by Ari Peskoe

The U.S. Environmental Protection Agency (EPA) proposed the first ever CO2 emissions limits for newly constructed power plants last month. Under the proposal, power plants that have already acquired a preconstruction permit from the EPA and commence construction by March 27, 2013 do not need to comply with the rule.

The emissions limit, set at 1,000 pounds per megawatt-hour, would effectively require all new coal-fired plants to cut CO2 emissions in half from current rates. The only plausible technology for enabling such drastic cuts is carbon capture and sequestration (CCS). EPA’s proposed rule allows a new plant to implement CCS ten years after beginning operations, so long as its emissions after CCS are below 600 lb/MWh. That gives the coal industry some extra time to work through the many legal and regulatory issues currently facing the technology. 

Like any large-scale energy development, a sequestration project would trigger state and Federal environmental reviews. While there is extensive experience around the country reviewing and approving projects that involve injecting substances into the ground, no other project is designed to store vast quantities of gas underground for hundreds of years. It’s not clear how legislators, environmental agencies and the public will evaluate this risk.

Long-term liabilities relating to leaks are another legal hurdle. According to a Federal interagency task force report published in 2010, some businesses are uncomfortable with the risk but also unsure of how to quantify it. Insurers, and particularly investors, are fixed on short-term thinking, and 10 or 20 years is considered “long-term” in business decision making.  But sequestered carbon must stay underground for centuries.  There is no agreement on how to account for this time horizon.

A 2010 paper by a Harvard Law School professor and student researchers proposed a range of regulatory incentives to spur development of large scale test projects. The suggestions included establishing a trust fund paid for by industry to cover liabilities, developing sites on Federal land to streamline the approval process, imposing caps on liability and preempting nuisance and trespass claims. Regardless of the specifics, instituting any new regulatory system takes time.  Fracing is a multi-billion dollar business in the U.S., and yet after a decade of widespread use its legal framework is not yet firmly established. As EnergyBusinessLaw.com has been documenting, legal norms are still developing, and all three branches of government are issuing new rules and decisions that have major impacts on the industry.

Without an impetus to do so, governments will probably ignore CCS, and the lack of legal certainty will hinder development.  Perhaps EPA’s rule, if implemented, will motivate action. Until then, rather than urging governments to enact rules that create legal certainty for CCS, the coal industry is likely to fight tooth and nail to kill yet another attempt by Washington to regulate CO2 emissions from the power sector.