By Roy Belden

Election 2004

Environmental issues have largely taken a back seat in the 2004 US presidential election as the candidates have focused the discussion on terrorism, the war in Iraq, and the US economy.

President Bush and the Democratic presidential candidate, John Kerry, have strikingly different priorities on environmental issues. President Bush, if reelected, is expected to stay the course and continue work on several proposed regulations. The Bush administration can be expected to finalize its proposed “clean air interstate rule” (formerly called the “interstate air quality rule”) that will require significant reductions in nitrogen oxides, or NO_x, and sulfur dioxide, or SO₂, from power plants by 2015 and to finalize a separate “utility mercury reductions rule” that will require cuts in mercury and nickel emissions from coal and oil-fired power plants.

The Bush administration’s legislative priorities are expected to include working with Congress to enact a comprehensive energy bill, a chemical plant security bill, and legislation to cap damages and set standards for awards in asbestos cases. In a second term, the Bush administration would also be expected to press for enactment of its “clear skies initiative” to require additional substantial reductions in NOx, SO₂, and mercury from power plants. The clear skies proposal stalled in the current Congress. The two proposed rules on power plant emissions that the administration is working to finalize are designed to achieve similar levels of reductions in NO_x, SO₂, and mercury emissions from power plants that the administration would have gotten from the legislation. The legislation would more closely coordinate the required reductions in NO_x, SO₂, and mercury emissions from power plants and make the two rules less likely to be overturned in court.

Not surprisingly, John Kerry has different environmental priorities. Kerry is a strong supporter of measures to reduce global warming. He would be expected to push for legislation to establish greenhouse gas emission reduction targets for US power plants and industrial facilities. Kerry would probably also roll back rules the Bush administration issued to relax the “new source review” program. Kerry has been especially critical of how the Bush administration defined the phrase “routine maintenance, repair, and replacement” of equipment that can be completed at existing power plants and other major emission sources without having to get a new preconstruction air permit. Regulations that the Environmental Protection Agency issued addressing this contentious air permit modification issue in October 2003 are currently being challenged by 14 states, 29 local jurisdictions, and several environmental and public interest groups. The rule has been “stayed” by a US appeals court in Washington, DC until the court can hear arguments in the case. A decision is not expected until 2005.

Kerry would also be expected to rework the proposed “utility mercury reductions rule” to establish stringent emission limits based on maximum achievable control technology, or “MACT,” rather than the market-based “cap and trade” approach favored by the Bush administration. A Kerry administration would probably also require that reductions in mercury emissions be achieved within tighter time frames. The Bush administration proposes to phase in its mercury reductions through 2018.

It is less clear whether Kerry would follow through on implementing the “clean air interstate rule.” He might implement the rule largely as proposed but with a shorter timetable to reduce emissions and with some ratcheting down of NO_x and SO₂ emission reduction targets to more stringent levels. Other Kerry environmental priorities include prohibiting any exploration for oil in the Artic National Wildlife Refuge in Alaska and reinstating the excise tax on the chemical industry to collect revenue for the Superfund trust fund that is used to finance cleanups of abandoned hazardous waste sites.

Climate Change

Russia took a significant step toward ratifying the Kyoto treaty that sets deadlines for reducing greenhouse gas emissions. In September, the 1997 treaty was forwarded to the Duma or the lower house of the Russian parliament by President Putin’s cabinet with the recommendation that the protocol be ratified. If, as expected, the Russian parliament approves of the treaty, then it will enter into force 90 days after Russia submits its approval to the United Nations.

This will mean that power companies and other industrial facilities operating in most of Europe, Japan and Canada will have to take steps to limit carbon dioxide, or CO₂, a greenhouse gas. The first compliance period is 2008 to 2012.

The United States has rejected the Kyoto protocol on the basis that implementing dramatic reductions in greenhouse gas emissions would have a serious impact on the US economy. The Bush administration also refuses to commit to a program of controlling greenhouse gas emissions unless large developing countries, such as China and India, also commit to the same program. The Kyoto protocol will enter into force after it has been ratified by 55 or more countries whose combined CO₂ emissions levels represent at least 55% of the CO₂ emissions from the socalled “Annex I” western industrialized countries in 1990. As of September 15, 2004, 125 nations have ratified the treaty, and those nations accounted for 44.2% of the 1990 CO₂ emissions. Russia accounts for 17.4% of the 1990 CO₂ emissions, and the United States accounts for 36%.

Russia would be the 30th of the 36 Annex I industrialized nations to ratify. The Russian Duma is expected to approve the treaty before the upcoming December 6-17, 2004 meeting of signatory countries at the “Tenth Conference of the Parties to the United Nations Framework Convention on Climate Change.”

In related news, five US power companies that were recently sued in two separate cases by the attorneys general from eight states and New York City and by three environmental organizations alleging that their power plants emit large quantities of CO₂ have asked the court to dismiss the cases. The companies involved include American Electric Power, Southern Company, the Tennessee Valley Authority, Xcel Energy, and Cinergy.

The states and environmental groups argue that the CO₂ emitted by the companies’ power plants creates a public nuisance. The companies own or operate 174 fossilfuel fired power plants in 20 states, and account for about 650 million tons of CO₂ emissions. The plaintiffs in the two suits are seeking an injunction requiring the power companies to cap their CO₂ emissions immediately and then reduce the emissions by a specified percentage each year over the next 10 years.

The companies argued in a motion to dismiss the cases federal “common law” has been preempted by a federal statute, the Clean Air Act, and by other federal actions. The companies also argue that the plaintiffs lack standing to sue in the federal courts. A decision on the motion to dismiss is expected later this year.

Mercury

A coalition of eight US and Canadian environmental groups filed a complaint under the North American Free Trade Agreement with the Commission for Environmental Cooperation — called the CEC — asking the commission to investigate the US Environmental Protection Agency’s alleged failure to prevent increases in mercury contamination in US and Canadian lakes and rivers. The environmental groups charge that EPA has not been adequately enforcing the Clean Water Act against coal-fired power plants.

Under NAFTA, the CEC has the authority to investigate complaints and issue findings to the administrators of the respective environmental agencies in the US, Canada and Mexico. The groups charge that US power companies have an advantage over Canadian power companies because they are not being held to the same standards on clean water. The CEC secretariat, based in Montreal, must decide whether to accept the complaint and launch an investigation. If the CEC accepts the complaint, the next step would be to ask the US Environmental Protection Agency to respond to the charges. The goal of the environmental groups is to attract public attention to mercury discharges from US coal-fired power plants and keep the pressure on the Bush administration to adopt stringent mercury reduction requirements. The utility mercury reductions rule already proposed by EPA would achieve approximately a 70% reduction in mercury air emissions from coal-fired plants by 2018. The environmentalists want substantially stricter mercury reduction targets to be achieved in a much tighter time frame.

IFC Environmental Policies

The International Finance Corporation, the private lending arm of the World Bank, has embarked on an effort to update the IFC’s social and environmental “safeguard” policies that were originally developed in 1998. These are policies that apply to projects in developing countries. The policies cover a number of issues, including impacts on indigenous people, forced resettlements, natural habitats, dam safety, international waterways, forestry and cultural property.

The IFC recently announced that it would engage in a four-month consultation process with meetings scheduled in Rio de Janeiro, Manila, Nairobi and Istanbul. The IFC said it hopes to revise and streamline the safeguard policies to make them clearer, more concise and easier to use. It also aims to incorporate performance standards and address identified gaps in coverage. The concept of sustainability will also be incorporated into the policies, which will be renamed as the IFC’s “Policy on Social and Environmental Sustainability.”

On a parallel track, the IFC has also launched a review of all of its environmental, health and safety guidelines published prior to August 1, 2004. The IFC intends to update the guidelines at the same time it overhauls the safeguard policies. The IFC is expected to present the new standards and polices to its management and board in February 2005.

New York RPS

New York became the 17th state to adopt a renewable portfolio standard. The New York RPS requires that at least 25% of electricity sold to New York consumers be generated from renewable energy sources by 2013. Earlier this year, Hawaii, Maryland and Rhode Island also adopted renewable portfolio standards. Several other state legislatures are considering whether to adopt RPS requirements.

The New York Public Service Commission adopted the RPS policy in mid-September, and implementation will start on January 1, 2006. The commission expects the state to have to add approximately 3,700 megawatts of renewable energy generation to meet the 25% goal. Once fully implemented, statewide air emissions are expected to be reduced by the following amounts: NO_x by 6.8%, SO₂ by 5.9% and CO₂ by 7.7%.

The New York RPS program will apply to two categories of power plants, including a “main tier” of medium-to-large generating facilities and a “customersited tier” of smaller scale projects. Renewable energy plants using wind, hydroelectric, biomass, biogas, liquid biofuel, and ocean or tidal energy sources are classified as main tier plants. The customer-sited tier will include fuel cells, solar power and smaller wind projects. The commission concluded that energy generated from the incineration of municipal solid waste was not eligible for the RPS program.

The state currently receives about 19% of its power from renewable energy sources.

New York Air Regulations

The New York State Department of Environmental Conservation took emergency action in mid-August to keep its ambitious program to reduce NO_x and SO₂ emissions from power plants on track. The rules will reduce NO_x and SO₂ emissions from electric generators to levels that are significantly below current federal requirements. The regulations, which implement Governor Pataki’s acid rain initiative, were struck down on procedural grounds by a New York state trial court in May. The department has filed an appeal of the trial court decision.

The final NO_x and SO₂ regulations were issued in March 2003. Under the new Part 237 rules, current ozone season NO_x reduction requirements will be imposed yearround starting on October 1, 2004. The NO_x reduction rules will affect existing and new fossil-fuel fired power plants that have a nameplate capacity of at least 25 megawatts and sell any amount of electricity to the grid. The Part 237 NO_x reduction requirements apply to a control period of October 1 to April 30, and existing sources will be allocated NO_x allowances based on an allocation formula that considers the greatest heat input experienced for any control period by the unit during the past three control periods. The Part 237 rule will implement a statewide NO_x trading program with a program-wide cap of 39,908 tons. Under the trading program, one ton of NO_x will be equal to one NO_x allowance. There is a limited exemption available for facilities that accept a NO_x limitation of 25 tons or less during a control period.

New electric generating units may apply for an allocation of NO_x allowances from a set-aside account consisting of 5% of the total cap amount. The initial allocations for a new unit will be based on a unit’s control period potential to emit. After the fourth control period, the new unit will be included in the existing source program.

The new Part 238 rules require SO₂ emissions to be reduced by 50% below current federal acid rain program levels starting on January 1, 2005, with full implementation completed by January 1, 2008. The SO₂ reduction requirements apply to electric generating units that qualify as “affected units” under the federal acid rain program. The New York program is separate and distinct from the federal acid rain program, and will create a new marketbased program for trading in New York SO₂ allowances. Under the Part 238 SO2 program, one ton of SO₂ will be equal to one SO₂ allowance. Like the Part 237 NO_x program, existing sources will be allocated SO₂ allowances based on a formula that considers the greatest heat input experienced for any control period by the unit during the preceding three years.

The control period for the New York SO₂ program is year round, and the statewide SO₂ budget is 197,046 tons for the 2005 to 2007 control periods, and 131,364 tons for each subsequent control period. There is also a new source set aside for the New York SO₂ program that consists of 3% of the statewide SO₂ budget.

Both the New York NO_x and SO₂ programs will also set aside 3% of the statewide NO_x and SO₂ budgets for energy efficiency and renewable energy projects. Additional allowances will be awarded to companies that reduce NO_x and SO₂ emissions through in-plant or enduse efficiency measures or generate energy from renewable sources. To the extent there are unused allowances from the set-aside accounts, the allowances will be distributed to the units in the NO_x and SO₂ budget programs on a proportional basis.

Brief Updates

The US Interior Department recently released a draft environmental impact statement that evaluates the potential environmental impacts associated with developing wind energy projects on public lands. Environmental impacts from wind projects include disturbance of cultural sites, noise, degradation of wildlife habitat, and harmful effects on migratory birds and bats. The draft environmental impact statement is an initial step in the Interior Department’s development of a national wind energy development program.

In September, EPA published a final rule regulating air toxic emissions from industrial and commercial boilers. New emission limits to control carbon monoxide, hydrogen chloride, mercury and particulate matter will apply to certain large new and existing boilers. The rule includes an exemption for certain units that present a low risk to human health. The rule will take effect on November 12, 2004, and a legal challenge from environmental groups is expected.

New Jersey is expected to propose revisions to its state air regulations in October that would classify carbon dioxide as an “air pollutant.”The US government is taking the position that CO₂ is not an “air pollutant” under the federal Clean Air Act. Many northeastern states are moving on their own to control carbon dioxide. New Jersey would be the first state to classify CO₂ ias an air pollutant, and it lays the foundation for future state regulatory efforts to impose CO₂ iemission reduction requirements to address global warming.

Mexico has reportedly become the first country to adopt internationally accepted standards to measure and report greenhouse gas emissions as part of a voluntary national greenhouse gas program. Mexico is implementing a 2-year pilot program to track greenhouse gas emissions, and it will use a corporate accounting standard that is widely used by the international business community.

Five major industry trade associations recently filed a petition with EPA seeking reconsideration of the deadlines for compliance with the 8- hour ozone national ambient air quality standard. They want the affected states with ozone nonattainment areas to have more time to comply. The five trade associations argue that EPA’s own data and analysis show that several nonattainment areas will have difficulty meeting the target dates. In separate legal actions, six northeastern states and several environmental groups are challenging the 8-hour ozone implementation rule in the court claiming that EPA’s implementation of the 8-hour ozone rule is too lenient and falls short of what a US Supreme Court decision on the issue requires.

The Bush administration filed its response briefs in New York v. EPA, a lawsuit challenging a rule the Environmental Protection Agency issued in December 2002 to relax the “new source review” permit applicability provisions. Fourteen states and a coalition of environmental groups have challenged the rule. Oral arguments in the case are scheduled for early 2005, and a decision is expected later in 2005.

In September, EPA issued notices of violation to Northern Indiana Public Service Co. for an alleged failure to undergo new source review permitting before modifying three coal-fired power plants in Indiana. EPA charges that the modifications of boilers and other equipment at the plants was major enough to require a permit.