Environmental Update

Environmental Update August 2003 | Norton Rose Fulbright

August 01, 2003
By Roy Belden


Mercury standards are on the horizon for coal and oil-fired power plants in a number of states.  Federal standards will also be proposed by year end.

Connecticut has taken the first step in adopting such a standard.  A new law that went on the statute books in early June requires mercury emission reductions of approximately 90% starting in 2008 from coal-fired power plants in the state.  The state’s two existing coal-fired plants are immediately affected.  The new law provides the plants with the option of reducing mercury to a 90% control efficiency or meeting a .6 lbs/mmBtu mercury emission limit.  Power plant owners in Connecticut will have the option of burning coal with a high mercury content and installing new pollution control equipment, such as an activated carbon injection system.

Meanwhile, the Massachusetts Department of Environmental Protection is working on a new regulation that would impose a similar 90% mercury emission reduction requirement on the six large coal-fired power plants in the state.  The Massachusetts rule will be issued pursuant to a law that was enacted in 2001 and that called for substantial NOx, SO2, mercury and CO2 emission reductions from the six oldest power plants in the state.  The Massachusetts regulations are expected to require compliance with the new mercury standards by October 1, 2006.

New Jersey is also working on a proposed mercury reduction rule that would apply to utilities, iron and steel plants, and industrial boilers.  The proposed regulation is expected to require mercury emission reductions of at least 90% from baseline levels.  Compliance will be required by 2008.

The Wisconsin Natural Resources Board approved a mercury reduction rule at the end of June that calls for a 40% reduction in mercury from coal-fired utilities by January 1, 2010, and an 80% reduction by January 1, 2015 from a 2002 to 2004 baseline.  The proposed Wisconsin rule is awaiting final approval by the state legislature.

New federal air toxics standards for coal and oil-fired power plants are expected to be proposed by December 15, 2003.  They should become final a year later.  The new standards are expected to focus primarily on mercury reductions.

Technically, the new rule will set state-of-the-art emission standards based on “maximum achievable control technology” or “MACT.” This utility MACT rule will apply to major air toxics sources, meaning a plant that has the potential to emit 10 tons or more of any one hazardous air pollutant or 25 tons or more of any combination of such pollutants.  The Clean Air Act includes a list of 188 hazardous air pollutants.  The rule may force many affected plants to implement pollution control technologies to reduce mercury emissions starting in December 2007.

In drafting the new rule, the Environmental Protection Agency has been focusing on whether there will be subcategories of emission sources so that different mercury emission reduction levels apply to different types of plants.  Power plants may be put into different subcategories depending on the combustion process used and the type of coal being burned.  There are several different types of coal, including anthracite, bituminous, sub-bituminous, and lignite, and each type of coal has a different level of mercury content.  There are also significant differences in the types of mercury within these coals.  For example, divalent oxidized mercury is soluble in water and is more easily removed than elemental mercury, which is insoluble in water.  Thus far, EPA has not tipped its hand on what subcategories it plans.  The agency appears to be considering reductions in the range of 70 to 90% from a baseline of uncontrolled mercury emissions.  In general, the higher the overall reduction targets, the higher the compliance costs for the utility industry as a whole.

A key concern is how to achieve mercury emission reductions when there is no one mercury reduction technology that can consistently achieve reductions on the order of 70 to 90%.  Depending on the type of coal being burned, conventional pollution control technologies, including wet flue gas desulphurization scrubbers and baghouses, may achieve significant mercury emission reductions.  However in other cases, conventional technologies may not work.  Newly developing mercury removal technologies such as activated carbon injection are promising, but they have not been thoroughly proven.  Installation of control equipment would also probably involve substantial ongoing operating and maintenance costs in addition to the significant up-front capital outlays.  The release of the proposed utility MACT rule later this year will bring the potential compliance costs into sharper focus and allow plants more effectively to evaluate compliance strategies.

EPA Reconsiders NSR Rule

In response to petitions from environmental groups and many of the northeastern and mid-Atlantic states and the state of California, EPA has agreed to reconsider portions of the final new source review or “NSR” rule that was issued in December 2002.  The NSR rule was supposed to streamline certain pre-construction permitting requirements for new major sources of air emissions and major modifications of existing major sources.

On July 25, EPA agreed to reconsider five limited areas of the final NSR rule.  It wants public comments within 30 days after notice is published in the Federal Register.  A public hearing in Research Triangle Park, North Carolina will be held on August 14 on the areas under reconsideration.

There are three principal issues under reconsideration.  The government is evaluating whether to allow sources to maintain “clean unit” status after an area is reclassified from “attainment” to “nonattainment” under one or more of the national ambient air quality standards.  There are issues tied to the requirement to maintain records for a certain period of time after a physical change or change in the method of operation.  Finally, there are issues tied to application of plantwide applicability limits or PALs.  EPA is also considering new comments on a “supplemental analysis” it did of the potential environmental impacts of the NSR rule.  The agency concluded in the supplemental analysis that the new NSR rule would cause greater emission reductions than the program it is replacing.

Several state attorneys general from northeastern and mid-Atlantic states and California filed suit challenging the December 2002 NSR changes.  Several environmental and health-related organizations have also joined the litigation, and the cases have been consolidated into one lead case called New York v. EPA (DC Cir. No.02-1387).  A decision in the case is expected in 2004.  Most of the same parties that went to court to block the new NSR rule have also asked EPA to reconsider major sections of the rule.  The administrative and judicial proceedings are expected to move forward on parallel tracks.  EPA is also continuing to evaluate several other issues that were raised in the reconsideration petitions, and the agency is obligated to determine whether to reject or act upon these other issues.

Elected officials in many northeastern and mid-Atlantic states have been outspoken critics of the new NSR rule.  Massachusetts has even taken the drastic approach of returning administration of the prevention of significant determination or “PSD” portion of the NSR program back to EPA.  The Massachusetts decision was in direct response to the new NSR rule, and now major industrial sources in the state will have to apply to EPA Region I for their PSD pre-construction permits.  EPA announced the rescission of the 1982 EPA-Massachusetts PSD delegation agreement in a June 17 Federal Register notice.  Other northeastern states with delegation agreements with EPA, including New York, are considering turning back administration of the PSD program to the federal government.

Clean Air Act Reforms

The House committee with jurisdiction over environmental issues held a hearing in July on the President’s “clear skies initiative.” It was clear from comments by committee members at the hearing that they do not plan any quick action on the Bush plan or any other proposals that would make significant changes to the Clean Air Act.

Meanwhile, in the Senate, the environment committee chairman, James Inhofe (R-Oklahoma), is committed to trying to send a clear skies bill to the full Senate later this year, but it is questionable whether he has the votes to get the Bush plan out of his committee.

President Bush’s clear skies initiative calls for ratcheting down the level of acceptable nitrogen oxides, or “NOx,” sulfur dioxide, or “SO2,” and mercury emissions from power plants in a two-phase approach.  The Bush plan would set nationwide caps of 2.1 million tons of NOx in 2008, 4.5 million tons of SO2 in 2010, 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.  Democrats in the Senate and House say the phase-in periods are too long and argue that the reduction levels should be more stringent.

Most observers doubt the clear skies plan can pass Congress before the next presidential election at the end of 2004.  EPA is reportedly working on a backup plan.  The agency is considering issuing a new “fine particulate matter transport rule” that would be proposed next spring in the event that Congress has failed to pass the clear skies bill by then.  EPA’s fallback position is to use existing legal authority to propose reductions in power plant NOx and SO2 emissions that contribute to fine particulate matter or PM2.5 problems in downwind states.  The proposed rule would be designed to reduce PM2.5 precursor emissions and assist states in achieving compliance with the PM2.5 ambient air quality standard that is in the process of being implemented.  In 1997, EPA adopted a new PM2.5 national ambient air quality standard, and the standard has withstood a legal challenge from potentially-affected industry groups.

EPA is in the process of designating areas in “nonattainment” with the PM2.5 ambient air quality standards.  Based on preliminary monitoring data, EPA expects 173 counties to be out of attainment.  Many of those counties are reportedly affected by upwind fine particulate matter sources.  States are required to submit plans for meeting the standards by 2007, and the PM2.5 air quality standard generally must be met between 2009 and 2015.  EPA’s fine particulate matter transport rule would be similar to the so-called NOx SIP call rule.  If proposed next spring, EPA would expect to finalize the new fine particulate matter transport rule by 2005.

The adoption of a fine particulate matter transport rule would achieve some of the goals of the President’s clear skies initiative.  However, it would not address mercury emission reductions.

Regional CO2 Reductions

New York Governor George Pataki (R) is spearheading an effort to adopt a state-led regional approach to reducing carbon dioxide or CO2 emissions from power plants.  The governor announced in late July that 10 northeastern and mid-Atlantic states have agreed to work together on a cap-and-trade program to reduce CO2 emissions.

The governors of Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, Pennsylvania, Rhode Island and Vermont have pledged to work with Pataki to develop a regional strategy for reducing CO2 emissions from power plants.  The governors are expected to use the federal acid rain program as a model for their regional CO2 cap-and-trade program.  Discussions on how to implement such a program are expected to start in September 2003 with the goal of reaching agreement by April 2005.

In June, Maine became the first state to adopt a comprehensive statewide climate change law.  The law would regulate a broad range of industries, including power plants and paper mills.  The law requires Maine to develop a climate change action plan to reduce greenhouse gas emissions, including CO2, to 1990 levels by 2010.  It requires a 10% reduction below 1990 levels by 2020.  The Maine statute is intended to implement Kyoto protocol-type reduction requirements.  The Kyoto protocol is expected to be implemented in European Union countries, Canada, and Japan after Russia ratifies the protocol either later this year or early next year.

In related news, three New England states — Connecticut, Maine and Massachusetts — have filed suit in federal district court in Connecticut charging that EPA failed to regulate CO2 under section 108 of the Clean Air Act.  The lawsuit claims that EPA must recognize CO2 as a criteria pollutant and regulate it under a national ambient air quality standard.

A similar lawsuit is pending in a federal district court in northern California.  Environmental groups claim in that suit that EPA must regulate CO2 under section 111 of the Clean Air Act.  That section sets new source performance standards.  The Bush administration argues that CO2 is not a covered pollutant under the Clean Air Act and, therefore, is not subject to regulation under either section 108 or 111.

NSR Litigation

New source review litigation continues to be active with a number of recent developments in cases where the US government charges that utilities modified older power plants without undergoing a new source review analysis and permitting procedure.  Many older power plants built before 1970 were exempted from changes in the Clean Air Act in 1970 and 1972.  However, utilities must exercise care not to modify older plants significantly so as to bring them under the NSR permitting scheme.  In 1999 and 2000, the US government filed suit against several utility companies with coal-fired power plants charging that the utilities made equipment changes or upgrades over the years that did not qualify as exempted “routine maintenance, repair, and replacement.” In another NSR case, a US appeals court ruled that EPA acted unconstitutionally in issuing an administrative compliance order against the Tennessee Valley Authority.  The court said that TVA was denied due process since such orders are not subject to judicial review.  The court did not reach the issue whether TVA had in fact violated NSR permitting rules.  The decision has cast considerable doubt on a standard Clean Air Act enforcement tool used by the agency.  EPA is expected to refile its NSR case against TVA in federal district court.  The agency may also appeal the US appeals court decision to the Supreme Court.

The TVA decision would not have any direct effect on the federal government’s other NSR cases which were filed in US district courts.  Several of the high-profile utility enforcement cases are expected to be decided in the next few months.  At the end of June, a four-week trial of the liability phase in United States v.  Illinois Power Co. was completed.  The Illinois Power case involves the status of a number of construction projects carried out between 1982 and 1994 at an Illinois Power plant in Baldwin, Illinois.  A decision is expected on the liability issues later this year and, if necessary, a trial in the damages phase will be scheduled for the beginning of next year.  A decision is also soon expected 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.

One other key case recently settled.  After a federal district court rejected a number of affirmative defenses raised by Southern Indiana Gas and Electric Co., the parties agreed that the utility would spend about $30 million in pollution control technology and other plant upgrades to reduce air emissions at its Culley power station.  The utility agreed to upgrade its oldest unit by repowering it with natural gas.  It will also pay a $600,000 penalty and spend approximately $2.5 million on an environmental mitigation project.

Brief Updates

Twelve leading banks have adopted the “equator principles,” a series of voluntary guidelines for addressing environmental and social issues in project financings of infrastructure projects in emerging markets.  The equator principles apply to projects with a total capital cost of at least $50 million.  The guidelines are based on standards that the International Finance Corporation — an arm of the World Bank — already uses in deciding whether to provide financing for private-sector projects.  The banks are now to apply the same guideline to their own loans.

President Bush has named Marianne Lamont Horinko as the acting EPA administrator.  Ms. Horinko had been the assistant administrator for solid waste and emergency response.  The Bush administration has put off announcing a permanent replacement for Christine Todd Whitman, although there are rumors that the new agency head will be former Idaho governor Dirk Kempthorne.  Several environmental groups are already actively opposing Kempthorne.  No matter who is appointed, the Senate confirmation is expected to be contentious.

EPA has proposed an increase of 14.8% in the maximum penalties could seek for civil violations of environmental statutes.  The penalties are being adjusted for inflation.  For example, the current maximum penalty of $27,500 per day for a violation of the Clean Air Act will be raised to $32,500 a day per violation.  The new penalties are expected to take effect later this year.