Regulations on the Horizon

What impact will the U.S. EPA’s Tailoring Rule regulations have on ethanol producers?
By Kris Bevill | March 10, 2011

When the U.S. EPA finalized its Tailoring Rule for greenhouse gas (GHG) emissions last spring, it made painstaking efforts to reassure the industry that the regulations would only affect a small percentage of U.S. facilities. Most of the affected facilities were already required participants of emissions permitting programs, the agency said, so compliance would not be detrimental to business.

Industry representatives remained skeptical, however, including the ethanol industry, which was stunned to learn that the EPA had incomprehensibly included biogenic emissions in its final rule. Inclusion of these emissions, defined by the EPA as emissions that occur as a result of combustion of decomposition of biological materials, would mean that most, if not all, ethanol facilities would become subject to the newly modified permitting requirements because the majority of an ethanol plant’s emissions stem from the fermentation process. The industry refuted the EPA’s inclusion of those emissions, stating that biogenic emissions have historically been deemed carbon neutral worldwide because CO2 emitted during the conversion to ethanol is equal to the CO2 absorbed during the feedstock’s growth.

It wasn’t until Jan. 12 that the EPA finally decided to defer permitting requirements for biogenic emissions for three years while it conducts scientific analysis and develops a rulemaking to specifically address those emissions. The decision was a huge relief for the industry, and will likely save some producers from participating in the regulatory program, but it will not eliminate ethanol’s participation in the rule entirely. The second stage of the three-legged Tailoring Rule will become effective  July 1 and will require any existing facility that has the potential to emit at least 100,000 tons annually of GHGs to obtain operating permits. New construction projects that may emit at least 100,000 tons of GHGs will also be subject to the rule. Ethanol facilities will be affected, but how many? And what economic burden will these facilities bear?

The Numbers

It is not exactly clear how many of the 200-plus U.S. ethanol plants will be affected by the EPA’s regulations in July, but indications are it will be most large facilities. The Iowa Department of Natural Resources Air Quality Bureau has been collecting GHG emissions data since 2007 and, based on that information, believes that 20 or 21 of the state’s 27 operating minor source ethanol plants will be subject to the regulations. The remaining six facilities may not be impacted, as a result of the EPA’s delayed inclusion of biogenic emissions, according to Marnie Stein, a senior environmental specialist with the bureau. Judging from that data, the Tailoring Rule will likely impact the majority of U.S. ethanol facilities, but it’s also important to note that the regulations will not be new to many of the affected parties. “We have 10 dry mills and five wet mills that are already subject to Title V, so there is some experience in the industry with Title V compliance,” Stein says.

Facilities are required to obtain Title V operating permits if they have potential emissions over a certain threshold. Permits are typically issued by state agencies, as is the case in Iowa. Stein says she doesn’t anticipate major changes for those previously affected facilities when the EPA’s regulations take effect on July 1. “The way facilities are permitted in Iowa is you get a construction permit for each individual piece of equipment and your Title V permit takes all those permits and combines them into one document,” she explains. “So, maybe other than some additional monitoring requirements like additional stack testing and compliance and monitoring reports, the requirements in the Title V permit are not going to be different than what they’re already subject to in their construction permit.” One potential change could be the addition of a Prevention of Significant Deterioration permit, she adds, which would only be necessary if the plant makes changes that increase GHG emissions by 75,000 metric tons or more annually. If biogenic emissions were still included in the Tailoring Rule, this permitting requirement could have affected any facility undergoing an expansion project.

Rita Dunn, environmental manager for the 100 MMgy Homeland Energy Solutions LLC plant in Lawler, Iowa, and the 80 MMgy Golden Grain Energy LLC plant in Mason City, Iowa, says both facilities are already subject to Title V requirements, so compliance in July should not be an issue. Both facilities, like most ethanol plants in the U.S., are also required participants of the EPA’s Mandatory Reporting Rule for GHG emissions. Dunn says compliance with the MRR has also so far mostly been a non-issue. “Any Title V facility in Iowa already has to report greenhouse gases as part of their emissions inventory, so that tracking and calculating has not been a big deal for us,” she says. Minor differences between the state and federal programs have included the requirement for a monitoring plan, which Dunn says was completed by a consulting firm, and a few additional details. The EPA requires facilities to provide high heating values from natural gas suppliers, for instance, whereas facilities previously were only required to track the amount of natural gas used by the plant, she says. Facilities also need to determine the amount of biogas combusted in the dryers if the facility cofires biomass fuels from biomethanators. This has been burdensome for ethanol plants with biomethanators that produce relatively miniscule amounts of methane compared to industrial wastewater treatment plants.

In her role as environmental manager, Dunn is most concerned with the EPA’s electronic system for reporting GHG emissions, known as e-GRRT. “It’s almost like it’s being developed as we speak,” she says. “We all had to register by Jan. 31 and they were actually having training into late-2010 as to how to register.” Reporters must file their first annual emissions inventory with the EPA through e-GRRT by March 31.

Cost of Compliance

It is somewhat unclear what the total cost of compliance will be for new participants of the Tailoring Rule. Affected facilities will be required to cover the cost of preparing the applications and will be subject to annual fees on non-GHG pollutants. The 10 Iowa dry mill ethanol plants previously subject to Title V permitting requirements paid average fees of $11,891 in 2009, according to Stein. She says newly affected facilities will likely be smaller plants, so their fees may be less than the 2009 average. Pollutant fees are set by the state Environmental Protection Commission and are capped at $56 per ton, which was the fee price in 2009, she says.

Homeland Energy and Golden Grain are accustomed to paying Title V permit fees, Dunn says. “For our facilities I don’t see an additional cost, but for smaller facilities—definitely,” she says. “Submitting a Title V application usually requires a consultant and that takes a lot of money and a lot of time.”

Geoff Cooper, vice president of research for the Renewable Fuels Association, says states may implement additional fees per ton of emissions to cover the additional administrative burden of implementing the EPA’s rule. “There are a lot more sources that they’re regulating now under the Tailoring Rule, so they’re going to have more of a burden and, in order to cover those costs, many states are looking at implementing a fee,” he says. “There’s also the requirement for best available control technology [BACT], which no one really knows at this point what that may mean economically for an ethanol producer because it isn’t really clear what EPA will consider to be BACT.”

Remaining Issues

The EPA issued an initial BACT guidance last fall, but as of mid-February it had not yet finalized the guidance, which will be used by affected entities and state permitters to assist in determining preferred GHG emissions-reduction methods at facilities. During a Congressional hearing in early February, EPA Administrator Lisa Jackson told legislators she expected energy efficiency to become a primary form of BACT, but the RFA believes that term is too vague to be a useful compliance tool. “What is energy efficiency and how is that defined and measured?” Cooper says. “There’s so many implementation questions that go along with BACT.”

Aside from energy efficiency, the RFA takes issue with the EPA’s broad evaluation of other technologies that it believes could be available for reducing GHG emissions and therefore deemed as BACT. “They specifically called out carbon capture and sequestration [CCS] as a BACT option for an ethanol plant and it isn’t an option,” Cooper points out. “There’s no one in the industry today doing CCS, the costs of CCS are prohibitive—the technology is not there, necessarily.”

Cooper said he expects the EPA to issue at least a second draft of its guidance in the near future, ideally correcting some of the vagueness of its earlier draft.

It is unclear how many affected ethanol plants would be able to lower their emissions to levels below the EPA’s thresholds, even if the agency decides that relatively simple energy efficiency measure can be used to mitigate emissions. Homeland Energy and Golden Grain each exceed the 192 million Btu per hour (MMBtu/hr) natural gas Tailoring Rule threshold by more than 8 MMBtu/hr, according to Dunn, and have no current plans to attempt to reduce emissions. “It would not be economically feasible with today’s margins to add emission control for GHGs,” she says.

The delay of biogenic emissions was an important step for the ethanol industry, but because the EPA will not decide until 2013 whether those emissions will be permanently excluded from the Tailoring Rule, producers may be hesitant to install energy efficient measures such as biomass cofiring. “I think the uncertainty over how the EPA will handle these biogenic emissions will have some effect on what ethanol producers decide to do in terms of adopting these technologies,” Cooper says.

Another lingering issue is the fate of the Tailoring Rule and the EPA’s ability to regulate GHG emissions. Several lawsuits have been filed, challenging the agency’s authority to impose emissions regulations under the Clean Air Act. Legislators have also stepped in, drafting bills that would delay or permanently halt the EPA’s ability to regulate emissions.  The Iowa DNR Environmental Protection Commission pointed out in its final Tailoring Rule that states are obligated to implement the Clean Air Act and cannot wait for challenges to the federal regulation to be resolved, which could take years. In the event that legal or other federal actions modify the federal Tailoring Rule, states may conduct emergency rulemaking, which would allow state agencies to react relatively quickly to those changes, the department stated. In the meantime, state agencies and producers must continue to prepare to comply with the July 1 start date.

Author: Kris Bevill
Associate Editor, Ethanol Producer Magazine
(701) 540-6846
kbevill@bbiinternational.com