Daily on Energy: EPA power plant rule: Opponents look for chinks in the legal armor

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THE LINE OF ATTACK AGAINST THE POWER PLANT RULE: Opponents of the Biden administration's new power plant rule are expected to put the rule to the test on a few key legal grounds, including the "major questions" precedent established by West Virginia v. EPA, with which the Biden administration is confident the proposed rule complies.

The ‘adequately demonstrated’ standard: The Clean Air Act's "adequately demonstrated" proviso has been perhaps the most talked-about feature of EPA's proposed rule.

Under the proposal, carbon capture and sequestration, as well as co-firing, are the "best systems of emissions reduction" deemed to be adequately demonstrated and upon which EPA crafted its performance standards for new fossil fuel-fired power plants and emissions guidelines for existing plants.

For long-life coal plants, those operating into 2040 and beyond, 90% of their carbon emissions must be captured. For gas plants operating with combustion turbines, EPA offers 90% capture of CO2 by 2035 as one of two pathways. The other is co-firing with hydrogen.

Matt Leopold, who as general counsel served as the top lawyer at EPA during the Trump administration, said the dearth of power plants capturing carbon at scale makes the proposed rule's reliance on CCS a vulnerability.

"EPA must show that the technology they're proposing is feasible to apply to fossil fuel power plants nationwide, not simply in one case or two cases," Leopold, now law partner at Hunton Andrews Kurt in Washington, told Jeremy.

"The new approach of CCS and hydrogen co-firing I think are emerging technologies. They may be widely adopted in the future, but I think the issue now is that EPA wants to set the standard now on new technology and for existing plants and new plants that are being built," he added.

EPA's rulemaking expressed confidence that it's within bounds for relying both emissions reduction solutions, citing court various rulings providing that adequately demonstrated means a technology must be "reasonably reliable" and "reasonably efficient," as well as successful at mitigating pollution, but not that it "must be in actual routine use somewhere."

"The caselaw is clear that the EPA may treat a set of control measures as ‘adequately demonstrated’ regardless of whether the measures are in widespread commercial use," the proposed rule says.

WV v. EPA precedent: West Virginia v. EPA did not address the question of whether CCS is a technology that's adequately demonstrated. It did, however, say the Clean Power Plan's "generation shifting" is out of bounds because the Clean Air Act doesn't authorize EPA to effectively restructure the nation's overall mix of electricity generation with emissions rules, i.e. it violates the major questions doctrine.

EPA estimated its proposed guidelines would cause coal-fired power plants to retire at a faster rate than a scenario without them.

Some have raised that the off-ramp EPA provides for coal plants — those that close earlier are subjected to less rigorous regulations — as well as its projected closures amount to generation shifting in violation of the Supreme Court's ruling.

Administrator Michael Regan said last month when EPA announced its rule that he is confident the proposed rule "does not implicate the concerns addressed by the Supreme Court's decision in West Virginia vs EPA."

West Virginia Attorney General Patrick Morrisey, whose office led the case against the Obama-era CPP, has indicated he's looking to challenge the new proposed rule on major questions grounds.

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn't work, shoot us an email, and we’ll add you to our list.

SENATORS PUSH FOR CHANGES IN DOE’S TRANSFORMER EFFICIENCY RULE: Dozens of senators asked Secretary Jennifer Granholm not to finalize as written the Department of Energy's proposed rule for electric transformer efficiency out of concern that it would drive a supply shortage of the critical equipment.

Transformers are a critical component to electric transmission and distribution, the expansion of which is necessary to meet growing energy demand and the Biden administration's push to electrify more sectors of the economy.

The bipartisan group of senators said in a letter last week the proposed rule "could meaningfully worsen the current supply chain shortage by requiring manufacturers to change production lines" to use a different material for transformer cores that's less readily available than the predominant core material.

DOE proposed its transformer rule in December as part of the department's energy efficiency push, which has involved more than 100 new rulemakings for efficiency standards on everything from pool heaters to light bulbs and cooktops.

The proposed rule would require design changes for non-advanced transformers to include use of a different core: amorphous steel instead of grain-oriented electrical steel. DOE estimated its rule would represent savings of 36% relative to a scenario without amended standards.

What's driving the worries: Utility interests, including the National Rural Electric Cooperative Association, have been warning about supply shortages for transformers for years due to challenges acquiring the equipment and have sought changes to DOE's rulemaking.

NRECA, in comments to the agency, said requiring use of amorphous steel would make lead times for procurement even longer, a concern shared by the senators.

"We recognize the numerous and often underappreciated benefits of energy efficiency and support the overall goal of reducing wasteful electrical losses in our distribution grid," they wrote. "We believe the most prudent course of action is to let both [grain-oriented electrical steel] and amorphous steel cores coexist in the market."

SCOTUS TURNS DOWN CHALLENGE TO CALIFORNIA OFFSHORE FRACKING BAN: The Supreme Court has refused to hear a challenge to a court order banning fracking off of California's coast, delivering a blow to oil companies who argued that the moratorium would undermine oil and gas development on the Outer Continental Shelf.

The decision lets stand a June 2022 decision from the 9th U.S. Circuit Court of Appeals, which sided with the state of California and several environmental groups in ruling that the federal government had violated various environmental laws—including the National Environmental Policy Act, the Endangered Species Act (ESA), and the Coastal Zone Management Act—when it allowed fracking and acidizing extraction practices in federal waters off of California's coast.

That ruling also prohibited Interior from issuing more permits in the region until it completed both an ESA consultation and an Environmental Impact Statement that considered both "the environmental impacts of extensive offshore fracking" and "fully and fairly evaluate[s] all reasonable alternatives."

API, ExxonMobil, and a California refinery had asked the high court in January to review the decision, arguing that the injunction was "premature" and "threatens to stall vital energy projects" beyond the California area, especially since there are no pending applications to begin fracking in the region. Read more from Breanne here.

OIL PRICES RISE ON NEWS OF SAUDI OIL CUTS: Oil prices spiked by more than $1 per barrel today on the news that Saudi Arabia will deepen its production cuts by an additional 1 million barrels per day in July, a 10% reduction that amounts to the kingdom's deepest cut in years.

Futures for international benchmark Brent crude rose to a session high of $78.73 before settling around $77.50 per barrel, a 1.8% increase from the previous day of trading. Meanwhile, futures for West Texas Intermediate climbed 1.9%, settling around $73.13.

Saudi officials said the cut will likely last one month, but acknowledged they could extend it further depending on market conditions. Saudi Energy Minister Prince Abdulaziz bin Salman defended the cuts as "precautionary," and said they highlighted the kingdom's commitment to doing "whatever is necessary to bring stability to this market."

Still, the decision puts Saudi Arabia at growing odds with the Biden administration and others who have asked OPEC+ to keep production steady, citing rising costs for consumers. It also comes in contrast to the UAE, another OPEC+ member that said this weekend it would raise its output targets by 200,000 bpd, to a total of 3.22 million bpd.

Reception: Rystad Energy said in a note that the new oil cut is likely to deepen the existing oil market deficit to more than 3 million bpd in July. And Goldman Sachs analysts described the meeting as "moderately bullish," noting the cuts could boost Brent prices by between $1 and $6 per barrel by end of year, depending on how long Saudi Arabia maintains its production cuts.

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