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Federal HAP and Criteria Pollutant Rules

Impacting the Natural Gas Industry

Presented to:

Gas/Electric Partnership Workshop

Presented by:

Jim McCarthy

Innovative Environmental Solutions, Incorporated

Houston, TX

February 10, 2009

innovative environmental solutions, inc.

Acronyms, etc.

4(2)SLB: Four(two)-stroke cycle lean burn engine (versus RB for “rich burn”)

BACT: Best Available Control Technology

EPA: United States Environmental Protection Agency

EGU: Electric Generating Unit

GACT: Generally Achievable Control Technology (NESHAP for area sources)

GHG: Greenhouse Gas (CO2 and methane emissions from nat. gas systems)

ICE: (Reciprocating) Internal Combustion Engine

LAER: Lowest Achievable Emission Rate

MACT: Maximum Achievable Control Technology (NESHAP for major sources)

NAAQS: National Ambient Air Quality Standard

NSCR: Non-Selective Catalytic Reduction (4SRB emissions control)

NSPS: New Source Performance Standard

NESHAP: National Emission Standard for Hazardous Air Pollutants (e.g., MACT)

O3: Ozone

PM2.5: Fine Particulate Matter (aerodynamic mean diameter <2.5 µµµµm)

RACT: Reasonably Achievable Control Tech. (NOx control for existing units)

SIP: State Implementation Plan

SSMP: Startup, Shutdown, Malfunction Plan (NESHAP requirement)

TPY: Tons per Year

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Topics

� Introduction – Primary Federal Clean Air Act (CAA)

requirements that impact natural gas sector emission

control requirements

� IC Engine NESHAP

» RICE MACT and 2008 Amendments

» Recent Court decisions and implications for additional

revisions planned for 2009

� Turbine MACT status

� NAAQS Related Regulations – NOx Control Implications

» Fine Particulate NAAQS

» Ozone NAAQS

» Example state regulations

Primary CAA Triggers for

Emission Control Regulations (1)

� New Source Performance Standards (NSPS): EPA

adopts standards for “new” sources of “criteria

pollutants” and associated precursors (e.g., NOx,

CO, VOC, Particulate) for source categories that

contribute to pollution

» National standard based on “best demonstrated

technology” – no geographical differences

–Affects new, modified and reconstructed equipment

» For example:

– IC Engine NSPS adopted in January 2008 requires NSCR for

rich burn engines, low emission combustion for lean burns

– Turbine NSPS revised in July 2006 requires lean-premixed

combustion for turbines >50 MMBtu/hr

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� Nonattainment New Source Review (NNSR) and

Prevention of Significant Deterioration (PSD)

» NSR/PSD require LAER technology in nonattainment areas

and BACT in attainment areas if “new” facility emissions

or emission changes at an existing facility are above a

defined emissions threshold

– Emissions threshold depends upon pollutant and air quality

severity in the area where the source is located

» LAER is lowest achievable emission rate without

consideration of cost

» BACT allows a “top down analysis” that considers

technological and economic feasibility

» States implement through permitting process

– Some judgment involved – e.g., BACT feasibility

Primary CAA Triggers for

Emission Control Regulations (2)

� National Emission Standards for Hazardous Air Pollutants

(NESHAPs): EPA adopts HAP standards

» e.g., formaldehyde is the HAP of concern for natural gas-fired

combustion

» National rule – no geographical differences

– For existing sources, standard is based on “average emission

limitation achieved by the best performing 12 percent”

� Historically, EPA frequently concluded that this is “no control”

– For new and reconstructed sources, emission standard is based

on the best controlled similar source

–Major source standards (e.g., RICE MACT) and area source rules

� “Major source” is a facility with HAP emission of 10 TPY or more for

a single HAP or 25 TPY for aggregation of all HAPs

� Area source rules can be based on a lesser degree of control

(GACT) or management / work practices

Primary CAA Triggers for

Emission Control Regulations (3)

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� National Ambient Air Quality Standard (NAAQS) are

ambient air standards for six “criteria pollutants”

» Ozone, particulate, CO, SO2, NO2 and lead

–Ozone, and – to a lesser extent – fine particulate (PM2.5) NAAQS

nonattainment drives NOx regulations for the natural gas sector

–NOx and VOC regulated as a precursor to ozone

� EPA requires a “State Implementation Plan” (SIP)

» In SIP, state identifies regulations and measures it will adopt

to improve air quality and “attain” the NAAQS

� Reasonable Achievable Control Technology (RACT): For

ozone and PM2.5 nonattainment, EPA requires states to

consider NOx RACT for existing equipment as a SIP

measure

Primary CAA Triggers for

Emission Control Regulations (4)

Regulatory Overview:

Why all of the recent activity?

� Key activity: Lawsuits by environmental groups or states

� CAA requires EPA to complete a timely review of many

standards

» Review NAAQS every 5 yrs and NSPS/NESHAPs every 8 yrs

� EPA historically missed (or ignored) these schedules

� Recent lawsuits have forced EPA to meet CAA schedules

» If challenged, EPA will lose in Court – Only new legislation

can change these Clean Air Act driven schedules

� EPA and litigant often agree to Court Ordered “Consent

Decree” schedule for regulation development

» High activity since 2006 based on Court ordered deadlines

» To date, EPA has typically met the Court ordered deadlines

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NESHAPs for Reciprocating

Internal Combustion Engines

and Combustion Turbines

And… Implications of recent

Court cases

IC Engine MACT

40 CFR 63, Subpart ZZZZ

� IC Engine MACT Final Rule (aka RICE MACT)

» Affects IC engines >500 hp at major sources

» Final Rule in Federal Register: June 15, 2004

» 2004 rule affects new or reconstructed units >500 hp and

existing rich burns >500 hp at HAPs major source

–Major source >10 TPY single HAP or >25 TPY all HAPs

– Formaldehyde from ICEs is typical trigger

� RICE MACT was amended in 2008 to address small major

source engines and area sources (new units)

» Proposal date of June 12, 2006

–Applies if reconstructed after this date; Applicability date for

new units based on manufacture date (a la NSPS requirements)

� Due to recent Court cases, EPA will revise again in 2009

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Summary of 2008

NESHAP Amendments

� Proposed as amendments to the current IC Engine

MACT Standard, 40 CFR Part 63, Subpart ZZZZ

» NESHAP includes diesel (i.e., compression ignition)

» January 2008 amendments address:

(1) Major source engines < 500 hp, and

(2) All area source engines

» Amendments only affect new or reconstructed engines

–No new requirements for existing engines

� With proposed amendments, ALL new and

reconstructed units are affected regardless of size

» However, most units comply based on NSPS compliance

2008 NESHAP Amendments

� NESHAP amendments do NOT impact applicability or

requirements under the original (June 2004) RICE MACT

» “RICE MACT” still applies for large, major source ICEs

» Minor change: emergency ICE cannot sell power to the grid

� Amendments result in “RICE MACT” requirements for

one new source subcategory » Major HAP source, new or reconstructed, four-stroke lean

burn engine applicability decreased to 250 hp

– Engine is “new” if constructed on or after June 12, 2006;

HOWEVER, new units are not required to meet emission or

operating limits unless manufactured on or after Jan. 1, 2008

� All other new and reconstructed units covered by the

NESHAP amendments comply via NSPS compliance» Streamlines reporting and recordkeeping

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RICE MACT Requirements

� Applies to new or reconstructed engines and existing rich burns >500 hp at major HAPs source

» For 4SLB, applicability at 250 hp due to 2008 revision

� Full “MACT” Requirements Apply» Requires oxidation catalyst & parameter monitoring

» Emission Limits – CO or formaldehyde limits

» Performance Tests for emissions compliance

» Operating Limits for catalyst operation

» Parameter Monitoring – Catalyst Tinlet and ∆∆∆∆P monitoring

» Performance Evaluation for Continuous Parameter Monitoring (CPM) of inlet temperature

� Long list of Reporting, Notification and Recordkeeping requirements

» e.g., SSMP and associated recordkeeping/reporting

Brick MACT Court Case (1)Implications for IC Engine NESHAP in 2009

� “MACT Floor”: For existing major sources, the Clean Air

Act requires EPA to identify a “MACT floor” of emissions

control, which is “the average emission limitation

achieved by the best performing 12% of the existing

sources”

» The “floor” can be “no control” and in some cases EPA

determined that a “no control” MACT floor does not require

emissions limits or other requirements

� Sierra Club sued EPA over the Brick MACT, challenging

EPA’s failure to establish an emission limit for “no

control” existing units

» Also challenged how EPA considers factors such as

emissions variability when setting the emissions limit

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Brick MACT Court Case (2)Implications for IC Engine NESHAP in 2009

� D.C. Circuit Court decision on March 13, 2007 sided with

the Sierra Club and vacated the Brick MACT

» Court ruled, "EPA has a clear statutory obligation to set

emissions standards for each listed HAP, which does not

allow it to avoid setting standards for HAPs not controlled

with technology."

� EPA will implement this Court ruling for other MACT

standards – e.g., RICE MACT sources

» Emission limits for existing IC engines

� 2009 amendments to Subpart ZZZZ will consider emission limits for some existing units at major sources

» 2004 RICE MACT and 2008 amendments: only existing major source rich burn engines >500 hp have an emission standard

Startup, Shutdown, Malfunction Court CaseImplications for IC Engine NESHAP in 2009

� During SSM, operator not required to meet emission limits

» Must follow good practices to minimize emissions

» SSM Plan is required and must be followed

� EPA sued over legality of SSM “exemption”

� DC Circuit Court agreed with litigant in Dec 2008 ruling

» For NESHAPs, CAA requires compliance with an emission

standard at all times

» Court vacated the SSM provisions for NESHAPs

� EPA has indicated that NESHAPs will require standard

during startup, shutdown, and malfunction events

� In pending IC engine NESHAP revisions, EPA may

address this new SSM requirement

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IC Engine Rules: EPA Plans for 2009 NESHAP Revision (1)

� ICE NESHAP revision is required to address Court decisions on MACT limits for existing units

» Based on settlement agreement, EPA must propose RICE

NESHAP revision in Feb 2009 and Final Rule in Feb 2010

–Consent decree based on EPA agreement to include controls

for at least some existing diesel IC engines

– Signature deadline for proposed rule is February 25, 2009

» In January, EPA indicated the February proposed rule will

also address “emission standards” for some existing

natural gas-fired IC engines

» NESHAPs must include emission standards for existing

units with “no control” MACT floor

IC Engine Rules:

EPA Plans for 2009 NESHAP Revision (2)

� February proposed rule will likely include existing:

» Natural gas-fired area source engines and major source

engines 500 hp and smaller (i.e., ICEs in 2008 amendments)

» Major source engines will include an emission standard

–May be based on uncontrolled emissions in some cases; But,

“best performing” requirement may require control for some

engines to meet the “uncontrolled” standard

� Some area source IC engine standards may include

management practices rather than an emission standard

� Recordkeeping will be required

� EPA intends to address SSM limits in this rule

� Emission standards for existing lean burn ICEs covered

by the 2004 RICE MACT (major source >500 hp) will likely

be addressed during eight year review due by June 2012

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Turbine MACT

40 CFR 63, Subpart YYYY

� Turbine MACT Final Rule

» Proposed: Jan 14, 2003 (“new” if constructed on/after 1/14)

» Final in Federal Register & Effective Date: March 5, 2004

» Rule “Stayed” for Gas-Fired Turbines on August 18, 2004 in

response to petition to “delist” this source category

– EPA tentative Delisting is based “low risk” for this category

–Court cases / recent actions may complicate delisting decision

� If delisting is not approved, Final Rule would apply

» Formaldehyde emission limit (91 ppbvd@15%O2) for new/

reconstructed turbines located at a major HAPs source

» Oxidation catalyst for ≥≥≥≥1 MW units (ISO conditions)

» Rule also establishes full range of MACT requirements:

operating limits; initial and annual performance tests;

monitoring; recordkeeping and reporting

NAAQS and Related

NOx Regulations

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NOx Background: NAAQS & EPA/State Emission Controls

� NOx and VOCs are regulated as “precursors” to ozone

» NOx, VOC & sunlight form ozone via atmospheric reactions

» NOx is also a PM2.5 precursor

� “Original” 1-hr O3 NAAQS applied for over two decades

� 8-hour ozone NAAQS adopted in 1997 is 0.08 ppmv

� EPA adopted a lower ozone NAAQS in March 2008

» New 8-hour ozone NAAQS is 0.075 ppmv

� Since 1990, ozone strategy has evolved from VOC focus

from the 1970’s – 1990 to an increased focus on NOx

» States develop SIPs for nonattainment areas

» Original urban area focus now includes regional controls

» In the last decade, NOx RACT and regional control rules

have increased NOx controls for existing ICEs and turbines

NAAQS – PM2.5 Standard

� NOx is regulated as a precursor to fine particulate» If nonattainment, states may have to consider NOx RACT

for existing ICEs and turbines

� 1997 NAAQS: » Annual = 15 ug/m3 and 24-hr = 65 ug/m3

� 2006 NAAQS: » Annual = 15 ug/m3 and 24-hr = 35 ug/m3

» EPA designated nonattainment counties in December 2008

– Final Rule publication in the Federal Register is pending

» Nonattainment SIPs will be due in ~April 2012

–May include NOx control in some cases, especially when

coincidental with ozone nonattainment

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2006 PM2.5 NAAQS Nonattainment

EPA Nonattainment Area Map (Dec 2008)

1997 Ozone NAAQS: Recent Activities

� 1997 Ozone NAAQS is 0.08 ppmv» Implementation was delayed due to lawsuits

» SIPs were due in June 2007 and many rules are in place, but

regulatory clarifications could occur in 2009

� EPA pursued regional reductions through the Clean Air

Interstate Rule (CAIR) which allows emissions trading

» NOx and SO2 reductions from Power Plants

» CAIR was a primary strategy in many SIPs

» CAIR was challenged and Court “vacated” CAIR in July

2008; In December, Court reconsidered and remanded to

EPA (i.e., sent it back for revision) without vacatur

– Vacatur left too large of a regulatory hole in SIPs, etc.

� Eastern states threatening regional transport suit to

address NOx from sources in upwind states

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Ozone NAAQS Nonattainment:

1-hr versus 8-hr standards

Nonattainment Areas for

1-hour ozone standard

Nonattainment Areas for

1997 8-hr ozone standard (includes 258 new counties; 474 total)

Clean Air Interstate Rule (CAIR)

Regional Controls

Color scheme indicates

NAAQS of concern:

Blue: O3 and PM2.5

Red: O3 Yellow: PM2.5

� CAIR finalized 3/2005

» Reductions required

in two phases

� Requires emissions

reductions for power

plant NOx and SO2 for

28 states & DC

» Projected 61% NOx

reduction by 2015

» Intended to address

interstate O3 & PM2.5

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“New” Ozone NAAQS

� EPA adopted a lower ozone NAAQS in March 2008

» Schedule driven by litigation

� New NAAQS is 0.075 ppmv (8-hour standard)

» Compared to 1997 standard of 0.08 ppmv

–Rounds to 0.084 ppmv or 84 ppbv

–Many states were challenged to “demonstrate” via

modeling that 84 ppbv could be achieved

–Many states have alluded to the need for broader NOx

controls to address the new ozone NAAQS and ratchet

down below 84 ppbv

2008 Ozone NAAQS: EPA Map

� 345 monitored counties violate 0.075 ppm based on 2004-2006 data

� EPA expects fewer nonattainment counties based on 2006-2008 data

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2008 Ozone NAAQS: NAM Estimate

of Potential Nonattainment Counties (red and yellow counties)

2008 Ozone NAAQS Schedule

� Final Rule published in Fed Register March 27, 2008

� States recommend designations March 12, 2009

» Based on 2006-2008 monitoring data

� EPA nonattainment designations final March 12, 2010*

* 1 year extension possible if insufficient information

� SIPs due for nonattainment areas ~June 2013

» Or, 3 years and 3 months after final designations

� New state control measures implemented 2012+

� Attainment deadline 2013 – 2030

» Depending upon severity of the problem

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2008 Ozone NAAQS: RIA and Stationary Source Implications

� EPA conducted analysis: Reductions to achieve 0.075 ppm

� Regulatory Impact Analysis (RIA) for the new ozone

NAAQS includes CAIR and additional mobile and

stationary source NOx controls

» EPA indicated that RIA is illustrative and not binding, but

strategy may inform upcoming SIPs

– Strategy includes incremental NOx controls from “large”

stationary sources other than Electric Generating Units (EGUs)

� Non-EGU NOx control included for “large” facilities >1,000 TPY that

are 200 km or more from a nonattainment area

» For non-EGU NOx reductions, RIA indicates that natural

gas-fired ICEs provide the largest tonnage of NOx reductions

–Control technology analysis is not thorough, but EPA presumed

Selective Catalytic Reduction (SCR) for lean burn engines

2008 Ozone NAAQS:

RIA Map for Non-EGU Controls

� Counties with

non-EGU

controls in

EPA RIA for

2008 ozone

NAAQS

� NOx controls

for facilities

with NOx

>1,000 TPY

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RIA Implications – “Large” facility

� Assuming 14 g/bhp-hr for reciprocating ICEs:

» 7,400 hp exceeds 1,000 TPY based on potential to emit

» 9,870 hp exceeds 1,000 TPY at 75% utilization

» 14,800 hp exceeds 1,000 TPY at 50% utilization

» 29,600 hp exceeds 1,000 TPY at 25% utilization

� Based on facility ICE horsepower from industry

database:

» 49% of compressor stations > 7,400 hp (ICEs only)

» 42% of compressor stations > 9,870 hp

» 31% of compressor stations > 14,800 hp

» 16% of compressor stations > 29,600 hp

Example State Rules

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Example State Actions: NOx Control

� Recent IL EPA NOx Rule provides examples of

flexible compliance options pursued by operators

� Emissions from oil and gas have been targeted in

several states

» Primary interest appears to be E&P, but gas transmission

could be implicated

» For example: East Texas Rule, Colorado rule for

relocated engines

– Limits <3 g/bhp-hr; lower than other recent NOx RACT rules

» TX and CO examples follow

Illinois EPA NOx Rule

for ICEs and Turbines

� NOx limits (at 15% O2), with averaging allowed:

» 210 ppmv for lean burn ICEs, 150 ppmv for rich burns, 365 ppmv

for Worthington lean burns (500 hp and above subject)

» 42 ppmv for turbines (3.5 MW and above subject)

� Rule provisions include flexible options based on pipeline

group comments and ongoing dialogue over 3+ years» Emission averaging based on “bottom up” budget

» Facility-level annual utilization-based exemption

– 8 MMhp-hrs for ICEs and 20,000 MWh for turbines

» NOx budget allowances can be used in limited cases (e.g., excess

tons from anomaly with emissions averaging or hp-hrs)

» Compliance in 2010 (extra year from earlier proposal)

» Applicability only in nonattainment areas

– Challenge by pipeline group provided time for new modeling to be

considered – negated IL EPA desire for statewide rule

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East Texas Combustion Rule

� Dallas-Forth Worth area is ozone nonattainment

� TCEQ developed IC engine rule for Dallas area» Requires control of rich burn and lean burn engines >50 hp

» Control required by March 2009 or 2010 based on facility size

» NOx limit of 0.5 – 0.7 g/bhp-hr and CO limit of 3.0 g/bhp-hr

» Retrofit control technology challenges for lean burn engines

� Due to pollution “transport” from remote counties,

TCEQ also developed new rule for existing engines in

33 “attainment” counties upwind of Dallas» Focus: Oil & gas operations, rich burn engines >240 hp

–NOx limit: 1.0 g/bhp-hr (240 - 500 hp) or 0.5 g/bhp-hr (>500 hp)

» Compliance required by March 2010

Colorado Relocated Engines

� Typically, relocating an existing engine does not change

its regulatory status – i.e., rules aren’t triggered unless

the engine is modified or reconstructed

� Due to oil & gas growth, Colorado is concerned about

“dirty” engines being moved into the state

� Starting in 2007, engines relocated into CO must meet

emission limits analogous to the IC engine NSPS

» 2.0 g/bhp-hr NOx thru 2010/2011;

» For units relocated after 2010/11, NOx = 1.0 g/bhp-hr

» CO and NMHC standards also apply

» Effective date depends on engine size

– July 1, 2007 for engines >500 hp

– January 1, 2008 for engines from 100 – 500 hp