Legal Analysis of/Early Comments on EPA’s Proposed Carbon Pollution Standard1

By William Yeatman, Competitive Enterprise Institute, wyeatman@cei.org

Introduction: Standard of Review for Clean Air Act §111 NSPS The United States Court of Appeals, District of Columbia Circuit is the court of exclusive review for New Source Performance Standards (NSPS) and has examined Clean Air Act §111 on several prior occasions.2 The court’s decisions, in turn, have “established a rigorous standard of review under § 111.”3 Broadly, the court has described its Clean Air Act §111 review as being “a test of reasonableness.”4 In order to survive review, the administrator’s NSPS determination “must consider all of the relevant factors and demonstrate a reasonable connection between the facts in the record and the resulting policy scheme.”5 While the court must be mindful of the high degree

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On Friday, September 20, 2013, EPA released the prepublication version of the proposed Carbon Pollution Standard. The prepublication version has been signed by Administrator Gina McCarthy, and currently awaits publication in the Federal Register. All references in these comments refer to the prepublication version, available http://www2.epa.gov/sites/production/files/2013-09/documents/20130920proposal.pdf . When the Federal Register version is published, I will update the citations. 2 Portland Cement Association v. Ruckelshaus, 486 F.2d 375 (D.C.Cir.1973); Essex Chemical Corp. v. Ruckelshaus, 486 F.2d 427 (D.C.Cir.1973); National Asphalt Paving Association v. Train, 539 F.2d 775 (D.C.Cir.1976); National Lime Association v. Environmental Protection Agency 627 F. 2d 416 (D.C. Cir. 1980); Lignite Energy Council, et al. v. Environmental Protection Agency 198 F.3d 930 (D.C. Cir. 1999); Sierra Club v. Costle, 657 F.2d 298 (D.C. Cir. 1981) 3 National Lime Association v. Environmental Protection Agency 627 F. 2d 416 at 429 4 Essex Chemical Corp. v. Ruckelshaus, 486 F.2d 427 at 434 5 Sierra Club v. Costle, 657 F.2d 298 at 323

of deference it must show the agency’s scientific judgment,6 “the necessity to review agency decisions, if it is to be more than a meaningless exercise, requires enough steeping in technical matters to determine whether the agency has exercised a reasoned discretion.”7 Regarding its review of Clean Air Act §111, the court has explained that, “ultimately…the cause of a clean environment is best served by reasoned decision-making.”8 The statutory “focal point” of the court’s review of an NSPS is the administrator’s determination of a “standard of performance,”9 which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.10 (formatting added to stress statutory terms) In Sierra Club v. Costle, the court “parsed” this difficult statutory phrasing of “standard of performance”: [Clean Air Act] § 111 most reasonably seems to require that EPA identify the emission levels that are “achievable” with “adequately demonstrated technology.” After EPA makes this determination, it must exercise its discretion to choose an achievable emission level which represents the best balance of economic, environmental, and energy considerations.11 (formatting added) As is explained in the sections below, the court’s prior decisions have further interpreted many of these terms in order to guide the NSPS process. For example, the administrator must ensure that a technology is commercially viable before it can be determined to be “adequately demonstrated.” And when she considers whether an emission standard is “achievable,” the administrator must take into account the representativeness of the data that she used to justify her decision. After the administrator makes those two determinations (”adequately demonstrated technology” and “achievable standard”), she then must balance economic, environmental, and energy impacts
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See, e.g., Appalachian Power Co. v. EPA 135 F.3d 791, 801-802 (D.C. Cir. 1998) Portland Cement Association v. Ruckelshaus, 486 F.2d 375 at 402 citations, quotations omitted; The court stated eloquently stated this aspect of review in Essex Chemical Corp. v. Ruckelshaus: “While we must bow to the acknowledged expertise of the administrator on matters technical, we should not automatically succumb thereto, overwhelmed as it were by the utter “scientificity” of the expedition” at 434 8 Portland Cement Association v. Ruckelshaus, 486 F.2d 375 at 402 9 Essex Chemical Corp. v. Ruckelshaus, 486 F.2d 427 at 433 10 Clean Air Act §111(b)(1)(B) requires the administrator to “publish proposed regulations, establishing Federal standards of performance for new sources [within a source category that has been determined to contribute significantly to air pollution that endangers public health or welfare].” The term “standard of performance” is defined in Clean Air Act §111(a)(1). 11 Sierra Club v. Costle, 657 F.2d 298 at 330

to choose the best system of emission reduction. Although the court has recognized that the administrator has “a great degree of discretion” in weighing these factors,12 her choice is not unrestrained. Prior decisions have established the parameters of reasonable decision-making, as a safeguard against “crystal ball” inquiry.13 Notably, judicial review of the agency’s balancing of the relevant factors is conditioned on the newness of the technology on which the standard is based. As the “imprint of the new technology” on the rule increases, the court’s review becomes “more demanding.” 14 This is important in the context of the EPA’s proposed rule, which is based on the “newest” possible technology (carbon capture and sequestration), one that hasn’t yet been demonstrated commercially. It follows that EPA’s balancing of the statutory considerations in formulating the proposed NSPS is held to the most demanding standards of review. Summary of Comments on EPA’s Proposed Carbon Pollution Standard 1. The administrator failed to perform a determination that partial CCS is “adequately determined,” as is required by the statute. Instead, the agency contrived a new determination (”technical feasibility”) unrelated to the court’s guidance on Clean Air Act §111 interpretation. The record, in fact, does not support an “adequately demonstrated” determination for partial CCS, because the technology has not been demonstrated commercially. It is incumbent upon the administrator to dispel such doubts by performing a reasonable analysis. 2. The administrator failed to perform a determination that an emissions standard based on partial CCS is “achievable,” as is required by the statute. Instead, the agency contrived a new determination (“technical feasibility”) unrelated to the court’s guidance on Clean Air Act §111 interpretation. The record, in fact, does not support an “achievability” determination for an emissions standard based on partial CCS, due to limited availability of the technology. It is incumbent upon the administrator to dispel such doubts. 3. The administrator expects new coal plants that comply with NSPS will sell captured CO2 to oil companies, which will use the gas to enhance oil recovery. Yet the administrator impermissibly failed to take into account the CO2 attributable to the oil that is recovered using gas captured at the coal plant. Evidence indicates that the CO2 from oil derivative
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Lignite Energy Council, et al. v. Environmental Protection Agency 198 F.3d 930 at 933, “Because section 111 does not set forth the weight that should be assigned to each of these factors, we have granted the agency a great degree of discretion in balancing them. 13 Portland Cement Association v. Ruckelshaus, 486 F.2d 375 at 391, “The administrator may make a projection based on extisting technology, though that projection is subject to the restraints of reasonableness and cannot be based on “crystal ball” inquiry. (citations omitted) 14 Sierra Club v. Costle 657 F.2d 298 at 348, “the greater the imprint of the new technology on the final rule, the more demanding our review of the evidence about the potential benefits and capabilities of the new technology.”

of the NSPS is significant, and perhaps even exceeds, the CO2 reduced by partial CCS. This suggests that the NSPS could do more harm than good, which is plainly unreasonable. It is incumbent upon the administrator to dispel such doubts. Comments on EPA’s Proposed Carbon Pollution Standard 1. Summary of Comment on Administrator’s Responsibility to Determine “Adequately Demonstrated Technology” The administrator failed to perform a determination that partial CCS is “adequately determined,” as is required by the statute. Instead, the agency contrived a new determination (”technical feasibility”) unrelated to the court’s guidance on Clean Air Act §111 interpretation. The record, in fact, does not support an “adequately demonstrated” determination for partial CCS, because the technology has not been demonstrated commercially. It is incumbent upon the administrator to dispel such doubts by performing a reasonable analysis. Because “Clean Air Act §111 looks toward what may be fairly projected for the regulated future, rather than the state of the art at present,” 15 the EPA administrator is permitted to base the best system of emissions reduction on a technology that is not currently in routine use. Accordingly, the act’s requirement that emission limitations be based on an “adequately demonstrated technology” does not necessarily imply that all sources now in existence be able to meet the proposed standard. While EPA is authorized to promulgate a technology forcing NSPS, the court has identified a number of relevant factors that must be reasonably accounted for before a given technology can graduate from “emerging” to “adequately demonstrated.”16 For example, an adequately demonstrated technology must be “reasonably reliable, reasonably efficient, and…reasonably be expected to serve the interests of pollution control without becoming exorbitantly costly in an economic or environmental way.”17 Also, the “demonstration of commercial-scale systems” is a “crucial” issue that must be accounted for by the administrator. 18 Unfortunately, the administrator ignored the court’s guidance when she determined that carbon capture and sequestration (CCS) is an “adequately demonstrated technology.” Instead, she

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Portland Cement Association v. Ruckelshaus, 486 F.2d 375 at 391, “Section 111 looks toward what may fairly be projected for the regulated future, rather than the state of the art at present, since it is addressed to standards for new plants — old stationary source pollution being controlled through other regulatory aut hority.” 16 Sierra Club v. Costle 657 F.2d 298 at 341, FN 157, “Although it is conceivable that a particular control technique could be considered both an emerging technology and an adequately demonstrated technology, there is an inherent tension between the two concepts” (citations omitted). 17 Essex Chemical Corp. v. Ruckelshaus, 486 F.2d 427 at 433 18 Sierra Club v. Costle, 657 F.2d 298 at 330 at 341 FN 157

engineered an altogether novel criterion—“technical feasibility”19—to judge whether CCS had passed the threshold from emerging technology to adequately demonstrated technology. It’s unclear on what basis the administrator contrived that “technical feasibility” is the benchmark for an “adequately demonstrated technology” determination, as none was provided.20 On the other hand, it is crystal clear that the agency’s technical feasibility analysis fails to reasonably address the court’s requirement that the agency consider the commercial viability of CCS, which, again, the court has held to be a “crucial” issue for the administration’s consideration.21 In the proposed rule, the administrator determined that partial CCS is feasible— and therefore adequately demonstrated—because “each step in the process has been demonstrated to be feasible.”22 Here, EPA’s reasoning is plainly faulty. For starters, the statute calls for the “best system of emission reduction.” EPA, however, subjected only the components of the CCS system (CO2 capture, transportation of CO2, and storage of CO2) to a feasibility analysis. In the proposed rule, the agency does not even try to explain how these individual components, working together in a system, are in fact feasible. More importantly, the administrator’s feasibility demonstration is materially different than a commercial demonstration, which is required by the courts, and which was not performed by the EPA. Finally, the record indicates that partial CCS is not yet sufficiently demonstrated to be a basis for the proposed standard. In fact, the administrator concedes that that only “some” of the core components of CCS have been implemented on a commercial scale. 23 Of course, it does not follow that the CCS system has been adequately determined if only “some” of its components have been so deemed. 2. Summary of Comment on Administrator’s Responsibility to Determine “Achievability” The administrator failed to perform a determination that an emissions standard based on partial CCS is “achievable,” as is required by the statute. Instead, the agency contrived
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EPA, Carbon Pollution Standard, Tthe “technical feasibility” analysis is conducted pp 174-175 and pp 215-226. On page 205, the administrator effectively equates “technical feasibility” with a determination of adequately demonstrated technology, when she explained how partial CCS gas met the “criteria for BSER,” including the fact that “[partial CCS] has been adequately demonstrated to be technically feasible.” 20 Ibid, p 174. EPA claims that the D.C. Circuit in Portland Cement Association v. Ruckelshaus, 486 F.2d 375 “established criteria for determining technical feasibility.” However, the agency provided no citation, and I could not find these criteria in the decision. 21 See FN 15, infra 22 EPA, Carbon Pollution Standard, p 215 23 EPA, Carbon Pollution Standard, p 217, “Each of the core components of carbon capture and sequestration…has been implemented, and, in fact, in some instances, implemented on a commercial scale.” If only “some” components of CCS have been demonstrated at a commercial scale, it follows that the technology as a whole has not been demonstrated. Also, EPA the greatest capacity of electricity generation whose greenhouse gas emissions

a new determination (“technical feasibility”) unrelated to the court’s guidance on Clean Air Act §111 interpretation. The record, in fact, does not support an “achievability” determination for an emissions standard based on partial CCS, due limited availability of the technology. It is incumbent upon the administrator to dispel such doubts. After the administrator determines that a given technology is “adequately determined,” she must then decide whether an NSPS based on that technology is “achievable.” Regarding the difference between these two factors, the court has explained, “[I]t is the system which must be adequately demonstrated and the standard which must be achievable.”24 As these are two separate determinations, it is possible for the administrator to establish an unachievable standard based on a technology that has been demonstrated adequately.25 The court’s decision in National Lime Association v. Environmental Protection Agency set forth an analytical framework for determining the “achievability” of an adequately demonstrated technology. In fulfilling her “statutory duty to promulgate achievable standards,” the administrator is required to “approach that task in a systematic manner that identifies relevant variables and ensures that they are taken into account of.”26 Chief among these relevant variables that must be considered is “the representativeness—along various relevant parameters—of the data relied upon” by the administrator’s achievability decision.27 The court has further parsed the “representativeness” standard, such that it incorporates a geographical component.28 In practice, this “representativeness” test demands that the NSPS must meet the conditions for all variations of operating conditions being considered anywhere in the country.29 Simply put, an “adequately demonstrated” technology must be available to all parts of the country, in order to be “achievable.” Regrettably, the EPA administrator again ignored established judicial guidance in performing her statutorily required task of determining the achievability of the NSPS. In fact, the proposed rule
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Essex Chemical Corp. v. Ruckelshaus, 486 F.2d 427 at 433 “the statute expressly requires, for the standards he promulgates, that technology be achievable.” Portland Cement Association v. Ruckelshaus, 486 F.2d 375 at 402. 26 National Lime Association v. Environmental Protection Agency 627 F. 2d 416 at 443 27 Ibid at 433; later in the same passage, the court elaborates on the “representativeness” criterion, “where test results are relied upon, it should involve the selection or use of test results in a manner which provides some assurance of the achievability of the standard for the industry as a whole, given the range of variable factors found relevant to the standards' achievability.” Notably, EPA’s NSPS is based on evidence even weaker than the “test results” that warrant an accounting of “representativeness” (as is exp lained in the body of the report, the administrator’s “technical feasibility” analysis for partial CCS was supported by a demonstration of the feasibility of the components of a CCS system—but not the system itself, an “extensive” literature review, and “t he progress towards completion of construction of fossil fuel-fired EGUs [electricity generating units] implementing CCS at commercial scale”). 28 Ibid at 437, FN 63, in which the court explains its remand of the agency’s lime production NSPS is in part ba sed on, “EPA’s failure to expressly to consider…both geographic and temporal variations in conditions which might bear on [achievability of] emission levels.” 29 Ibid

never even acknowledges its responsibility to account for the representativeness of the data on which EPA relied to determine achievability.30 In lieu of the court’s direction, the administrator predicated her achievability decision on the “technical feasibility” of partial CCS.31 Above, I explain why EPA’s ill-founded “technical feasibility” criterion is an unacceptable substitute for a reasoned “adequately demonstrated technology” determination. The same holds true with respect to the administrator’s “achievability” determination. EPA has a statutory responsibility to promulgate an achievable standard, not a feasible standard. Based on the evidence in EPA’s proposed rule, it is highly doubtful that an emissions standard based on partial CCS would survive a reasonable achievability analysis (had the administrator performed one), due to the fact that the administrator failed to account for the representativeness of the cost data on which she relied. EPA vitiates the “purpose of a rulemaking proceeding” when the agency reasons “on the basis of inadequate data.”32 By ignoring the representativeness of the data on which it relied, the administrator’s NSPS risks imposing impermissible regional discrimination. Due to the high cost of capturing, transporting, and sequestering carbon dioxide, EPA expects that any new coal fired power plants built in the foreseeable future will defray the costs of CCS by selling the captured carbon dioxide to oil producers, which use the gas to help extract oil by displacing liquid fuels deep underground, in a process known as CO2 enhanced oil recovery (or CO2-EOR).33,34 CCS without access to EOR is much more expensive than CCS with access to EOR, perhaps “exorbitantly” so, and therefore unachievable.35 Yet the availability of EOR is dependent on local geology, and, as a result, access to the technology is geographically limited. EPA’s proposed rule identifies only 12 states where EOR is practiced.36 While the EPA concedes that “there are places” where access to EOR “may not be presently available,” the agency nevertheless avers that “our analysis shows that this cost structure – with or without EOR – is consistent with the D.C. Circuit’s criteria for determining that costs are
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The proposed rule’s discussion on “achievability” conspicuously failed to mention National Lime Association v. Environmental Protection Agency, the controlling case with regard to permissible constructions of “achievability” under Clean Air Act §111. 31 See discussion on technical feasibility in proposed Carbon Pollution Standard p. 174, p 215 32 Portland Cement Association v. Ruckelshaus, 486 F.2d 375 at 393,“It is not consonant with the purpose of a rulemaking proceeding to promulgate rules on the basis of inadequate data.” (citations omitted) 33 “the ability to sell CO2 for utilization in EOR can significantly affect the overall cost of the [CCS] project,” EPA, Carbon Pollution Standard, p 232 34 “As a practical matter, we expect that new fossil fuel fired EGUs that install CCS will generally make the captured CO2 available for use in EOR operations.” Ibid, p 262 35 The court has established that the cost of the best system of emission reduction can not be “exorbitant.” See Naional Asphault Pavenment Association v. Train, 539 F2d. 775, at 786 (D.C. Cir. 1976) 36 Ibid, p 230 “EOR is conducted in oil reservoirs in the U.S. Permian Basin, which extends through southwest Texas and southeast New Mexico. Other U.S. States where CO2-EOR is utilized are Alabama, Colorado, Illinois, Kansas, Louisiana, Michigan, Mississippi, New Mexico [sic], Oklahoma, Utah, and Wyoming

reasonable.”37 However, EPA’s analysis fails to even attempt to account for regional differences in the availability of CO2-EOR, as EPA’s cost estimates were based on coal fired power plants within 50 miles of geology suitable for CO2-EOR.38 Due to EPA’s inadequate analysis, it remains unknown how much partial CCS costs in regions where EOR is unavailable. Because the court has recognized that “some aspects of achievability cannot be divorced from consideration of costs,”39 the regional disparity in compliance costs of its proposed standard bears heavily on EPA’s achievability determination.” Undoubtedly, the “representativeness” of EPA’s cost analysis is a relevant factor that EPA must account for, yet the agency failed to consider it altogether when it found that an emissions standard based on partial CCS is achievable. “It is up to EPA to dispel such doubts” about the achievability of the proposed standard,40 so the agency has a responsibility to demonstrate the reasonableness of its determination. As part of this decision, EPA must account for the “representativeness” of the cost data on which the administrator relied. But she failed to even acknowledge her responsibility to gauge the “representativeness” of the Carbon Pollution Standard. This is an impermissible omission. Finally, the record suggests that partial CCS is not achievable, due to regional prejudice caused by the limited access to EOR to mitigate costs. 3. Summary of Comment on EPA’s Balancing of Statutory Factors to Determine “Best System of Emission Reduction” The administrator expects new coal plants that comply with NSPS will sell captured CO2 to oil companies, which will use the gas to enhance oil recovery. Yet the administrator impermissibly failed to take into account the CO2 attributable to the oil that is recovered using gas captured at the coal plant. The record indicates that the CO2 from oil derivative of the NSPS is significant, and perhaps even exceeds, the CO2 reduced by partial CCS. It is incumbent upon the administrator to dispel such doubts. Clean Air Act §111 identifies four factors that the administrator must take into account when she determines the “best system of emission reduction.” They are: “cost,” “non air quality health [impact],” “environmental impact,” and “energy requirements.”

37 38

Ibid, p 238 EPA’s cost analysis, as summarized on Table 6. “Levelized Cost of Electricity for Fossil Fuel Electric Generating Technologies, Excluding Transmission Costs,” (p. 240), was “derived” from a study, “Cost and Performance of PC and IGCC Plants for Range of Carbon Dioxide Capture, DOE/NETL-2011/1498 (May 2011),” which only considered a hypothetical plant that transported CO2 50 miles via an already constructed pipeline. 39 National Lime Association v. Environmental Protection Agency 627 F. 2d 416 at FN 46, p 431, “The statutory standard is one of achievability, given costs. Some aspects of “achievability” cannot be divorced from consideration of “costs.” 40 Ibid, at 444

EPA’s proposed rule, on the other hand, identifies criteria for determining the best system of emission reduction that differ significantly from the statutory factors. EPA’s considerations are: “amount of emissions reductions,” “costs,” “expanded use and development of technology,” and “nationwide component.”41 In the previous section, I discussed the unreasonableness of EPA’s cost analysis. In this section, I address the gross inadequacy of EPA’s consideration of “emissions reductions.”42 Specifically, the administrator failed to account for CO2 emissions attributable to the combustion of oil production engendered by partial CCS. These emissions—a direct consequence of the NSPS— would significantly undermine the effectiveness of the proposed standard, and could even exceed the mass of the CO2 “saved” by partial CCS. Such a standard would be arbitrary and capricious, for “control technologies cannot be “best” if they create greater problems than they solve.”43 As noted above, EPA expects that new coal fired power plants built in the foreseeable future will defray the costs of CCS by selling its carbon dioxide to oil companies, which use the gas to help extract oil by displacing liquid fuels deep underground, in a process known as CO2 enhanced oil recovery (or CO2-EOR). “As a practical matter,” EPA explains in the proposed rule, “we expect that new fossil fuel fired EGUs that install CCS will generally make the captured CO2 available for use in EOR operations.”44 Moreover, EPA expects the CO2 supply created by the Carbon Pollution Standard will spur development of oil recovery. According to the administrator, “[O]il and gas fields now considered to be ‘depleted’ may resume operation because of increased availability and decreased cost of anthropogenic CO2, and developments in EOR technology, thereby increasing the demand for and accessibility of CO2 utilization for EOR.”45 So, EPA expects that plants complying with the Carbon Pollution Standard will sell their captured CO2 to oil producers. And by increasing the supply of commercial CO2 on the market, EPA posits that the price of CO2 will decrease, leading to a boom in oil and gas production. But there’s a conspicuous shortcoming with EPA’s proposal. It completely fails to take into account the expanded carbon footprint of the oil industry caused by its power plant rule. This is an impermissible omission by the administrator, because the emissions attributable to EOR are inherent to the NSPS as envisioned by the administrator, as opposed to being indirect in nature.

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See subsection D. “Factors to Consider in Determining the “Best Sysetm,” EPA, Proposed Carbon Pollution Standard, p 175 42 Ibid, starting at p. 175, also at 214 43 Portland Cement Association v. Ruckelshaus, 486 F.2d 375 at 326 44 EPA, Proposed Carbon Pollution Standard, p. 262 45 Ibid, p 232

In the final rule, she must reasonably account for all CO2 emissions attributable to the NSPS as envisioned by the EPA. There is evidence that emissions attributable to EOR performed with captured CO2 could be significant, and perhaps even exceed the emissions reductions achieved by partial CCS. In the CO2-EOR process, the relationship between the amount of CO2 injected in an EOR well, and the amount of oil that comes out, is known as the “utilization ratio.” While the calculation of a utilization ratio is highly sensitive to assumptions, a reasonably representative utilization ratio is 5,000 cubic feet of CO2 per barrel of oil.46 Given the utilization ratio, the mass of CO2 gas, and also the mass of CO2 emissions from the combustion of a barrel of oil, it is possible to calculate an approximation of how much CO2 will be created by each kilogram of CO2 captured from a CCS coal plant, and used to enhance oil recovery.47 Under these assumptions, a back-of-the-envelope, admittedly rudimentary conversion renders an alarming result: approximately 1.66 kilogram CO2 emitted for each 1 kilogram CO2 captured and then used in EOR. Assuming that a CCS project captures 600 lbs CO2/MWh and that the plant is running at 85% capacity, then a typical coal plant in compliance with EPA’s Carbon Pollution Standard would result in the emission of 1.3 million more kilograms of CO2 than the plant would “save” per megawatt capacity annually. This suggests that the rule does more harm than good, and is therefore plainly unreasonable. It is incumbent upon the administrator to dispel such doubts.

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Taken from telephone conversation with Glen Murrell, at the Enhanced Oil Recovery Institute at the University of Wyoming, on 25 September 2013. 47 1 kilogram CCS CO2 injected*(1 cubed foot CO2/.05189 kilogram)*(1 barrel oil/5,000 cubed feet)*(433 kilograms CO2/1 barrel oil (combusted))=1.6 kilogram CO2 emitted by combustion of oil for every 1 kilogram CCS CO2 injected.

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