On December 17, the Environmental Protection Agency (“EPA”) Administrator Lisa Jackson issued a decision requiring the Kentucky Department of Air Quality (“KDAQ”) to consider whether the proposed Cash Creek Integrated Gasification Combined Cycle (“IGCC”) plant should consider generating electricity with natural gas rather than the syngas produced in the gasification process.  The decision was issued in the context of determining the Best Available Control Technology (“BACT”) requirements in Cash Creek’s Prevention of Significant Deterioration (“PSD”) permit. EPA said that natural gas might be a lower polluting fuel than syngas.

KDAQ maintained that natural gas should not be considered as BACT for an IGCC plant because doing so would “redefine the source.”  Historically, an applicant for a PSD permit has not been required to “redefine” its proposed facility in order to comply with BACT – for instance, to build a nuclear facility instead of a coal facility.  Using natural gas instead of syngas in an IGCC arguably redefines the nature of the facility since the purpose of an IGCC plant is to gasify coal and then burn the syngas to generate electricity.  Using natural gas instead of the syngas arguably transforms an IGCC plant into just a combined cycle plant and would eliminate the need to gasify coal.

EPA did not order KDAQ to determine that the developer must utilize natural gas instead of syngas in order to meet BACT requirements.  It said instead that KDAQ must provide a better explanation of why substituting natural gas for syngas would redefine the source. It also said that the decision should not be seen as EPA opposition to IGCC in general.

The decision has potentially significant implications as EPA nears final promulgation of regulations that would trigger BACT requirements for carbon dioxide (“CO2”) in the PSD permit process.  Environmentalists have been arguing that BACT for a coal plant should include switching to natural gas and other, non-CO2 emitting sources including renewables and demand-side management, as a way of reducing CO2 emissions. 

EPA has convened a task force to consider potential GHG BACT requirements, and that task force is expected to make recommendations on the issue to EPA’s Clean Air Act Advisory Committee (CAAAC) at the end of January.  One of the issues the task force is considering is the redefining the source issue.

Based on the work of the task force and CAAAC, EPA has indicated that it hopes to have GHG BACT guidance available when states must begin making GHG BACT decisions in the Spring. 
The PSD permitting process — and the extent to which fuel-switching may be required as BACT — is likely to become a major battleground in determining the future role of coal for electric generation