

The Guidance asserts that EPA’s historic approach to assessing technical feasibility of control options is generally applicable to GHGs. Given the immature developmental status of most GHG control options, the Guidance recommends that permitting agencies take care to ensure that decisions regarding technical infeasibility are well-explained.

Since the initial PSD permits for GHGs will be issued at a time when possible add-on control methods for various GHGs and emission source types are few and in various stages of development and commercialization, the potential availability of commercial guarantees on control performance is likely to be a factor in BACT determinations.

As previously mentioned, EPA considers CCS, although only sparsely used at present, to be an “available” add-on control technology for large CO2-emitting facilities and industrial facilities with high purity CO2 emission streams.15 If CCS has been listed as a potential control option under Step 1 of the BACT analysis for a GHG-emitting project, the technical feasibility of CCS must be assessed in Step 2. The Guidance references that CCS has three main components: CO2 capture and/or compression, transport and storage. CCS may be eliminated from further consideration in a particular BACT analysis if any of these three components lacks technical feasibility for the proposed project under review. Alternatively, the Guidance remarks that CCS may also be eliminated during the Step 2 analysis if the three CCS components, taken together, are deemed technically infeasible for the proposed project, based on a consideration of the projected integration of the CCS components with the project facility and relevant site-specific considerations.

EPA acknowledges that it does not believe CCS will be a technically feasible control option in certain cases.16 As previously stated, a finding of technical feasibility for a particular control option depends on whether the control option has been demonstrated in practice or, alternatively, is available and applicable. The term “applicable” generally conveys the meaning that a technology can reasonably be installed and operated on the type of source under review. Here, the Guidance highlights EPA’s recognition of the significant logistical hurdles entailed in the installation and operation of a CCS system that set it apart from add-on controls typically used to reduce emissions of other pollutants and that already have an existing, reasonably accessible infrastructure in place to support the control methodology.17 Such logistical obstacles may lead to a conclusion that CCS is technically infeasible for many smaller sources.

   • Step 3 of BACT Review – Rank Control Options

Step 3 consists of the ranking of those potentially applicable control options remaining after elimination of technically infeasible options. The ranking is in descending order, starting with the option that is most effective in reduction of the pollutant in question. The Guidance mentions that, while input-based metrics (e.g., pounds of pollutant emission per unit of input) have been the typical basis for ranking, it may be more appropriate, particularly in the context of GHGs, to rank control options on the basis of output-based metrics (e.g., pounds of pollutant emission per unit of output) that would consider the thermal efficiency of the various control options.

          o GHG-Specific Considerations for Step 3

Since the control options under review in a BACT analysis for GHG emissions will likely include options directed at energy efficiency measures to achieve the lowest possible emission level, consideration of ranking of control options on the basis of net output-based emissions will help ensure that thermal efficiency, as well as power demand, of control options is fully considered. Also, the Guidance recommends that ranking of control options should be based on CO2e rather than total mass of GHGs to better indicate the relative impact of residual GHG emissions on the environment.

   • Step 4 of BACT Review – Consider Economic, Energy and Environmental Impacts

Under Step 4, permitting agencies may eliminate potential control options on the basis of significant economic, energy or environmental impacts. Generally, the top control option identified in Step 3 should be established as BACT unless it is demonstrated to the permitting agency that the energy, environmental or economic impacts justify a conclusion that such control option is not “achievable” in the case at hand.18

EPA points out that the economic impacts analysis focuses on direct economic costs of implementation of a candidate control option, calculated in terms of cost effectiveness (i.e., cost of controls in dollars per ton of pollutant emission reduced). Elimination of an option on the basis of economic impacts should be based on costs of pollutant removal that are disproportionately high. In practice, application of the cost effectiveness review has occurred through the use of cost effectiveness benchmarks for specific types of controls that have been developed over time.

The Guidance points out that EPA has traditionally called for the energy impacts analysis to address only direct energy consumption required to implement a candidate control option. These direct impacts include consumption of fuel and consumption of thermal or electrical energy, whether generated onsite or elsewhere.

Conversely, EPA considers it reasonable to interpret the environmental impact analysis of Step 4 to focus on the indirect or collateral environmental impacts that are attendant to the selection of a particular control option.19

          GHG-Specific Considerations for Step 4

EPA asserts that there are compelling public health and welfare reasons stemming from the global warming impacts of GHG emissions for BACT to require all GHG reductions that are achievable, after considering economic impacts and other listed statutory factors.

The Guidance indicates that permitting agencies have a great deal of discretion, in performing the energy, environmental and economic impacts analysis of Step 4, to decide the specific form of the BACT analysis and the weight to be accorded to the particular impacts under consideration.20 It further remarks that EPA and state permitting agencies most often have used this analysis to eliminate more stringent control options with significant or unusual effects that are unacceptable in favor of less stringent controls with more acceptable collateral environmental effects. At the same time, the BACT requirements have been construed by EPA to allow for a more stringent technology to remain in consideration as a possible BACT candidate if the collateral environmental benefits of choosing such a control technology outweigh the economic or energy costs of that selection.

When considering tradeoffs between the environmental impacts of a reduction in GHG emissions and a collateral increase in emissions of another regulated pollutant, EPA recommends that permitting agencies evaluate the tradeoff on the basis of the relative amounts of reduction of GHG emissions that may be achieved with a certain control option compared to the amount of collateral increase of the other pollutant, rather than to attempt to quantify the environmental impact of GHG reduction. Modeling of GHG impacts is not sufficiently refined to assess single source contributions.

An acknowledgment is made by EPA that CCS is presently an expensive technology and, consequently, CCS will often be eliminated from consideration as a BACT option under Step 4 due to excessive costs.

Traditionally, elimination of a control option on economic grounds under Step 4 involves a demonstration that the costs of pollutant removal for that option are disproportionately high or exceed a benchmark that has been established from experience. Such cost effectiveness benchmarks will not be available in the early stage of GHG permitting since there will be little or no past history of permit decisions. In addition, EPA advises permitting agencies to be aware that the upper bound of cost effectiveness of GHG control, in terms of dollars per ton of pollutant removed, may be much less than for other regulated pollutants due to the substantially higher emission rates of GHGs.21

Concerning energy impacts, EPA suggests that the relative energy demands of various control options under consideration for reducing emissions of GHGs from the facility being permitted should be weighed under Step 4 regardless of whether the thermal or electrical energy for the project is produced at another location.

Finally, EPA remarks that permitting agencies possess flexibility in exercising their discretion in weighing the tradeoffs between energy, environmental and economic impacts under Step 4 on a case-by-case basis.

   • Step 5 of BACT Review – Select BACT

Simply put, under Step 5, the most effective control option not eliminated in Step 4 due to excessive cost, environmental or energy impacts should be selected as BACT for the pollutant and emission unit under review. Specifying BACT limits that are in a form that is practically enforceable is also a responsibility of the permitting agency.

          o GHG-Specific Considerations for Step 5

Given EPA’s expectation that many of the early PSD permits for GHGs will place emphasis on energy efficiency, EPA’s Guidance encourages permitting agencies to give consideration to establishing BACT limits in terms of output-based emission limits, where feasible, to better reflect the energy efficiency of the emission unit or source. Also, the Guidance provides a reminder to permitting agencies that, in addition to numeric emissions limits, a permit can also include conditions requiring use of a work practice such as environmental management program focused on energy efficiency as part of the BACT formulation. It is indicated that the ENERGY STAR program provides useful guidance on the components of such an energy management program.

TITLE V PERMITTING CONSIDERATIONS FOR GHGS

As for PSD permitting as summarized above, the GHG Guidance also reviews the effects of the Tailoring Rule on applicability of the Title V operating permit program to GHGs. The reminder is given that, while no sources will be subject to Title V permit requirements solely because of GHGs during the initial phase of the Tailoring Rule starting on January 2, 2011, Title V sources will need to consider whether any applicable requirements pertaining to GHGs need to be incorporated into their Title V permits. In this regard, the Guidance points out that mandatory reporting of GHG emissions under 40 CFR Part 98 is not considered an applicable requirement for Title V purposes.22

1 See http://www.epa.gov/nsr/ghgpermitting.html
2 See Guidance, footnote 6, at 3.
3 The Guidance directs EPA regional offices to apply the “top-down”methodology for GHG BACT decisions in jurisdictions directly subject to federal rules.
4 GHG Guidance, at 22.
5 ENERGY STAR industrial sector EPIs are available at http://www.energystar.gov/EPIS.
6 GHG Guidance, at 25
7 Id., at 26.
8 Id., at 27-28.
9 Id., at 30.
10 Id.
11 Id.
12 Id.
13 Id., at 32.
14 Id., at 33.
15 Id., at 36.
16 Id., at 37.
17 Id., at 37.
18 Id., at 39.
19 Id., at 40.
20 Id., at 42.
21 Id., at 44.
22 Id., at 53.

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