What Biden’s new power plant rules mean for utilities

The Environmental Protection Agency (EPA) released new rules Thursday that require newly built natural gas power plants to cut 90 percent of their emissions by 2032, and existing fossil fuel-run power plants will have to comply or exit the grid by 2039.

To reach this goal, utilities will have to invest in carbon capture and sequestration/storage (CCS) technologies, something EPA administrator Michael Regan believes is financially feasible.

“[The EPA] has engaged extensively with industry and their representatives, from multiple power companies, that have indicated that CCS is a viable technology for the power sector today,” said Regan on a call with reporters Thursday. 

Take advantage of federal programs

The Inflation Reduction Act (IRA) and its associated credits, according to Regan, is one lever utilities should take advantage of to reduce upfront costs associated with CCS.

Specifically, the IRA revamped the 45Q carbon capture tax credit, adding in direct pay provisions eligible to corporate projects for the first five years of 45Q starting in the 2023 tax year, and increasing the compensation for carbon captured from $50 per ton of carbon dioxide up to $180 per ton. 

Another federal program utilities could benefit from, according to Lesley Jantarasami, managing director of the energy program at the Bipartisan Policy Center, is the Department of Energy’s Carbon Capture Demonstration Program (CCDP).

“There are awards out there now designing the front end engineering design studies,” said Jantarasami, “so I do think that there are opportunities for utilities to learn from these types of studies.”

CCDP is a $2.5 billion fund supporting coal and natural gas generation facilities, along with industrial facilities, demonstrating effective, commercial-scale carbon capture technologies.

CCDP is “one of those programs that is intended to do that early learning,” said Jantarasami, explaining that utilities can “learn from [CCDP-funded projects] that drive the cost down for future projects.”

EPA vs. lawsuits

In the wake of West Virginia v. EPA — in which the Supreme Court ruling limited the EPA’s options to regulate emissions — Jantarasami is expecting future lawsuits to push back against the latest power plant regulations.

“This regulation, this finalized rule for power plant carbon emissions, is kind of a first test case now for the agency and promulgating regulations of this magnitude in the wake of [West Virginia v. EPA],” said Jantarasami.

Additionally, the Supreme Court has yet to announce a ruling on the continuation of the Chevron doctrine, which defers implementation of legislation not specified by Congress to the discretion of the agencies such as the EPA. If the Supreme Court ultimately decides to overturn the 1985 decision, then Jantarasami believes it will likely have an impact on the EPA’s implementation power — but not for years to come.

“The Chevron ruling, depending on which side [the Supreme Court] come down on, would definitely be material in a future of oral arguments around this current set of regulations,” said Jantarasami, “[but] it will probably take years for any litigation on this particular set of regulations to work its way through the court system.”

In the meantime, utilities should move forward to comply with the regulations, because regardless of whether this rule is tied up in court, investors are likely to favor utilities that plan for the inclusion of CCS technology due to the EPA rules.

“If you’re talking to financial institutions and trying to get capital to build this project, having a ruling saying that hey, you actually have to incorporate this type of technology moving forward to continue operations, that’s an extra justification that I think investors actually look for, because it creates a certainty,” said Jantarasami.