First State Air Permit With Enforceable CO2 Limits Issued For Idaho Coal-Fueled Fertilizer Plant

A proposed Idaho plant that will gasify coal as a feedstock for fertilizer has become the first coal-fueled facility in the U.S. to accept enforceable limits on carbon dioxide (CO2) emissions.[1] The limits are premised on capture and sequestration of 58 percent of the plant’s CO2 output, reducing its emissions to that of a natural gas-supplied facility. The project proponent accepted the CO2 limits as part of a settlement with the Sierra Club and the Idaho Conservation League The proposed plant is to be located southwest of Pocatello, Idaho.[2] The State of Idaho does not regulate CO2 as a pollutant under its air laws, and has been careful to state that the limits voluntarily assumed by the project will not be considered binding on other Idaho facilities.[3] Nonetheless, if EPA proceeds with proposed regulatory actions that bring CO2 emissions within the Clean Air Act’s permitting requirements, and this project is constructed and implements carbon capture and sequestration as planned, it will set a technology standard that will be relevant to future project permitting.

The project, known as the Power County Advanced Energy Center and being developed by Southeast Idaho Energy, LLC,[4] is designed to gasify 2,000 to 2,300 tons per day of coal and petcoke. The resulting synthesis gas would be used to manufacture ammonia, which would then be used to produce nitrogen-based fertilizers.[5] Natural gas is commonly used as a fertilizer feedstock, and this apparently provides the rationale for reducing CO2 emissions from the plant to roughly the equivalent of what would be emitted by a similar-sized fertilizer plant supplied by natural gas.[6] The plant developer plans to capture at least 58 percent of the CO2 that otherwise would be emitted by the plant, and sequester it in oil fields in Southwestern Wyoming, approximately 80 miles away.[7]

Background on Power County Advanced Energy Center

The Idaho project was first proposed in 2005 as a 520 megawatt Integrated Gasification Combined Cycle (“IGCC”) power plant. In 2007, the project was reconfigured as a fertilizer and synthetic diesel fuel plant, with feedstocks to be supplied through coal gasification.[8] In 2008, the scope of the project was limited to production of fertilizer products and elemental sulfur, still based upon gasified coal.[9]

The project will include two GE Quench gasifiers, one of which will be operated at a time while the other is held in hot standby.[10] The gasifier feedstocks will include a coal/petcoke slurry, water, and oxygen from an air separation unit. The reaction that takes place in the gasifier mainly produces synthesis gas (syngas) and slag. The syngas would be composed primarily of hydrogen, carbon monoxide, CO2, and water vapor, plus hydrogen sulfide and other trace compounds. The slag component will include metals and other pollutants commonly associated with coal. A “syngas cleanup train” will remove pollutants entrained with the syngas, including particulates, sulfur, and mercury.[11]

Development of the Permit Limit on CO2 Emissions

The Idaho Department of Environmental Quality (“IDEQ”) issued an air permit for the Idaho plant in February, 2009, which did not include any limit on the plant’s CO2 emissions. Sierra Club and the Idaho Conservation League filed an administrative appeal, which was stayed while the parties negotiated changes in the permit terms. A settlement calling for modifications to the air permit, including addition of a CO2 emission limit, was reached in September.[12] IDEQ was not a party to the settlement. In October, Southeast Idaho Energy applied for modifications to its air permit based upon the settlement agreement, and IDEQ issued the modified final permit on November 30, 2009.[13]

The plant will use Selexol technology to remove hydrogen sulfide from the syngas generated by the coal gasification process and to separate CO2 from the hydrogen gas stream.[14] The permit’s CO2 emission limit applies to one of the exhaust gas streams from the Selexol acid gas removal process, labeled (appropriately) the CO2 vent stack.[15] The permit limits CO2 emissions from the vent stack to 756,000 tons per year, the equivalent of a 58 percent reduction of potential CO2 emissions from the vent stack at full capacity.[16]

This CO2 emission limit would not take effect until five years after mechanical completion of the plant.[17] The plant would then be obligated to capture CO2 in excess of the limit and send the CO2 offsite for use in enhanced oil recovery (“EOR”) and permanent sequestration.[18] During the 5-year period between mechanical completion and the compliance date, the plant would be obligated to purchase greenhouse gas offsets equivalent to its annual emissions in excess of the 58 percent reduction threshold. At full operating rates, this would amount to 1.1 million tons in offset credits per year.[19]

If a federal or state cap-and-trade program that includes offsets is established during the interim period, the plant would be obligated to purchase its offsets through that program. Otherwise they could be obtained from a voluntary offset program such as the Chicago Climate Exchange or the California Climate Action Registry, or through the Northeast’s Regional Greenhouse Gas Initiative (“RGGI”).[20]

Plan for Carbon Sequestration

The president of Southeast Idaho Energy has said that their plans have called for carbon capture and sequestration all along.[21] The project site is less than 100 miles from oil fields in southwest Wyoming, where the Big Sky Carbon Sequestration Partnership (a Department of Energy-funded research project) has planned a large scale carbon sequestration demonstration project, beginning in 2010. A pipeline is likely to be built from the Idaho plant to those fields, where the CO2 may be used for enhanced oil recovery.[22] In the short term, the project developers are exploring use of rail transportation to move the CO2. Rail transport would be expensive, and logistically challenging if attempted at full production of approximately 1.1 million tons of CO2 a year. However, the project developer believes it is a feasible, though not optimal, alternative.[23]

A Voluntary, but Enforceable, Limit on CO2

Sierra Club has indicated it hopes that the Idaho permit helps set a national standard for carbon sequestration from coal plants.[24] As there currently is no underlying regulatory requirement applicable to CO2 emissions, the legal basis for the permit’s CO2 limit remains open to question, at least when it comes to extending the requirement to other facilities. However, the requirement clearly is enforceable against Southeast Idaho Energy, not only because it is incorporated into the project’s permit, but also because the settlement agreement among Southeast Idaho Energy, Sierra Club, and Idaho Conservation League allows the conservation groups to seek specific performance in the event of any breach of the agreement.

IDEQ agreed to incorporate the CO2 requirements requested by Southeast Idaho Energy into the modified permit for the project, but made it clear that it does not consider the resulting permit to be precedent-setting for future projects, or as establishing a State policy on CO2 emissions.[25] The agency noted that the Environmental Protection Agency does not currently consider CO2 to be a regulated pollutant under the federal PSD permitting program, and that IDEQ does not consider it an air pollutant under Idaho law.[26]

However, EPA has proposed a series of regulatory actions that could result in federal regulation of CO2 sources. See Marten Law Group Environmental News, EPA Proposes Regulating Stationary Source Greenhouse Gas Emissions Under Federal Clean Air Act (October 7, 2009). EPA’s December 7, 2009 finding that greenhouse gas emissions endanger public health and welfare is expected to drive EPA final action on those regulations by March, 2010. IDEQ’s press release regarding the revised permit indicates that IDEQ does not intend to include greenhouse gas limits in future permits until federal regulations requiring such limits have been finalized.[27] If EPA proceeds with its regulations as currently planned, Idaho and other states will have to consider placing CO2 limits in future new source review air permits.

Future Significance of the Permit’s CO2 Emissions Limit

The precedential value of the Idaho permit remains to be seen. While the Sierra Club and others have had success in blocking or delaying permits for new conventional coal plants and in discouraging investment in new plants,[28] no laws yet require limits on CO2 emissions from power plants. This may change soon, as a result of EPA’s final “endangerment” finding on CO2 emissions from new cars, with resulting fallout for permitting of stationary sources.[29] However, until it does, any other projects that follow the lead of the Southeast Idaho Energy project will be doing so voluntarily.

Even after federal CO2 regulations take effect, the precedential value of the Idaho permit will remain uncertain until the project is actually constructed and operated with successful carbon capture and sequestration. The federal Clean Air Act requires that new major sources of air contaminants incorporate the Best Available Control Technology (“BACT”). To qualify as BACT, a control technology must not only represent the “best” level of control, but it also must be “available,” meaning that it has been commercially demonstrated.

Meanwhile, there are paths other than litigation that are leading toward limits on CO2 emissions for coal-fueled power plants. For example, in 2007 an air permit was issued for the Taylorville Energy Center, a 500 megawatt IGCC plant to be built in central Illinois. While that project proposes to capture 50 percent of its potential CO2 emissions, that is not a requirement of its air permit. However, the Department of Energy is evaluating an application for a federal loan guarantee for the Taylorville project (having just taken public comments on a draft EIS). Assuming a federal loan guarantee is issued for the project, conditions are likely to include some commitment to carbon capture and sequestration.

Similarly, earlier this month, the Department of Energy announced almost $1 billion in grants under the Clean Coal Power Initiative, providing matching funding for projects that are expected to make progress toward 90 percent carbon capture and sequestration.[30] Three projects will receive these grant funds: (1) a retrofit on a portion of the flue gas stream from AEP’s existing Mountaineer Power Plant near New Haven, West Virginia, representing 235 MW of that 1,300 MW plant; (2) a similar retrofit on a Southern Company plant north of Mobile, Alabama on a 160 MW flue gas stream; and (3) Summit Power’s Texas Clean Energy Project, a 400 megawatt IGCC plant to be build near Midland-Odessa, Texas that will be designed to capture 90 percent of potential carbon emissions. Marten Law represents Summit Power, the developer of the Midland-Odessa project. All of the grants are conditioned on implementation of carbon capture and sequestration.

Conclusion

IDEQ’s action marks the first issuance of a permit for a major coal-fueled project with an enforceable limit on CO2 emissions. The emission limit was voluntarily assumed by the project developer. While not a legal precedent for other plants, if EPA proceeds with proposed regulatory actions that bring CO2 emissions within the Clean Air Act’s permitting requirements, and this project is constructed and implements carbon capture and sequestration as planned, it will set a technology standard that will be relevant to future project permitting.

For more information on the emerging regulation of greenhouse gas emissions, contact Svend Brandt-Erichsen or any member of our Climate Change practice.