By Roy Belden

Environmental issues are receiving little attention from Congress or the Bush administration in the wake of the September 11 terrorist attacks — with two notable exceptions.

The Senate Environment and Public Works Committee is forging ahead with plans to write a multipollutant bill for power plants. The committee is debating whether carbon dioxide or CO2 should be part of the equation.

The Bush administration appears on track to release its own multipollutant proposals for power plants by the end of January and is also working on administrative fixes to the “new source review” or NSR air permitting regime. The administration’s NSR revisions are expected to be issued by the end of the year. While there is a growing consensus that multipollutant reductions from power plants will ultimately be enacted, the scope, effect and costs of how to do it remain contentious and prospects for any bill to become law before the November 2002 elections are questionable.

Multipollutant Legislation

The Senate Environment and Public Works Committee is pressing forward with plans to reduce power plant emissions of nitrogen oxides or NOx and sulfur dioxide or SO2 and to impose new limits on mercury and CO2.

The committee held hearings on November 1 and 15 on a bill that the committee chairman, Senator James Jeffords (I.-Vermont), introduced earlier in the year called the Clean Power Act. The bill would require significant reductions in NOx, SO2, mercury and CO2 from power plants by January 1, 2007. NOx and SO2 would have to be reduced by 75% from the 1997 baseline for NOx and the 2000 baseline for SO2. Mercury levels would have to be reduced by 90% from 1999 levels. CO2 would have to be reduced to 1990 levels.

Two “stakeholder” meetings were held in October before the hearings. Many Republicans on the committee oppose the steep emission reductions in the Jeffords bill and object to inclusion of mandatory CO2 reductions. However, the Republicans are a minority on the committee.

Senator Jeffords plans to have the committee “mark up,” or vote on, his bill in February. The prospects for the bill in the full Senate are dim if Jeffords insists on mandatory CO2 reductions, hard-to-achieve new limits on NOx, SO2 and mercury, and layering the new utility emission reduction requirements over the existing Clean Air Act requirements without providing regulatory relief.

While many power generators appear to support the concept of a multipollutant measure that embraces realistic emission reduction targets and provides some regulatory relief from the many emission reduction requirements already in the Clean Air Act, the industry is largely opposed to the provisions of the Jeffords bill. Examples of emission reductions that are already required by the Clean Air Act are the new mercury “maximum achievable control technology” standards for power plants slated to become final in December 2004 and the regional haze requirements that will apply to older power plants starting in the period 2004 to 2008.

The Jeffords bill is also opposed by the Bush administration. The administration says the bill would cause energy prices to increase by 30 to 50% and that coal-fired electricity generation would decline by 20 to 30% with a significant shift to natural gas. The administration is also opposed to mandatory CO2 reductions as well as a provision in the Jeffords bill that would require all power plants that are more than 30 years old to meet “new source performance standards” and “new source review” modification requirements.

The administration wants a three pollutant bill. The three pollutants are NOx, SO2 and mercury. The administration is expected to call for a market-based trading approach, a longer implementation phase for NOx and SO2 reductions, more modest mercury reduction targets, and a more integrated approach with currently existing Clean Air Act requirements, including the elimination of some existing requirements.

New Source Review

The head of the US Environmental Protection Agency, Christine Todd Whitman, acknowledged recently that the agency has decoupled “new source review” or “NSR” air permitting reforms from work on the administration multipollutant strategy. This means that the two will not be released at the same time.

A package of NSR reforms is at the White House for review and is expected to be released as early as late December. The NSR permitting program deals with “prevention of significant deterioration” or “PSD” air permits for sources in attainment or “clean” areas and air permits for sources in nonattainment “new service review” areas. The latter are areas that do not meet federal ambient air quality standards. The NSR reforms are expected to include the following:

• Power plants would be able to make changes without obtaining a major NSR permit as long as emissions do not exceed a plantwide cap and the facility has already installed certain pollution controls.
• Power plants that recently installed state-of-the-art emission controls on boilers and turbines — so-called “clean units”— would be allowed to make certain future changes without trigging NSR permitting for approximately a 10-year period.
• EPA is evaluating a proposal to create a list of “appropriate activities” that would qualify as “routine maintenance and repair” that would not trigger NSR permitting.
• EPA’s rule for calculating “emission increases” for power plants that have begun normal operations would be expanded to other industries, including plants with industrial boilers.

Several of the NSR reforms could be implemented as a final rule since they were included in the set of NSR reforms originally proposed in 1996. These include the concept that a power plant could make changes without obtaining a major NSR permit, provided emissions do not exceed the plant wide cap and the facility has already installed certain pollution controls and the exemption for “clean units.”

Other parts of the NSR reform package would require formal notice and comment before they could become final.

The NSR air permitting rules have been controversial from the start. Critics charge that they are an overly costly and time-consuming process that hinders plant improvement and expansion projects. The Bush administration’s NSR reform package advances some of the less controversial aspects of proposals that EPA made to reform NSR in 1996.

In a related development, the US Department of Justice is reportedly nearing completion of its review of lawsuits the government filed against a number of electric utilities, petroleum refineries and factories alleging violations of NSR rules because the defendants filed to get approval for modifications to their plants. The Justice review is expected to be completed by late December. The agency will make recommendations on what, if any, steps should be taken next to proceed with the existing lawsuits.

Global Warming

The countries that signed the Kyoto protocol on global warming hammered out operational details to implement the treaty at a meeting in Marrakesh in early November. More than 165 countries approved the operational rules. The United States, which also signed the protocol, had representatives at the meeting, but it reaffirmed its opposition to implementation of the treaty as currently written.

Adoption of the rules sets the stage for countries to ratify the Kyoto protocol. Enough industrial countries are expected to ratify the protocol in the next few months to trigger full implementation starting in 2002. The Kyoto protocol will enter into force once it has been ratified by at least 55 countries. The 55 must include industrialized countries that account for at least 55% of the total reduction in carbon dioxide or CO2 emissions that are required from the industrialized group. Without US involvement, the treaty will need to be ratified by European Union countries, and Russia and Japan, at a minimum, to enter into force. The protocol must be ratified by the Senate to be binding on the United States. To date, 40 countries have ratified the treaty, including one industrialized country, Romania.

The Kyoto protocol calls for the reduction in global greenhouse gas emissions by an average of 5.2% from 1990 levels during the “first commitment period” of 2008 through 2012.

The operational rules adopted at the Marrakesh conference include provisions governing international emissions trading.

Participants at the Marrakesh meeting also agreed on how to implement “clean development mechanisms,” or “CDM,” under which developed countries can earn credits against Kyoto targets for projects that reduce greenhouse gas emissions in developing countries. They also agreed on “joint implementation” or “JI” projects that allow one country to receive emissions credits for a specific project to help another country meet its emissions target. Emission credits will be transferable as equal units under the emissions trading regime, and CDM and JI programs.

Participants at the meeting also agreed to the consequences for failing to meet emission reduction targets. Countries will have to reduce an additional 1.3 tons of emissions for every ton they are over the target starting in 2013. However, the conference participants deferred a decision on whether the consequences are legally binding.

The Bush administration is currently conducting a cabinet-level review of global warming and is expected to outline the US approach for addressing the issue early next year.

US multinational companies with operations worldwide will find that their facilities in Europe, Canada, Japan and other industrialized countries are subject to greenhouse gas emission reductions notwithstanding the fact that the US is refusing to ratify the protocol. Significant costs may be incurred to achieve CO2 emissions reductions at power plants and other industrial facilities, including the installation of more energy efficient and lower CO2-emitting equipment. US multinationals may have to purchase CO2 emission credits.

Carbon Fund

The World Bank recently announced that its $145 million “Prototype Carbon Fund” is investing $7.4 million in CDM projects in Uganda and Chile. The money will be used to purchase CO2 emission reduction credits. Investors in the fund include the governments of Finland, Norway, Sweden and Canada and private companies in Japan, the United Kingdom, Germany, Belgium, Finland and France. Investors in the fund may use the CO2 emission credits gained from these CDM projects toward meeting emission reduction targets in their own countries. Alternatively, the credits may be resold.

The fund plans to make a market in carbon credits so that developing countries will have a place to convert their credits into cash. Through the fund, the World Bank will purchase up to $3.9 million CO2 emission reduction credits over 15 to 20 years tied to a Ugandan west Nile electricity project. The project involves construction of two small hydroelectric facilities. The World Bank has also contracted to purchase at least $3.5 million of emission credits generated by the Chile Chacabuquito hydro project. This is a run-of-the-river hydroelectric power plant with a 25 megawatt capacity. Both the Ugandan and Chilean projects were certified as CDM projects by international inspection, verification and testing companies.

The fund is reportedly also actively involved in CDM projects in Latin America, including Brazil, Colombia, Argentina, Costa Rica and Nicaragua.

Cooling Water

The Environmental Protection Agency signed off on a new rule in early November that prescribes cooling water intake standards for new power plants and manufacturing facilities that withdraw water from rivers, streams, lakes and other waters of the United States for cooling purposes. The new rule will require new facilities to install costly technology to reduce the amount of water they withdraw for cooling purposes.

EPA is required by section 316(b) of the Clean Water Act to develop cooling water intake regulations for both new and existing facilities. EPA agreed in a consent decree with the Hudson Riverkeeper environmental organization to develop the cooling water intake rules in three phases — phase I targets all new facilities, phase II will address existing utility and non-utility power plants that exceed a minimum threshold to be determined by the agency, and phase III will consist of those remaining existing facilities that exceed a minimum threshold of water usage, but do not fall within phase II. The phase II regulations must be proposed by February 28, 2002, and finalized by August 28, 2003. The phase III regulations must be proposed by June 15, 2003, and finalized by December 15, 2004.

The rule EPA announced for new facilities takes a two-track approach, and facilities may choose either track. The first track is based on default technology-based performance standards.

Under track one, new facilities with a capacity to withdraw 10 or more million gallons of water a day must meet an intake flow level commensurate with a closed cycle, recirculating cooling system called a “wet” cooling system. There are also limits on intake flow and intake design components intended to minimize the effect on fish and aquatic organisms. New facilities with a design intake flow equal to or greater than two million gallons a day, but less than 10 million gallons a day, must meet similar requirements to reduce water usage and lessen the impact on fish and aquatic organisms, except these plants are not required to install cooling water system technology designed to achieve the intake flow levels of a wet cooling system.

Track two allows permit applicants to conduct site-specific studies to demonstrate that alternatives to the track one requirements will achieve comparable intake flow reductions and meet the same fish and aquatic organism protection standards as under track one.

The new rule defines new facilities subject to the rule as those plants that meet the definition of a “new source” or “new discharger” under the Clean Water Act and commence construction after the effective date of the final rule. Such sources must have a design intake flow greater than two million gallons a day and at least 25% of the water withdrawn must be used for contact or non-contact cooling purposes.

New York

Governor Pataki signed legislation that adds to the environmental requirements for power plants participating in the state’s new expedited permitting process for modifications and plant expansions on adjacent or contiguous sites. New York has a one-stop approval process for power plants with a capacity of 80 megawatts or more.

The new law requires that power plants seeking expedited approvals for plant modifications or expansions must install technologies to limit water consumption to no more than 15 gallons a minute per megawatt of generating capacity. The measure is supposed to encourage use of air-cooled condensers or evaporative cooling water systems or other technologies designed to reduce water usage and minimize the danger to fish of being caught on intake screens and of aquatic organisms being sucked into intake systems.

The new law amends existing so-called Article X provisions that authorize approvals for plant modifications and expansions to be issued within six months where the plant owner agrees to reduce NOx, SO2 and particulate emissions by at least 75%. The 75% reduction is calculated by comparing the potential annual emissions of the existing facility to the potential annual emissions in the future after the facility has been modified or expanded. The goal is to reward plants that agree to install state-of-the-art cooling water systems and air emission reduction technologies.