Northeast Clean Energy Application Center

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CHP Environmental Regulations

CHP presents several novel challenges to environmental regulators. The industry still faces the unfair impression that all distributed generation installations are "dirty diesels" that foul the air and make too much noise. However, efficient modern CHP systems produce more useful energy with less fuel and emissions than most power consumed in the U.S., and face powerful economic and other incentives to operate cleanly. When the full efficiency and avoided line loss advantages of CHP are accounted for, most modern CHP installations can meet or exceed stringent regulations, and contribute to cleaner air and a healthier environment.

However, regulators must overcome an apparent difficulty in reducing the administrative and technical costs required to oversee many small generators, as opposed to focused attention on a few large plants. Smaller units mean smaller economies of scale and smaller cash flows, which may preclude the cost effective deployment of some emission control technologies. Regulation needs to account for the fact that high transaction costs constitute a potential barrier to deployment of clean, small scale CHP systems. Many options for effective regulation have been developed.

Air emission regulations should encourage systems which produce low emissions relative to their output of useful energy-including electric as well as thermal or mechanical energy output. So-called output-based regulations encourage efficiency and pollution prevention. In addition, air regulations should account for the fact that many CHP facilities tend to run during peak hours, when the least efficient central station generators are also running. Thus, CHP tends to displace the worst polluters, as opposed to the relatively efficient generators that tend to run more often.

Priority environmental issues include: Output Based Regulations, Type Testing of technologies, and the availability of Emission Reduction Credits.

Output Based Regulations:

Output-based regulations encourage energy efficiency by relating allowed emissions to the productive output of a process, not to the amount of fuel burned. Such standards are typically expressed as pounds (of pollutant) per Megawatt Hour (of energy produced). Older forms of emission regulation were stated in terms of fuel burned, or of concentrations of pollutants per quantity of emission. The important aspect of output-based regulations lies in their accounting of all energy services, not just electric, to acknowledge the overall efficiencies that CHP can provide. This accounting may be accomplished in two ways. The emissions rule may calculate all energy output in equivalent units (e.g., BTUs or MWh). Alternately, as in the method developed in the RAP process, it may determine the emissions that would have resulted from a traditional boiler to generate the same heat output and subtract those offset emissions from the CHP system's actual emissions. Either method rewards increased efficiency.

The EPA has developed a handbook, "Output-Based Regulations: A Handbook for Air Regulators," to help regulators develop output-based emission rules. It explains how and why to develop an output-based standard, and a lengthy appendix of examples, and is available on the EPA's Clean Energy web site.

Other resources and examples of output-based regulations:

State Rules

Several states have implemented or are currently developing emission regulations specifically directed at distributed generation including CHP. A web site hosted by Energy and Environmental Analysis, Inc. (EEA) provides good general information on DG air permitting issues. EEA also provides state specific information on emissions rules and other regulatory issues.

Several Northeastern states have adopted emission rules applying to distributed generation. Both Connecticut and Maine developed standards that are output-based.

Connecticut

Maine

New York

Massachusetts

Manufacturer Certification/Type Testing

Manufacturers should have the ability to certify their equipment with respect to emission outputs, to avoid imposing the expense of duplicative emissions testing. Of course any site may be subject to audit or spot check to ensure that it complies with all relevant rules and regulations.

The California Air Resources Board (CARB) has developed a certification program for distributed generation equipment. It specifically distinguishes CHP from distributed generation without heat recovery; see http://www.arb.ca.gov/regact/dg01/dg01.htm and http://www.arb.ca.gov/regact/dg01/finreg.pdf.

Emission Reduction Credits (ERCs):

Small generators deserve the ability to opt in to the same emission reduction credit programs that large generators participate in. Once obtained, such credits may be offered for sale in the currently functioning emission credit market auctions. This provides an additional financial incentive for owners of old, inefficient generating equipment and boilers to invest in modern technologies. New York has initiated such a program (see ERC guidebook).

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