Environmental Update

Environmental Update - April 2003

April 01, 2003
By Roy Belden

Clean Air Act

Competing proposals to impose stricter limits on air emissions from power plants are starting to take form in Congress.

Three key members of Congress introduced bills in late February to implement the president’s plan – what he calls his “clear skies initiative.” The three include the chairmen of the House and Senate committees with jurisdiction over environmental issues.  Since Republicans control both houses of Congress, and the president called for action this year on the proposal in his “state of the union” address to Congress in late January, one would think the bills these three introduced will eventually become law.  However, Congress has so much on its agenda with the war in Iraq and the weak economy that it may not.  Also, the Republicans lack support for their approach from some key moderates in their own party in the Senate.

The Republican bill would require substantial reductions in nitrogen oxides, or “NOx,” sulfur dioxide, or “SO2,” and mercury emissions from power plants by setting nationwide emission caps in a two-phase process.  The emission reduction targets are as follows: caps of 4.5 million tons of SO2 in 2010, 2.1 million tons of NOx in 2008, and 26 tons of mercury in 2010.

These caps would decline in 2018 to 3.0 million tons of SO2, 1.7 million tons of NOx, and 15 tons of mercury.

Three years ago in 2000, approximately 11.2 million tons of SO2, 5.1 million tons of NOx, and 48 tons of mercury were emitted.  Overall, the Republican bill calls for a 74% reduction in SO2, a 67% cut in NOx, and a 69% reduction in mercury emissions by 2018 from a 2000 baseline.  The bill does not call for any cuts in carbon dioxide, or “CO2,” emissions from power plants.

The emission reductions would be required of all fossil fuel-fired power plants with a capacity of more than 25 megawatts that generate power for sale.  Cogenerators selling less than a third of their potential electrical output would be exempted.  New “affected units” under the bill would also be subject to specific minimum emission limits for SO2, NOx, mercury, and particulate matter.

The bill proposes a mandatory “cap and trade” emission allocation program similar to the federal acid rain program for the three pollutants.  The legislation would create a “backstop” ceiling price for allowances of $4,000 for each ton of SO2 or NOx and $2,187.50 for each ounce of mercury.  These prices would be adjusted annually for inflation.  The “backstop” allowances would be available directly from the US Environmental Protection Agency, and could be used in the year of purchase or for prior-year commitments.

As a quid pro quo for having to meet new stringent emission reductions targets, the bill would exempt affected power plants from having to comply with the so-called “NOx SIP call” rule requirements starting on January 1, 2008.  Affected plants that meet stringent carbon monoxide and particulate matter limits might also be exempted from the major source “new source review” permitting program requirements and the “best available retrofit technology,” or “BART,” standards that apply to older power plants located near national parks and wilderness areas.  The bill would also exempt utility power plants that produce steam from regulation under the “maximum achievable control technology, or “MACT,” standards program.

If enacted, the Republican bill would completely overhaul the current Clean Air Act provisions that apply to power plants.  Many older power plants would have to be retrofitted with costly pollution control technology or spend significant amounts to purchase “allowances” to cover their emissions.

The competing plan that has the support of many Democrats was introduced in the Senate by Senator James Jeffords (I.-Vermont).  The Democrats charge the Bush administration with trying to weaken the existing “Clean Air Act” and with failing to take meaningful steps to combat global warming.

The Jeffords bill would require greater reductions in SO2, NOx, and mercury emissions as well as reductions in CO2 emissions and on a much tighter time frame.

Under the Jeffords bill, all power plants larger than 15 megawatts would have to meet emission reduction targets by 2009.  The bill would set nationwide emission caps of 2.25 million tons of SO2, 1.51 million tons of NOx, 2.05 million tons of CO2, and five tons of mercury.  These levels amount to an 81% cut in SO2, a 71% reduction in NOx, a 21% cut in CO2, and a 90% reduction in mercury from 2000 levels.  If EPA fails to write regulations in time to implement these caps, then even more stringent emission limits would take effect automatically.  The automatic limits would require each such power plant to reduce its emissions by the following percentages compared to output at an “uncontrolled” plant: a 95% reduction in SO2, an 85% reduction in NOx, a 25% reduction in CO2, and a 90% reduction in mercury.

Under the Jeffords bill, emission allowances would be created and traded, except for mercury.  The measure also includes a controversial departure from previous federal emission trading programs in that the bill directs EPA to distribute the majority of allowances – approximately 62.5% – to households and consumers.  Up to 20% of the allowances would be allocated to owners of power plants that use renewable energy, such as wind, biomass, landfill gas, solar and geothermal.  Only 10% of the allowances would be allocated to existing power plants.

The Jeffords bill is more draconian than the Republican bill.  Republicans complain that the bill imposes unrealistic targets and deadlines and predict dire economic consequences.

Meanwhile, two moderate Senators – Patrick Leahy (D.-Vermont) and Olympia Snowe (R.-Maine) – introduced a separate bill calling on EPA to set a 90% reduction in mercury emissions from 1999 levels in the soon to be issued utility MACT standard for coal- and oil-fired power plants.  EPA is required by a settlement reached in litigation with environmental groups to come up with a utility MACT standard by December 2003.  The MACT standard would be finalized by December 2004 and implemented by December 2007.  EPA has not yet determined at what level to set the utility MACT standard, and is considering reductions of between 60% and 90%.  The Leahy-Snowe bill would also establish mercury MACT standards for coal- and oil-fired commercial and industrial boilers at a 90% reduction rate from 1999 levels.

Multi-pollutant legislation is a hot-button issue in the current Congress.  There is basic agreement that tighter limits are needed on NOx, SO2 and mercury.  The most contentious issues are how much tighter and should there also be limits on CO2 emissions.

Many Democrats will not support a multi-pollutant measure without a CO2 reduction component.  Republicans acknowledge that a multi-pollutant bill probably cannot get through the Senate without a CO2 component.  At this point, with more pressing budgetary concerns facing Congress, the prospects of passing a multi-pollutant measure through this Congress are uncertain.  The current Congress runs through the presidential election at the end of next year.

NSR Reforms

Changes to the federal “new source review,” or “NSR,” air permitting program took effect on March 3 and apply immediately in 11 states and the District of Columbia.

These states directly implement federal NSR rules through authority “delegated” to them by EPA.  The states are Hawaii, Illinois, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, New York, South Dakota and Washington.  The District of Columbia NSR program is partially delegated.  The remaining 39 states implement the NSR program through EPA-approved state implementation plan or “SIP” rules.  These states will have up to three years – until January 2, 2006 –to adopt conforming revisions to existing state NSR program rules.

There are five key components to the NSR program that have been modified.  First, factories and other industrial facilities will be able to calculate their emission increases under the program the same way power plants calculate them – that is, by comparing past actual emissions to projected future emissions.  Second, baseline actual emissions for industrial facilities will be calculated based on a “baseline” period of any consecutive 24-month period in the past 10 years.  Power plants will still use a baseline period of a consecutive 24-month period in the past five years.  Third, sources that keep their emissions below a plant-wide applicability limit or “PAL” will be able to make operational changes and equipment modifications without having to get prior approval through the major source NSR permitting process.  Fourth, plants that have recently installed state-of-the-art pollution control technology on new or modified emission units as part of an NSR or similar state permitting process would be allowed to make certain future changes without triggering additional NSR permitting for a 10-year period.  Fifth, the rule codifies EPA’s policy of excluding pollution control and prevention projects from NSR permitting review where the projects have a net beneficial effect on the environment.  The final rule contains a presumptive list of technologies that will automatically qualify for the exclusion.

A group of Democratic state attorneys general – mostly from northeastern and mid-Atlantic states – have banded together to file lawsuits challenging the changes to the NSR rule.  Those cases have been consolidated into one lead case (New York v. EPA (D.C. Cir. No. 02-1387)).  A decision by the court is not expected until sometime in late 2003 or early 2004.  Several environmental and health-related organizations have also joined the litigation, and several Senators have notified the court that they intend to file an amicus brief against the new NSR rule.

The Bush administration has lined up supporters for its changes to the NSR rule.  They include several industry groups and the Republican attorneys general in eight states.  The coalition of Republican attorneys general filed a motion to intervene in the lawsuit.  Several industry groups have also filed petitions for review of the NSR rule, in part to ensure a “seat at the table” for any potential settlement discussions.

The group of Democratic attorneys general filed a motion on February 6 seeking an emergency stay against implementation of the new NSR rule on March 3.  The court rejected the motion on March 6 concluding that the grounds for granting an emergency stay had not been met, but it agreed to grant an expedited review of the rule.  Based on the courts’ traditional deference to agency rulemakings on complex issues within its areas of expertise, it is questionable whether the court in this case will ultimately overturn the changes that EPA is proposing to the program.  In order to do so, it would have to find that the changes were arbitrary and capricious, an abuse of the agency’s discretion or otherwise not in accordance with the law.

The Environmental Protection Agency also proposed a separate rule at the end of last year that defines what qualifies as exempt “routine maintenance, repair and replacement.” There would be two types of qualifying categories of “routine maintenance, repair, and replacement.”

Since it is only a proposed rule, the “routine maintenance, repair, and replacement” proposal is still subject to public notice and comment.  The public comment period was recently extended to May 2, 2003.  EPA has scheduled five public hearings on March 31 in Albany, New York, Romulus, Michigan, Research Triangle Park, North Carolina, Dallas, Texas, and Salt Lake City, Utah.  It expects to publish a final rule by the end of the year.  However, the proposal is controversial and the timetable is liable to be pushed back.  If the rule is finalized as proposed, it will undoubtedly be challenged by many of the same entities that are challenging the new NSR rule changes.

On the NSR enforcement front, the US Department of Justice and EPA continue to pursue enforcement actions filed in 1999 and 2000 alleging that several coal-fired power plants failed to undergo NSR permitting for major modifications.  Several of the higher profile enforcement cases in this area are scheduled to go to trial later this year, and two cases have already been argued and are awaiting decisions.

In February 2003, a federal district court in Ohio heard oral arguments in United States v. Ohio Edison Co., a case involving Ohio Edison’s alleged failure to undergo NSR permitting for plant upgrades at its Sammis power plant.  Last year, a US appeals court heard oral arguments in a similar case involving the Tennessee Valley Authority, and a decision is expected any day.  Another similar case – United States v. Southern Indiana Gas and Electric Co. – is scheduled for trial starting March 31, 2003 in a federal district court in Indiana.  EPA has won several early motions in the case.

The outcome of these NSR enforcement cases may affect EPA’s proposed rulemaking on the “routine maintenance, repair, and replacement” exemption.  If EPA is successful in court, it may face significant pressure from environmental groups to drop its proposal to define more clearly the scope of activities that qualify for the “routine maintenance, repair and replacement” exemption.

State Air Permits

The US Supreme Court has agreed to review a decision by a US appeals court that EPA was within its rights to bar a state from issuing a prevention of significant determination or “PSD” permit.  Under the new source review or NSR program, companies proposing major modifications to existing air emission sources or developing new major emission sources in areas meeting the federal ambient air quality standards must obtain PSD permits before construction may start on the project.

The case is of particular interest because EPA has been thought to have only limited control over what the states choose to permit.  EPA could provide comments on a draft PSD permit, but it was generally accepted that EPA could not override a state decision to issue a PSD permit except where EPA was willing to go to the extreme of withdrawing the state’s PSD program authority altogether.  The case involves states that have adopted their own PSD permit rules.  It does not involve 11 states and the District of Columbia that issue permits under so-called “delegated” authority from the federal government.  These 11 states use the EPA rule rather than rules they adopted on their own, and EPA clearly retains the ability to review their actions.

The case is Alaska Department of Environmental Conservation v. EPA, 298 F. 3d 814 (9th Cir. 2002).  The appeals court held that EPA could not only block the Alaska Department of Environmental Conservation – called “ADEC” – from issuing a PSD permit, but also issue a separate order to the project directing it not to start construction.

In the case, ADEC planned to allow a major modification to the PSD permit for a mine mouth power plant in Alaska.  The owner of the power plant planned changes that would lead to a significant increase in air emissions from one of its diesel-fired units, and ADEC agreed that low NOx burners constituted the “best available control technology” or “BACT” for the unit.  EPA disagreed and concluded that a much more expensive selective catalytic reduction or “SCR” system would constitute BACT.  Over EPA’s objection, ADEC proceeded to issue the PSD permit.

The issue of EPA “second guessing” state and local air permitting agencies with fully approved air programs has long been a contentious issue.  If the Supreme Court sides with EPA in the Alaska case, then EPA will be able to veto certain state-issued PSD permits.  A favorable decision would also embolden EPA to take a much more active role in reviewing state-issued PSD permits than it has taken in the past.

Global Warming

Seven Democratic state attorneys general from the northeast (Connecticut, Maine, Massachusetts, New Jersey, New York and Rhode Island) and Washington state notified EPA that they will file suit against the agency for its alleged failure to regulate carbon dioxide emissions from US power plants.  Under the Clean Air Act, notice of a citizen suit must be filed with EPA at least 60 days before the lawsuit is filed.

The notice letter alleges that EPA has a duty to update its federal new source performance standards or “NSPS” for power plants that produce steam at least once every eight years.  The petitioners claim the last such review was 20 years ago and that a review of the NSPS would lead to the conclusion that CO2 emissions from such power plants should be regulated.

The February 20, 2003 notice letter closely follows a similar notice letter filed by Connecticut, Maine, and Massachusetts on January 30, 2003.  In the earlier letter, the state attorneys general assert that EPA should use its authority under the Clean Air Act to establish CO2 as a criteria pollutant subject to a national ambient air quality standard.

Both lawsuits are long shots to force EPA to take action on reducing CO2 emissions from power plants and other combustion sources.  Nevertheless, the state efforts keep the issue alive and keep the pressure on EPA to act.

In related global warming news, in February, the Bush administration unveiled a number of agreements with industry trade associations whose member companies have agreed to reduce greenhouse gas emissions voluntarily.  Participating trade associations include the American Petroleum Institute, Edison Electric Institute, National Rural Electric Cooperative Association, American Public Power Association, Electric Power Supply Association, the National Mining Association, the American Chemistry Council, and the American Forest & Paper Association.

The Bush administration also announced in February that US greenhouse gas emissions declined 1.6% from 2000 to 2001.  This decline was the first recorded reduction in US greenhouse gas emissions since 1990.  Total US greenhouse gas emissions are currently about 13% higher than 1990 baseline emissions.  The US Department of Energy also recorded a 5.2% increase in 2001 in the volume of voluntary reductions in greenhouse gas emissions reported to the US government.  The Department of Energy maintains a registry of voluntary reductions in greenhouse gases and carbon sequestration projects.

Brief Updates

The New York Department of Environmental Conservation issued final regulations in March 2003 implementing a state program that is supposed to produce significant reductions in NOx and SO2 emissions from New York power plants.  The final rules will require SO2 emissions to be reduced by 50% below current federal standards starting on January 1, 2005 with full implementation completed by January 1, 2008.  Under the new rules, the current ozone season NOx reduction requirements will also be imposed year round with the implementation starting in October 1, 2004.

The Ozone Transport Commission and EPA released a study in early March that reports NOx emissions from power plants and other major combustion sources in 12 northeastern and mid-Atlantic states and the District of Columbia dropped by 60% since 1990.  The OTC region states implemented a NOx cap and trade program in 1999, and emissions have been reduced from 473,000 tons of NOx in 1990 to about 200,000 tons in 2002.  Starting in 2004, the OTC NOx budget program will be integrated with EPA’s NOx SIP Call program, and the cap will be further reduced to 141,000 tons of NOx for major sources in the OTC region.

A vote in the US Senate on March 19, 2003 dealt a serious blow to the Bush administration’s plans to allow oil drilling in the Arctic National Wildlife Refuge.  The Senate voted 52 to 48 not to assume that such drilling would produce $2.15 billion in royalties for the government.  The vote came during debate on the budget for the coming year.  After the vote, the chairman of the Senate Energy Committee said he would not try to include Arctic National Wildlife Refuge language in the comprehensive energy bill expected to be debated later this year.  The House is still expected to include such language in its energy bill.  The two houses will have to come to a common position before they can send a final bill to the president.

The Bush administration asked Congress in its budget this year to make the “brownfields” tax incentive permanent.  The brownfields tax incentive allows companies to deduct certain costs associated with the remediation and redevelopment of qualified contaminated sites immediately as the money is spent.  The authority for such deductions is currently set to expire on December 31, 2003.  The Bush administration wants to extend it.