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In a written statement, Calpine’s president and CEO states that “The combined-cycle technology allows us to commit to lower emissions while increasing efficiency – meaning we use less natural gas and emit fewer greenhouse gases while delivering more power to our customers and ultimately the American consumer.” This may well reflect Calpine’s “long-term commitment to environmental stewardship,” but a strong case can also be made that Calpine simply made a smart business decision by recognizing that the Environmental Appeals Board will no longer pass on any power plant permit that fails to limit greenhouse gas emissions.

The permitting of a power plant has for decades been an expensive, time-consuming, and extremely uncertain endeavor. Recent developments in administrative law, legislative proposals, growing public concerns about global climate issues, and a new administration have combined to create a sea of change. This may well explain why a large, sophisticated power generator would voluntarily assume unprecedented regulatory obligations.

New power plants must obtain a Clean Air Act permit under the EPA’s “prevention of significant deterioration” (PSD) rulemaking. PSD requires that “best available control technology” (BACT) be applied to control emission of air pollutants. In recent years the environmental community has attempted to require permitting authorities to limit greenhouse gas emissions under PSD permits. As part of this effort, in November 2008, the Environmental Appeals Board (EAB) reviewed the appeal of a PSD permit issued by the EPA, Region 8 in In re: Deseret Power Electric Cooperative. In Deseret, the Sierra Club argued that Region 8 had erred by failing to apply BACT to CO₂ emissions from the permit granted for a waste-coal-fired electric generating unit proposed for a power plant near Bonanza, Utah. Asserting that the US Supreme Court had determined that CO₂ was an “air pollutant” within the meaning of the Clean Air Act in Massachusetts v. EPA, the Sierra Club argued that the power plant permit violated the requirement to include a BACT emissions limit for “each pollutant subject to regulation under the Clean Air Act.” In a dense decision, the EAB determined that Region 8 was not bound by prior agency interpretations of PSD regulations, and on that basis remanded the permit so that Region 8 could develop a record for the decision to not apply BACT requirements to CO₂ emissions. The EAB suggested, however, that it would be best if the EPA provided overarching guidance, rather than require each PSD permitting authority to consider anew the question whether greenhouse gas emissions required regulation in the context of discrete PSD applications.

In response to Deseret, a month before President Obama’s inauguration, the EPA issued a memorandum entitled “Interpretation of Regulations that Determine Pollutants Covered by Federal Prevention of Significant Deterioration (PSD) Permit Program” (the “PSD Memo”). In the PSD Memo, the outgoing Administrator of the EPA determined that air pollutants, like CO₂, that had only been subject to monitoring and reporting requirements should not be considered in the PSD program. Moreover, although noting the substantial public interest in global climate issues, by framing the PSD Memo as an “interpretation,” the Administrator avoided the public participation process that rulemaking requires.

The environmental community promptly sought reconsideration of the PSD Memo and, shortly after President Obama’s inauguration, the EPA’s new Administrator granted reconsideration and opened the issue to public comment. At the same time, however, the EPA “decline[d] to take action to stay the effectiveness of the [PSD Memo] at this time.” In doing so, Lisa Jackson, the Obama administration’s new head of EPA, emphasized that the PSD Memo did not bind any state permitting authorities that issue permits under State Implementation Plans and that, in light of the grant of reconsideration, “other PSD permitting authorities should not assume that the [PSD Memo] is the final word on the appropriate interpretation of Clean Air Act requirements.”

Two subsequent events are worth noting: On April 17, 2009, the EPA released for public comment the Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act, in which it proposed finding that greenhouse gases are air pollutants subject to regulation under the provisions that govern motor vehicle emissions. The EPA emphasized, however, that its endangerment finding proposal, “as well as any final action in the future, would not itself impose any requirements on industry or other entities. An endangerment finding under one provision of the Clean Air Act would not by itself automatically trigger regulation under the entire Act.” In other words, simply because the EPA intends to regulate vehicle emissions of greenhouse gases does not mean that stationary source emissions of greenhouse gases will be regulated under the Clean Air Act. Nevertheless, several weeks later the EPA voluntarily asked the EAB to remand a permit for the Desert Rock Energy Facility in New Mexico so that it could apply BACT to greenhouse gas emissions.

Against this rather complicated background, Calpine’s decision to voluntarily agree to limit greenhouse gas emissions makes sense, as it had already decided to employ the most energy efficient, commercially available generating technology that would meet the power generating needs of the project. Doing so, however, is apparently unprecedented: According to BAAQMD, “no facility the Air District is aware of has ever been subject to an enforceable BACT limit on its emissions of greenhouse gases; nor has any facility, to the Air District’s knowledge, been subject to an enforceable limitation on its efficiency (heat rate per kW-hr of power output).”

One might expect such environmental gains to moderate the opposition of the environmental community. Not so: Opposition to the proposed Russell City Energy Center remains undeterred. According to Brian Bateman, BAAQMD’s Director of Engineering, the Air District expects the final permit will be appealed to the EAB. For environmentalists, one major remaining concern is the level of NOX emissions. Even if an EAB appeal failed to remand a final permit for NOX emissions limits, the delay could be enough to ensure that pending legislation – which in its present form requires major stationary sources of NOX to obtain offsets – would apply. In such an uncertain regulatory and economic climate, the one certainty that seems to exist is opposition to new power plants.