NJ PACT Update: New Jersey Announces CO2 Emissions Limits for Stationary Sources

During the first term of New Jersey Governor Phil Murphy, his administration announced ambitious plans both to reduce emissions of greenhouse gases responsible for climate change and to change land use rules to mitigate the effects of rising sea levels and other effects of climate change.  The State dubs this initiative “NJ PACT—New Jersey Protecting Against Climate Threats.” 

On December 6th, in the waning days of Murphy’s first term and before the start of his second term, the New Jersey Department of Environmental Protection (NJDEP) proposed its most significant set of NJ PACT regulations to date, which focus on limiting emissions of carbon dioxide (CO2) from stationary sources.  The proposed rule has three parts.  First, it places emissions limits on CO2 from electric generating units (EGUs), i.e., the combustion or steam-generating equipment that generates electricity at power plants.  These limits will become more stringent over time.  Second, it creates a regulatory presumption that certain large boilers fired by fossil fuels should be replaced by electric boilers when they reach the end of their useful lives.  Finally, the rule bans the sale and use of No. 4 and No. 6 fuel oil in New Jersey.  This rule, each portion of which is described in more detail below, will have a significant impact in the coming years.  Various elements of this wide-ranging rule will impact diverse industries, including energy, manufacturing, commercial real estate, education, and healthcare, to name a few.  Parties that may be affected by the restrictions should consider whether to comment on the proposed rule or even start to plan for potential operational impacts of new regulation.

 Emissions Limits for EGUs

The proposed rule sets CO2 emissions limits that gradually ratchet down over time for large fossil fuel-fired EGUs (i.e., EGUs with a nameplate capacity equal to or greater than 25 megawatt electric (MWe)) that provide electricity to the grid.  According to the rule proposal, there currently are 94 individual EGUs at 33 different facilities that could be subject to the new emissions limits. 

NJDEP proposes three tiers of emissions limits that these existing EGUs must meet.  The first tier emissions limit is 1,700 lbs. of CO2 per megawatt hour of the EGU’s gross energy output (1,700 lb/MWh), which must be complied with before January 1, 2024.  According to NJDEP, there are 12 EGUs in New Jersey that are fired by either coal, fuel oil, or older, less-efficient natural gas fired turbines that could not meet this limit, and these units meet a small fraction (less than 3%) of the state’s electricity demand.  NJDEP presumes that some of these units will shut down because of the emissions limit, and so the rule proposal addresses the potential effects of “leakage,” which occurs when electricity generated out-of-state replaces in-state generation capacity to meet New Jersey’s demand for electricity.  NJDEP has concluded that because the projected rate of CO2 emissions from the marginal unit in the PJM system, the electric grid serving New Jersey and several other states, would be below New Jersey’s first tier emission limit, leakage, if it occurs, would not lead to higher CO2 emissions.

The second tier emissions limit of 1,300 lb/MWh will go into effect on January 1, 2027, and NJDEP anticipates that it will have similar impacts on existing EGUs as the first tier limit.  The rule proposal states that 14 existing EGUs accounting for less than 1% of New Jersey’s current electricity generation would be affected by the second tier limit.  And, again, NJDEP concluded that leakage resulting from this emissions limit would not increase CO2 emissions. 

The third tier emissions limit, 1,000 lb/MWh, becomes effective in 2035.  This emissions limit is based on the current best available control technology, as the most efficient existing natural gas fired EGUs could meet this limit.  NJDEP concluded that this limit would affect 40 existing EGUs that generate 9% of power produced in New Jersey.

The deadlines for compliance with each tier are not absolute.  The proposed rule allows extensions where the New Jersey Board of Utilities, PJM, or NYISO, the grid operator in New York State that fulfills the same role as PJM in New Jersey, designates an EGU as necessary for reliable provision of electricity, or if the EGU is obligated to provide power under a power purchase agreement that was entered into before 2002.

The proposed rule also imposes emissions limits for new EGUs.  Where the new EGU has a nameplate capacity greater than or equal to 25 MWe, its emissions limit for CO2 would be 860 lb/MWh.  NJDEP states in the rule proposal that the most efficient natural gas fired combined cycle units installed in New Jersey after 2010 could satisfy this emissions limit.  For a smaller new EGU with a nameplate capacity less than 25 MWe, the proposed rule imposes a CO2 emissions limit if the unit is located at an “EGU Facility,” which is a facility with more than one EGU where the aggregate capacity of all EGUs at the facility exceeds 25 MWe.  These EGUs will be required to meet a “case-specific” CO2 emissions limit which must be based on technology “that will provide the greatest emission reductions that are technologically and economically feasible”; in addition, these EGUs cannot derive more than 50% of their heat input from coal or fuel oil, unless the EGU meets the emission standard for larger new EGUs, i.e., 860 lb./MWh.

Electrification of Large Boilers

Although it may be less impactful than the regulations on EGUs in terms of the total CO2 emissions that are affected, the portion of the proposed rule concerning commercial and industrial boilers will impact a larger swathe of regulated entities.  The proposed rule applies to boilers with a maximum gross heat input rating equal to or greater than one million BTU per hour (MMBTU/hr) and less than five MMBTU/hr.  Boilers of this size typically are used in commercial, industrial, and institutional contexts, which could include office buildings, manufacturing facilities, schools, or hospitals; the rule also implicates boilers in apartment buildings.  Boilers with a maximum gross heat input rating of less than one MMBTU/hr are considered “insignificant sources” of air emissions under NJDEP’s rules, do not require an air permit under N.J.A.C. 7:27-8, and also are not subject to the proposed rule.  Today, approximately 8,500 boilers would be subject to the proposed rule according to NJDEP.

The proposed rule imposes a presumption that new boilers with a heat rating between one and five MMBTU/hr installed beginning in 2025 should be electric, rather than being fired by fossil fuels such as natural gas.  Facilities will not be permitted to install new fossil fuel boilers of this size unless (1) an electric boiler is “technically infeasible,” or (2) an electric boiler is infeasible for the particular facility because “any interruption in boiler operations caused by an electrical outage could jeopardize public health, life, or safety.”  A hospital is given as an example of a facility that would satisfy the second condition.  It remains to be seen how strictly the Department will interpret these infeasibility exceptions.  For example, the proposed rule notes that a significant number of large boilers are used in schools, so would the temporary loss of heat in a school be considered to jeopardize public health, life, or safety?  The language of the rule proposal suggests a narrow exemption, but it is also open to a broader interpretation that could result in more exemptions.

NJDEP makes clear in the proposed rule that existing permits, including general permits, for such equipment and renewals of those permits will not be affected by the proposed rule, so that the replacement of functioning fossil fuel fired boilers will not be required.  Where the cost of maintaining an old boiler is less than the costs associated with a new, electric boiler, the proposed rule likely will lock in older infrastructure for some period, but eventually it will lead to the electrification of non-residential heating at the end of existing boilers’ life cycle.

Finally, the proposed rule imposes new reporting requirements on approximately 100 “boiler fleet” facilities, which have ten or more fossil fuel fired boilers, at least one of which has a heat input rating greater than one MMBTU/hr and at least one of which has a heat input rating less than five MMBTU/hr.  Beginning in 2024, operators of boiler fleets must submit annual emissions statements to include, among other information, the potential to emit and actual emissions of CO2 from each boiler.

Ban on No. 4 and No. 6 Fuel Oil

As of its effective date, the proposed rule bans any person from selling, storing, delivering, or using No. 4 or No. 6 fuel oil in New Jersey.  However, oil that was stored in New Jersey before the rule becomes effective may be used or sold in New Jersey for two years thereafter.  The ban also does not apply to fuel oil used by ocean-going vessels in order to avoid a conflict with the federal Clean Air Act. 

NJDEP contends that this portion of the proposed rule will have limited effects because these heavy fuel oils already largely have been phased out by facilities in New Jersey in favor of lighter fuel oils (i.e., No. 2 fuel oil) or other energy sources.  Nonetheless, those facilities that still use these fuels (which, according to NJDEP, number less than 100) will need to change their operations in the coming years to comply with the ban.

Public Hearing and Comments on the Proposed Rule

A virtual public hearing on the proposed rule will be conducted on the morning of February 1, 2022.  A public comment period for written comments will be open until March 6, 2022.  Those considering a court challenge to the proposed rule would be well-advised to submit public comments, as New Jersey courts typically disfavor challenges mounted by parties who did not participate in the rulemaking process.

Following the close of the comment period, NJDEP will publish its responses to the public’s comments and any modifications it made to the proposed rule, and promulgate the final rule.  Assuming the proposed rule survives any court challenges, operators of EGUs and large boilers and users of the soon-to-be proscribed heavy fuel oils now have several years to prepare for the operational changes that will be mandated by this NJ PACT rule.

For more information, please contact the author Michael Kettler at mkettler@riker.com or any attorney in our Environmental Practice Group.