Environmental Update June 2003

Environmental Update

June 01, 2003

Senate confirmation hearings on a new person to head the US Environmental Protection Agency are expected to be contentious and will provide a forum for Congress to complain about the Bush administration’s environmental policies.

Such hearings are expected this summer. The current agency head — Christine Todd Whitman — will leave her post on June 27.

Clean Air Act

President Bush had set as a goal this year to get his “clear skies initiative” through Congress, but the effort is losing momentum. The “clear skies initiative” is a plan to ratchet down the level of acceptable air emissions from power plants.

The Senate Environmental and Public Works Committee has another hearing on the administration’s plan scheduled for June 5. This will be its third hearing on the subject this year.

The committee chairman, Senator James Inhofe (R-Oklahoma), has said he intends to try to send a clear skies bill to the full Senate after the committee finishes work on a surface transportation bill. That could be a few months from now. The big question is whether the Bush plan has the votes to get out of committee. The plan would require substantial reductions in nitrogen oxides, or “NOx,” sulfur dioxide, or “SO2,” and mercury emissions from power plants. However, it does not require reductions in carbon dioxide, or “CO2,” a greenhouse gas, and the implementation timetable and overall reductions are less stringent than the major competing proposals.

Meanwhile, the House is even farther behind than the Senate. The House Energy and Commerce Committee plans to delay any hearings on the clear skies initiative until after a comprehensive energy bill is signed into law. That bill is tentatively scheduled to be taken up in the Senate in June, and most observers expect that it will be fall — if then — before Congress is ready to send the energy bill to the president.

The Bush clear skies plan proposes a mandatory “cap and trade” emission allocation program similar to the federal acid rain program and would set nationwide emission caps for NOx, SO2, and mercury in a two-phase process. The emission reduction targets are as follows: 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. The president’s proposal translates into a 67% cut in NOx, a 74% reduction in SO2, and a 69% reduction in mercury emissions from 2000 levels by 2018. 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.

There are two major competing plans that have been introduced in the Senate. The most draconian approach was introduced by Senator James Jeffords (I-Vermont), whose bill advocates steep cuts in SO2, NOx, and mercury emissions as well as reductions in CO2 emissions on a much tighter time frame. Senator Tom Carper (D-Delaware) introduced a multi-pollutant bill in April that he portrays as a “compromise” between the Bush plan and the Jeffords bill. The Carper bill would mandate approximately a 69% cut in NOx and an 80% reduction in SO2 and mercury by 2012 from a 2000 baseline. The Carper bill would also cap CO2 emissions at 2005 levels in 2008 and roll back CO2 emissions to 2001 levels by 2012.

In the House, the major competing proposal is one introduced in May by Reps. Henry Waxman (D-California) and Sherwood Boehlert (R-New York). It would impose stringent caps on NOx, SO2, CO2, and mercury emissions from power plants similar to the Jeffords bill.

Whether any multi-pollutant legislation might pass before the presidential election in November 2004 remains uncertain. While there is basic agreement that tighter limits on NOx, SO2 and mercury emissions from power plants would benefit the environment and lend more certainty to the regulated community, there are deep divisions on the stringency of the limits and whether limits on CO2 emissions should be included as part of the package.

One thing is certain: if enacted, multi-pollutant legislation would completely overhaul the current Clean Air Act provisions that apply to power plants, and many older power plants will face costly pollution control technology retrofits or the prospect of spending millions of dollars on purchasing emission allowances.

Climate Change

The US Senate is gearing up for a fight over whether to add climate change provisions to a national energy bill the full Senate is scheduled to debate in June.

The House passed the energy bill in April without any such provisions. The Bush administration is opposed to them.

Nevertheless, two high-profile Senators — John McCain (R-Arizona) and Joseph Lieberman (D-Connecticut) — are expected to offer an amendment in the Senate that would place caps on greenhouse gas emissions and create a national trading program. The amendment will require the reduction of greenhouse gas emissions to 2000 levels by 2010. Greenhouse gases are gases that absorb infrared radiation in the atmosphere. Greenhouse gases include carbon dioxide, methane, nitrous oxide and hydroflourocarbons.

Two other amendments on the same subject are also expected. The senior Democrat on the Senate Energy Committee — Senator Jeff Bingaman (D-New Mexico) — is expected to offer an amendment that would create a national greenhouse gas emissions database and require the mandatory reporting of greenhouse gas emissions by 2006. Another amendment intended to encourage carbon sequestration by the agriculture and forestry sectors is reportedly being developed by Senator Ron Wyden (D-Oregon).

The debate over the climate change amendments will be contentious. The sponsors probably lack the votes in the Senate to pass mandatory greenhouse gas emission reduction targets, but it is possible that mandatory reporting requirements and carbon sequestration incentives could be attached to the Senate energy bill. Carbon sequestration refers to the idea that carbon is captured and stored in forests and farmland. Trees, plants and soil absorb carbon dioxide, release the oxygen, and store the carbon.

NSR Reforms

Thousands of comment letters were filed with the US Environmental Protection Agency on the agency’s proposal to define what qualifies as exempted “routine maintenance, repair and replacement” under the federal “new source review,” or “NSR,” air permitting program. The comment period closed on May 2 after EPA held five public hearings in Michigan, New York, North Carolina, Texas, and Utah. EPA expects to publish a final rule by the end of the year.

The proposed NSR rule would create two categories of “routine maintenance, repair, and replacement” that would not require a new air permit if undertaken at a power plant. The first category is an annual maintenance, repair and replacement allowance where certain types of activities that fall under a cost threshold would qualify for the exemption. The other category is an equipment replacement approach where the replacement of existing equipment with functionally-equivalent new equipment would generally qualify for the exemption.

The “routine maintenance, repair, and replacement” proposal is highly controversial and, if finalized as proposed, it will undoubtedly be challenged by certain states and environmental groups in court.

The Bush administration is already defending itself against similar suits from the last time it altered the NSR program rules last December. The December rule changes were extensive. Some of the changes included allowing factories and other industrial plants to calculate their emission increases by comparing past actual emissions to projected future emissions and permitting the calculation of emissions baselines for industrial plants to be based on using any consecutive 24-month period in the past 10 years.

Several Democratic state attorneys general from mostly northeastern and mid-Atlantic states and California filed suit challenging the December rule changes. Several environmental and health-related organizations have also joined the litigation, and the cases have been consolidated into one lead case (New York v. EPA (DC Cir. No. 02-1387)). A decision by the DC Circuit court is expected in late 2003 or early 2004.

Several state legislatures have started to take action to accept or reject the new NSR rule changes made last December. Bills have been introduced in the California legislature to reinstitute the pre-December 2002 NSR rules in the state. Governor Frank O’Bannon (D-Indiana) recently vetoed legislation that would have adopted the new NSR rule provisions in Indiana. The Indiana legislature has scheduled a special session on June 19 to consider whether to override the governor’s veto. Bills have been introduced in Alaska and Texas to implement the new rules as EPA proposed them. States have the ability to adopt state air emission standards that are stricter than the federal regulations implementing the Clean Air Act.

NSR Litigation

The on-going high profile US government action against utilities that modified older power plants is now yielding some significant results. Many older existing facilities built before 1970 were exempted from changes to the Clean Air Act that occurred in the early 1970s. However, utilities must exercise care not to modify older plants so extensively as to bring them under the scheme.

In April, the US government announced the settlement of two major NSR enforcement actions against Dominion and Wisconsin Electric Power Co. Under the Dominion settlement — the largest Clean Air Act enforcement settlement with a utility to date — the company agreed to spend upwards of $1.2 billion by 2013 on the installation of new pollution controls or the upgrading of existing pollution controls at eight coal-fired plants. The company also agreed to pay a $5.3 million civil penalty and to spend at least $13.9 million on environmental mitigation projects.

Dominion will install flue gas recirculation systems or scrubbers at two plants to reduce SO2 emissions and selective catalytic reduction systems at three plants to control NOx emissions. One other Dominion plant will be converted from coal to natural gas.

Wisconsin Electric Power Co. agreed to spend approximately $600 million to reduce SO2 and NOx emissions from five coal-fired plants. It will install state-of-the-art pollution controls or shut down operations at 80% of its coal-fired power plants. All of the company’s coal-fired units will be subject to a systemwide cap on SO2 and NOx that will result in upwards of a 70% reduction in emissions by 2013. The utility also agreed to pay a $3.2 million penalty and spend $20 million on environmental mitigation projects.

In April, the US government also announced major settlements with Archer Daniels Midland and Alcoa, Inc. to resolve alleged violations of the NSR permitting program. ADM agreed to spend roughly $340 million to install state-of-the-art controls on some units, adhere to emission caps, or retire other units at 52 plants. ADM also agreed to a $4.6 million penalty and will spend roughly $6.3 million on supplemental mitigation projects. Alcoa agreed to equip a new coal-fired plant with state-of-the-art controls in order to eliminate the existing electric generating units at its aluminum production facility in Rockdale, Texas. The new plant is expected to cost approximately $330 million; however, Alcoa does have the option of shutting down operations at the plant within three years. Alcoa was also assessed a $1.5 million penalty and will pay about $2.5 million for environmental mitigation projects.

The US government filed suit in each of the above NSR cases on the premise that the plants made equipment modifications and upgrades over the years that did not qualify as exempted “routine maintenance, repair, and replacement” activities. The flurry of settlements may have been sparked by recent decisions where federal district courts have largely agreed with the federal government’s position that violations of the NSR program occurred. For example, in United States v. Southern Indiana Gas and Electric Co., the a federal district court in Indiana rejected several affirmative defenses raised by the utility. Most notably, the court determined that the utility had fair notice of EPA’s interpretation of its “routine maintenance, repair and replacement” exemption.

Several of the higher-profile utility enforcement cases 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. A decision is expected by the end of June. 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.

One other notable development occurred in a March 27 decision by a federal district court in New York in New York v. Niagara Mohawk. In the case, New York filed suit against Niagara Mohawk, the previous owner of two coal-fired plants, and NRG Energy, the current owner. The court rejected Niagara Mohawk’s motion to dismiss the action, which alleged that the company failed to obtain the requisite NSR permits for prior plant modifications. The court also considered the state’s allegation that NRG Energy violated the NSR preconstruction permitting requirements. The court dismissed the NSR claims against NRG Energy based on the fact that the company did not own the assets at the time the alleged plant modifications were made. The court’s ruling suggests that equitable relief may not be available if a plant was modified in violation of the Clean Air Act before it was purchased by the current owner. However, the court suggests in its ruling that NRG Energy, as the current owner, may have some ongoing liability under its operating permit to address past unpermitted modifications. The issue of NRG Energy’s compliance with the plant’s operating permit was not raised by New York in the case. New York may appeal this decision.

Air Toxics

The US Environmental Protection Agency has set final deadlines for the submittal of new air permit applications for major air toxic emitters in source categories where EPA has not yet issued standards. Applications for major air toxics sources with combustion turbines are due by October 30, 2003. Major emitters with industrial boilers, institutional or commercial boilers, and process heaters are required to submit air toxics applications by April 28, 2004. Major air toxics sources with reciprocating internal combustion engines greater than 500 horsepower are also required to meet the April 28, 2004 deadline.

Under the 1990 Clean Air Act amendments, EPA was required to issue maximum achievable control technology, or “MACT,” standards for all major categories of air toxics emitters by May 15, 2002 — the so-called “MACT hammer” deadline. Since EPA missed the deadline for over 60 source categories and subcategories, the Clean Air Act allows state and local air permitting agencies to step in and issue case-by-case standards for these major emitters. EPA originally proposed a two-year extension to submit applications to comply with the MACT hammer deadline.

After a challenge by environmentalists to the MACT hammer application deadlines, a settlement was reached that created staggered application due dates. Plants subject to the MACT hammer rule should begin preparing their applications now since it may take several months to pull together the detailed information on air toxic emissions from the facilities and other information relevant to establishing a case-by-case MACT standard. Failure to file the requisite air toxics permit application would constitute a violation of the Clean Air Act, and penalties could run as high as $27,500 per violation.

Once the detailed permit application is submitted, the state and local air permitting agencies will have 18 months to issue a case-by-case MACT determination. Within this 18-month period, EPA anticipates that it will be able to propose and finalize most, if not all, of the MACT standards applicable to the MACT hammer categories. The EPA standard is expected to take the place of a case-by-case determination. Nevertheless, most major air toxic emitters will still be required to bear the costs of preparing comprehensive permit applications.

Chemical Security

Legislation to enhance security at chemical and power plants may pass Congress later this year. The Bush administration’s chemical security legislation was introduced in May by Senator James Inhofe (R-Oklahoma) and it is expected to be sent by the Senate Environment and Public Works Committee to the full Senate in the next few months.

The legislation defines “chemical sources” to cover facilities that are required to complete a risk management plan in accordance with section 112(r) of the Clean Air Act. Section 112(r) applies to accidental releases of hazardous chemicals. Power plants storing anhydrous ammonia for use in selective catalytic reduction systems are typically subject to the 112(r) requirements. Under the bill, the US Department of Homeland Security would develop a list of “high priority” chemical sources based on a number of security-related factors, including the quantity of substances of concern at the site, the likelihood that the plant may be a target of terrorism, and the cost and feasibility of implementing enhanced security measures.

The legislation would require listed “high priority” plants to prepare vulnerability assessments and site security plans. The plants would be required to submit certifications to the Department of Homeland Security verifying that the assessment has been completed and the plan prepared. Upon request, copies of the assessments and plans would need to be submitted to the department.

Senator Jon Corzine (D-New Jersey) has introduced a competing bill that would also require “high priority” sources to prepare vulnerability assessments and site security plans; these assessments and plans would be required to be submitted to the Department of Homeland Security for review. The Corzine bill would also require affected plants to implement, whenever possible, so-called “inherently safer technologies.”  The Bush administration’s proposal does not include this provision. Critics assert that requiring the use of inherently safer technologies may lead to costly process changes and product switching to use less toxic chemicals. A companion bill to Senator Corzine’s measure has been introduced in the House of Representatives by Rep. Frank Pallone (D-New Jersey).

Congress is expected to enact some form of chemical security legislation by next year. As drafted, the president’s proposal vests the Department of Homeland Security with the authority to identify affected plants. The detailed vulnerability assessments and site security plans could lead to costly plant upgrades to enhance security, particularly for plants near population centers.

Brief Updates

Local environmental groups recently gave notice that they plan to file a citizen suit against the owners of a landfill in Indiana. The environmental groups allege that coal combustion ash disposed at the landfill caused groundwater and surface water contamination in violation of the Resource Conservation and Recovery Act and the Clean Water Act. The dispute highlights lingering objections from environmental groups on EPA’s approach to regulating coal ash as a solid waste instead of as a hazardous waste. EPA is scheduled to propose new solid waste rules on the use of coal ash in minefilling and the disposal of coal ash in surface impoundments and landfills in 2004. A final rule is expected to be released in 2005.

The New York Department of Environmental Conservation proposed a new policy in May that would require the evaluation of impacts from fine particulate emissions (diameters of 2.5 microns or less) whenever anyone applies to build a new project or modify an existing plant that is subject to the New York “Article X” power plant siting law or the State Environmental Quality Review Act. A project would generally be deemed to have a potentially adverse impact if coarse particulate matter emissions (diameters of 10 microns or more) are at least 15 tons per year, and an environmental assessment would need to be submitted. The proposed policy is currently subject to a 30-day public comment period.

A federal district court in southern California ruled in early May that the US Department of Energy failed adequately to consider the environmental impacts of two power plants being built across the US-Mexico border in Mexicali, Mexico. The plants are being built by subsidiaries of two US power companies, and approximately 50% of the power from one of the plants and 100% of the power from the other plant would be exported to the US. The US Department of Energy was required to issue a so-called “presidential permit” for each of the transmission lines connecting the plants to the US grid. Since a federal permit was required, DOE had to conduct an environmental impact review under the National Environmental Policy Act. In Border Power Plant Working Group v. Department of Energy, the court concluded that the DOE’s environmental assessment and finding of no significant impact were deficient because they failed adequately to evaluate certain impacts from the two plants that the court concluded should be evaluated along with the transmission lines as part of the same project.

Mexico is developing new regulations that will require companies to provide the environment ministry with annual reports on air emissions, wastewater discharges and pollutant transfers. The rules are being developed in part to satisfy an obligation under the North American Free Trade Agreement to develop a registry of pollutant releases. The new rule will replace the current voluntary registry maintained by the environment ministry. The proposed rules are currently subject to a 30-day public comment period.

Attorneys General from New York, Connecticut and Rhode Island filed a petition with the North American Free Trade Agreement Commission for Environmental Cooperation requesting that air emissions be reduced from three coal-fired power plants in Ontario. The commission cannot directly impose emission reduction requirements on the Canadian plants, but it will prepare findings that could conclude that the Ontario provincial government is not adequately enforcing applicable emission standards. The petition by the northeastern states is reportedly the first effort by US states to address transboundary air pollution through a NAFTA proceeding.