Coal Plant Challenges: Strategies for Permitting and Development

1. Coal Plant Challenges: Strategies for Permitting and Development Tom Lindley, Chair Environment & Natural Resources tlindley@perkinscoie.com 13879950

2. Assumptions • Global warming (climate change) is real and caused by human activities that emit CO2 or CO2e. • Coal combustion emits approx. 40% of global GHG. • Coal to power emits 27% of US GHG (6% of global). • In the near future, the US will regulate CO2 and coal-based power generation.

3. Coal Plants and Climate Change • Even before climate change, opponents made numerous challenges to coal power plants before and after they were built. • New or modified coal plants, and their infrastructure, required federal and state permits before they were built or modified. • Climate change provides a new challenge that will further complicate coal plant siting and permitting.

4. The Issue of the Day • 1992: United Nations Framework on Climate Change • 1997: Kyoto Protocol 1997 completed • 2004: "An Inconvenient Truth" film premiere • 2005: Kyoto Protocol effective internationally • 2006 to present: • 25 of 48 states have enacted RPS • RGGI: 8 members + 6 observers • Midwestern Accord: 7 members + 2 observers • Western Climate Initiative includes 8 members + 11 observers • The Climate Registry includes 40 states • 2007: California AB 32: State regulates GHG • 2007: Massachusetts v. EPA: GHG is a pollutant • 2007: Fish & Wildlife Service proposes ESA listing for Polar Bear • 2008-2012: Kyoto Phase 2 • 2008: U.S. Environmental groups organize to stop coal plants

5. Coal-Fired Power Plants are Under Attack • Organized opposition • Sierra Club: "Stopping the Coal Rush;" • Clean Air Task Force (MT, WY, CO, NM, UT, WI); • Environmental Defense: "Stop as many as possible;" • Earth2Tech: "Coal Plant Deathwatch;" • NRDC: "Dirty Coal vs. Clean Energy;" • www.coalswarm.org

6. Climate Change Challenges • Federal: • Clean Air Act; Endangered Species Act; NEPA; Clean Water Act, etc. • State: • SEPA; Renewable Portfolio Standards; Clean Air Act SIP* • Regional Initiatives: • RGGI, Western Climate Initiative; Midwestern GG Accord • Local Initiatives: • US Mayors Climate Protection Agreement • Non-statutory challenges: • Nuisance and other torts *State Implementation plans

7. Litigation Roadblocks? • Clean Air Act • Is CO2 a regulated pollutant? • What environmental performance standards apply? • Is Best Available Control Technology ("BACT") required for CO2? • Common law: • Should companies be liable under tort law for GHG emissions? • Clean Water Act • Atmospheric CO2 may acidify water bodies (cf. acid rain) • National Environmental Policy Act • Must Federal decision-makers consider GHGs in project permits or actions? • Endangered Species Act • Will major GHG projects require agency consultation?

8. Unresolved Climate Change Issues Some policy questions: • Should GHG emissions for all sectors be cut? How much? By when? How? • Will Federal legislation preempt state, regional, and regulatory initiatives? • Will U.S. commit to binding targets? If so, how will such commitments overlap/coincide with prospective UNFCCC timetables? Some litigation questions: • Who has standing to challenge major GHG emitting projects? • Are GHGs a public nuisance? Is that a political question? • Do the CAA and other statutes mandate GHG controls? • Will legislative actions overlap or unravel court decisions on climate change?

9. Nuisance Suits • Based on Tort Common Law • Source of much modern environmental law. • Brought by various parties (e.g., states, land trusts, individual citizens). • Challenge public or private acts contributing to global warming represent as "nuisance." • Current suits against power plant owners, refineries, vehicle manufacturers, and government. • Three major nuisance-based lawsuits now on appeal.

10. Nuisance: Pending DecisionConnecticut v. American Electric Power (2nd Cir. No. 05-5104) • Eight states (and others) argue defendants' power plant GHG emissions create a public/private nuisance • Seek injunctive relief, including court-ordered caps and phased GHG reductions • Lower court granted defendants' motion that case raised non-justiciable "political" questions • Case on appeal to 2nd Circuit; awaiting decision

11. Nuisance: Pending DecisionComer v. Murphy Oil(5th Cir. 07-60756) • Challenge defendants for GHG emissions as contributor to global warming, gulf water warming, and hurricanes • Diverse common law theories: unjust enrichment, civil conspiracy, nuisance, trespass, negligence, fraud/concealment • Lower court granted defendants' motion to dismiss for Plaintiffs' lack of standing and for non-justiciable "political" questions; sua sponte dismissed other claims; case on appeal to Fifth Circuit

12. Nuisance: Recent FilingNATIVE VILLAGE OF KIVALINA and CITY OF KIVALINA v. EXXON MOBIL, et al (N.D. Cal No. 08-1138). • City argues defendants' GHG emissions cause global warming, sea ice loss, storms • Seek relocation expenses & future monetary expenses from global warming • Diverse common law theories: • Public/private nuisance, conspiracy, concert of action

13. CAA: Mass v. EPA,127 S. Ct. 1438 (2007) • States challenge EPA decision not to regulate GHGs from motor vehicles • Do parties have standing to sue? • Yes, quasi-sovereign entitled to "special solicitude" • Does EPA have authority to regulate GHGs? • Yes, GHGs are pollutants and EPA has authority • Did EPA properly exercise that authority? • Not decided. EPA can only avoid regulating if it (a) determines GHGs do not contribute to climate change or (b) has a reasonable explanation as to why it cannot or will not exercise discretion to regulate

14. Clean Air Act CO2 decision: New York v. EPA (DC Cir; No. 06-1131) • States challenge EPA's emission standards for new power plants that fail to curb CO2 • EPA claims no authority to regulate CO2 • After Mass v. EPA, parties ask for remand to EPA, court remands and refuses to vacate EPA's decision that it lacked legal authority to regulate power plant GHGs

15. CAA Recent/Pending Decisions Affect Power Plants • Massachusetts v. EPA : in first year, it has been cited several hundred times. • Some coal plant issues: • Should New Source Performance Standards restrict GHG emissions from power plants? • NY v. EPA • Should PSD Permits require BACT for CO2 control? • In re Deseret Power ; (also raised in non-coal contexts) • Can state agencies regulate CO2 absent federal CO2 controls? • Kansas agency denies Sunflower Electric Power permit

16. Clean Air Act NSR: PendingNational Parks Conservation Ass'n. v. TVA, • Two cases, two TVA coal plants, different results. Plaintiffs include CO2 in their complaints. • In 1980, TVA modified Alabama and Tennessee plants without seeking permits. • NPCA contends TVA should have had permits and NSR since modifications. • 11th Circuit said Alabama SIP requires BACT if a construction permit issued. Emissions after unpermitted modification did not trigger New Source Performance Standards or BACT or constitute continuing violations of CAA. Dismissal based on statute of limitations. • 6th Circuit said Tennessee SIP makes each day's emission without BACT a repetitive, discrete violation. No decision on whether TVA's actions required NSR. Remand to D. Ct.; no appeal. • NPCA seeks Supreme Court review of 11th Circuit decision. Inconsistency may lead Supreme Court to grant cert. If NPCA wins, past violations under other environmental laws could be subject to similar interpretation.

17. CAA/NSR: Sierra Club v. EPA, 499 F. 3d 653 (7th Cir. 2007) • Indiana EPA issued PSD permit for mine-mouth power plant. Permit challenged before EAB and 7th Circuit. • Sierra Club argues IEPA failed to consider low sulfur coal when setting BACT standards for the plant. • Court affirms permit. • BACT applies to project described in application. Low-sulfur coal from distant sources would require redesign. BACT should not burden project with redesign. • Decision not directly about CO2, but could strengthen arguments that pulverized coal plants need not consider IGCC technology during BACT review.

18. CAA/NSR: Sierra Club v. Sevier Power, Utah Air Quality Board, DAQE-AN 2529001-04, 1/9/08 • UT Air Quality Board permits coal power plant. • Numerous Sierra Club challenges include failure to restrict CO2. • Although Mass v. EPA includes CO2 in definition of "air pollutant," the Board currently lacks rules requiring limitations of CO2 as part of a NSR or BACT determination. Thus, it cannot limit CO2. • IGCC need not have to be considered as BACT. IGCC is a substitute generation technology, not an emissions control.

19. CAA/NSR: In re: Christian County Generation(EAB; PSD Appeal No. 07-01) • Illinois EPA permits a new IGCC power plant (w/o CO2 capture). Permit challenged before EAB. • Sierra Club argued that IL EPA failed to evaluate or require BACT for CO2 emissions. • Petition for review denied; Sierra Club did not raise the issue during public comment period. • Sierra Club preserved this argument for EAB's review In re Deseret Power Electric Cooperative.

20. CAA/NSR: In re: Deseret Power Electric Coop (EAB; PSD Appeal No. 07-03) • EPA issued PSD permit for waste-coal fired generating unit. EPA public comments interpret Mass v. EPA. Sierra Club challenged permit before EAB. • Sierra Club argues PSD permits must include BACT emission limit for “each pollutant subject to regulation.” This includes CO2 under Mass v. EPA. • EPA: CO2 is not a controlled pollutant. Mass v. EPA did not instantly render CO2 "regulated." BACT inapplicable. • ESP accepted (Nov. 2007). • EPA’s public comments make this an issue of national importance about Mass v. EPA. EAB requests briefs from outside parties.

21. CAA/NSR: Permits in Process • Approval, so far… • Indiana approves Duke Energy IGCC plant • Duke still requires air permit; hearing will be early '08; environmental resistance unlikely. • Disapproval, so far… • Kansas rejects Sunflower pulverized coal plant; first plant rejected based on CO2 emissions • KS Statute to protect health and environment • Agency stated "it would be irresponsible to ignore emerging information about the contribution of carbon dioxide and other greenhouse gases to climate change and the potential harm to our environment and health if we do nothing." • Decision challenged in Nov. 15 law suit • Applicant/State currently negotiating a resolution

22. Recent Coal Plant Challenges • 2008: Sierra Club coalition provides 60-day notice to PGE of challenge to 1978 615 mW Boardman PC Coal Plant for violations of CAA, Oregon SIP and Title V • Contends modifications required New Source Review • Boardman called largest stationary source of CO2 in Oregon; unclear as to any formal challenge to GHGs • 2008: State officials joining forces to raise concerns over transboundary effects of GHG emissions • Eight state AGs oppose 1320 mW PeeDee PC plant in South Carolina.

23. We Are Sailing Into Uncharted Waters • Climate change issues will endure for decades • Pre-existing laws invoked to apply to GHGs • Projects with major GHG emissions likely face challenge. Challenges may not prevail, but will cause delay and uncertainty. • Absent federal legislative guidance, courts and agencies are pressed to decide the issues; appeals are the norm. • As the effect of GHG is better understood; coal is more of a target, international and domestic pressure to curb GHGs is growing; but the remedies are not fully known

24. Future litigation will track similar themes: CAA; NEPA; torts Expect more suits under ESA; state land use laws Climate litigation will continue to involve diverse plaintiffs (state, industry, non-profit) Rapid regulatory developments may make previous court decisions "moot." Judges will continue to confront same issues: Standing; judicial authority/competence and the need to make decisions in a dynamic environment Permitting Agencies and even courts may delay or refuse to permit new or modified facilities until Congress and state legislatures resolve uncertainties Litigation Outlook

25. What to Expect • More challenges from all fronts • Indecision until: • EPA rules on regulating CO2 • New Administration legislates on climate change • Courts rule on ESA and NEPA challenges • New administration acts on post-Kyoto regulation • Leading Presidential candidates favor cap-and-trade programs

26. What to Expect • More coal plants denied, cancelled, or abandoned • More state officials raising transboundary concerns about GHG projects permitted in other states • Utilities might shift to gas, raising prices • Reserve margins will decrease • IGCC/DOE "Clean" Coal projects go forward • IGCC Sequestration capture projects are uncertain • January 2008: FutureGen cancelled "for cost overruns" • EPA to seek smaller private projects • Injection tests at some sites

27. What to Expect • Difficulty Financing new Coal Plants • February 2008: "The Carbon Principles" announce guidelines for advisers and lenders to U.S. power companies: • Consider energy-efficient and renewable energy alternatives; • Consider underground GHG sequestration; • Anticipate cap and trade costs with conservative allowances; • Ensure future rate recovery of emission costs. • January 2008: Governors announce plans to consolidate regional cap and trade programs.**National Governors' Association

28. Organize Early, Energize Support, and Minimize Opposition – All Before Submitting Applications • "Internal" team • Include project lead, technical/engineering team, gov't relations, press outreach, legal support (this is NOT the "as usual" process) • Start early, plan early, address every potential issue in the plan, and stay on schedule • Issues include not just need, cost, design, and paperwork, but also securing internal and external support and minimizing opposition

29. Organize Early, Energize Support, and Minimize Opposition • Mobilize external support • Communicate project benefits one-on-one, respond to suggestions and let them know response, change or improve design, address timetables, argue energy independence, and look for ways to "green" overall project • Motivate supporters to become active by meeting (some of) their wishes

30. Organize Early, Energize Support, and Minimize Opposition • Minimize opposition • Efficiency gains from coal • Spotlight environmental issues from other fuels • Opportunity for technical innovation • Consider meeting with and bringing into fold selected opponents • Marginalize those who will never agree

31. How to Respond to Challenges:"CO2 Should Be Regulated" • GHG emissions are not currently subject to regulation at Federal Level and Most States • EPA still reviewing regulations post Mass. v. EPA • No federal CO2 controls exist • No EPA regulations exist • No proven CO2 BACT exists • Possible challenges under Acid Rain Program • Possible challenges under new state programs

32. How to Respond to Challenges:"CO2 Emissions Are Excessive" • Don't concede alternate designs • Sierra Club v. EPA 499 F.3d 653 (7th Cir. 2007) • Improve total system efficiency • PC CO2 = 1,750#/mWh vs. Syngas CO2 = 1,500#/mWh • Replace/modernize inefficient plant • BACT will apply, but maybe require GHG reductions • Capture and redirect CO2 (experimental) • Enhanced Oil Recovery • Algae uptake • Capture and Store (experimental) • IGCC with Sequestration CO2 = 60#/mWh

33. How to Respond to Challenges:"Coal Emits Too Much CO2" • Compare alternate resources effectively: • Challenge perceived benefits of bio-fuels like ethanol • CARB LCFS Working Group III study: Land use changes have "enormous" GHG effects. • Plant life-cycle analysis • Life Cycle analysis: Avg. coal plant life >35 yrs; other technologies have shorter lives. (Wind?) • External impacts of non-coal resources • "Mine mouth" and "coal by wire" plants avoid fuel transport emissions. • LNG, gas pipelines, and ocean-tankers pose other problems. • New hydro not an option

34. How to Respond to Challenges:"Coal Plants Not Needed" • Document load resource criteria • Future declining reserve margins • Planned retirement of existing plant • Load growth • Easier to build for local load than to export power • Stress global mixing of GHG regardless of location • "Coal by wire" reduces GHG emissions

35. How to Respond to Challenges:Document Coal Plant Benefits • Reduced fuel cost = reduced rates • Coal = $3.00/mmbtu ($20/mWh) • Difficult cost barriers must come down. • Sequestration today: $50 US/ton CO2 (est.) • Equivalent energy cost adder:= $50 / mWh • Alternative energy forms compete. • Wind • Solar • Natural Gas • LNG • Oil = $15.40/mmbtu ($100/mWh) • Natural Gas = $7.00/mmbtu (volatile prices) ($50/mWh) • Coal as bridge technology • Replace imported oil until substitute fuels available • Until solar and hydrogen deployed. • Need diversified supply. • Coal, natural gas, and renewables.

36. How to Respond to Challenges:"CO2 Causes Global Warming" • Offset CO2 emissions (1500#/mWh, 68 ton/mWh) • Purchase offsets • U.S. Climate Exchanges ~ $4.50/ton = $3/mWh • EUTC ~ $20/ton = $29.2/ton = $20/mWh • Renewable Energy Credits, variable pricing $10-20/mWh • CA forest offsets at $9/ton • Pay for offsets • Forestation projects • Fertilizer reduction projects • Clean Development Mechanisms • Subsidize CO2 and CO2e reduction projects • Offset CO2 until other controls available

37. Questions? Tom Lindley (503) 727-2032 TLindley@perkinscoie.com http://www.perkinscoie.com/climate_change_law_policy/