By Roy Belden

Clean Air Interstate Rule

Utilities and environmental groups wasted little time in challenging the “clean air interstate rule” that requires 28 eastern states and the District of Columbia to reduce nitrogen oxide, or NO_x, and sulfur dioxide, or SO₂, emissions from power plants and other pollution sources by 2015.

The groups filed a series of lawsuits in June and July in the US appeals court in Washington. The US Environmental Protection Agency published the clean air interstate rule in May.

The rule assigns each of the 28 affected states an emissions budget. Each state must comply in one of two ways. It can participate in an EPA-administered cap-and trade program that ratchets down NO_x and SO₂ emissions from power plants in two stages starting with an initial NO_x cap in 2009 and an SO₂ cap in 2010 followed by lower caps for both pollutants in 2015. Alternatively, a state may propose other emission reduction measures, including roping in other sectors besides power plants to spread the reductions across a wider number of facilities.

EPA says the clean air interstate rule will reduce NOx emissions by more than 60% and SO₂ emissions by more than 70% in the 28 states from 2003 levels. The rule is really aimed at reducing the amount of NO_x and SO₂ that cross state lines and contribute to air pollution in states that are downwind from large fossil-fuel power plants. NO_x and SO₂ are precursors of fine particulates, or PM2.5, and NO_x is a precursor of ozone or smog.

The parties challenging the clean air interstate rule have various complaints. For example, environmental groups complain that the rule exempts power plants from a separate “regional haze rule” that is supposed to protect visibility near national parks and federal lands. North Carolina sued to block two parts of the rule that could allow more pollution from neighboring states. One utility charged in its lawsuit that states that rely heavily on natural gas and oil to generate electricity are being required to make more significant reductions in NO_x emissions than states that use coal. This is due to the way EPA calculated the fuel adjustment factors in calculating state NO_x budgets. Other plaintiffs in the lawsuits argue that all or at least a portion of Florida and western Texas should be excluded from the clean air interstate rule because emission sources in those areas do not contribute significantly to air pollution in downwind states. The Integrated Waste Services Association is arguing that the clean air interstate rule should not apply to waste-to-energy facilities. Some of the complaints are in petitions filed with the Environmental Protection Agency asking the agency to reconsider parts of the clean air interstate rule. The cases filed in the US appeals court in Washington have been consolidated into a lead case titled North Carolina v. EPA.

For the time being, the lawsuits and the petitions for reconsideration filed with EPA will proceed on parallel tracks. At the end of the day, only selected provisions in the clean air interstate rule are really at issue. The rule is expected largely to survive the legal challenges since it is modeled after a “NO_x SIP call rule” that remained largely intact after a protracted legal battle.

However, the US government is not taking chances. In early August, EPA proposed a “federal implementation plan” as a backstop to ensure that the clean air interstate rule will be implemented on time by the 28 affected states and the District of Columbia. The backstop plan simply imposes a cap-and-trade emissions program to achieve the mandated NO_x and SO₂ reductions. The backstop plan does not limit the ability of each state to submit its own plan, and EPA will withdraw the federal plan for each state whose plan it approves. The federal implementation plan also cover Delaware and New Jersey — two states that are not otherwise part of the 28 states covered by the clean air interstate rule. The federal implementation plan is merely proposed at this point. EPA hopes to adopt a final plan by March 15, 2006.

In related news, seven Canadian environmental groups petitioned EPA to require Ohio, Illinois, West Virginia, Indiana, Kentucky, Michigan and Pennsylvania to reduce NO_x and SO₂ emissions beyond what the clean air interstate rule requires. The petition also calls for reductions in carbon dioxide, or CO₂, from emission sources in the seven states. The Canadian groups complain that pollution from 250 coal-fired power plants in the Ohio valley and nearby states is contributing to smog, acid rain and climate change in Canada.

The petition was filed under section 115 of the Clean Air Act, a seldom-used provision that allows EPA to act after a report from an international agency concludes that air pollution originating in the US may reasonably be endangering public health or welfare in a foreign county. Section 115 authorizes EPA to direct states that are the source of the pollution to take action.

At the end of the day, the US government is unlikely to order the seven states to take further steps in response to the Canadian petition beyond what they are already required to do by the clean air interstate rule. The Canadian case could end up in the US courts. The Canadian groups would probably have “standing” to pursue a case there.

Climate Change

President Bush acknowledged that climate change is “a serious long-term issue that needs to be dealt with” before heading to the G-8 economic summit in Scotland in July. Bush said the US will continue to focus on research on climate science and on developing new technologies to address global warming. He remains steadfast in his opposition to mandatory reductions in greenhouse gases.

Climate change issues were one of the key topics addressed at the summit. The communiqué released at the end reaffirmed that the G-8 countries want to stabilize greenhouse gas concentrations in the atmosphere and find ways to achieve substantial reductions in emissions. The G8 countries include the United States, Japan, Germany, France, Italy, Canada, Russia and the United Kingdom.

In late July, President Bush announced a new partnership among Australia, China, India, Japan, South Korea and the United States that is supposed to “develop, deploy and transfer cleaner, more efficient technologies” to reduce greenhouse gas emissions and other air emissions. The partnership does not commit the six nations to any mandatory greenhouse gas reductions.

In related news, the European Commission has now approved national allocation plans for all 25 member countries that are participating in the European Union greenhouse gas emissions trading scheme. The first phase of the trading program covers 2005 to 2007, and 11,428 industrial facilities in the member countries are subject to the program. The second phase of the trading program will cover 2008 to 2012 and will be the primary mechanism for the European countries to comply with mandatory reduction targets in the Kyoto protocol. In June, European Union greenhouse gas allowance prices spiked at an all-time high of more than €30 per ton of CO₂ emitted, and since then the price has fallen back to around €20 per ton.

The US Congress rejected several attempts this summer to impose controls on greenhouse gases in the United States as part of an omnibus energy bill. The final bill went to the president in late July, and he signed it on August 8. It includes a section on “climate change.” The bill provides for the creation of a “committee on climate change technology” charged with implementing a national climate change technology strategy. The strategy is supposed to promote commercialization of new greenhouse gas reduction technologies. It will also include standards and best practices for calculating, monitoring and analyzing greenhouse gas intensity, or the amount of greenhouse gases that US emits per dollar of gross domestic product. The US Department of Energy will have money to pay part of the cost of demonstration projects that show off new technologies.

The climate change section of the energy bill also directs the US State Department to coordinate assistance to developing countries for projects that reduce greenhouse gas emissions through a new “greenhouse gas intensity reducing technology export initiative.” The details of the new initiative have been left to an interagency working group. The State Department is supposed to carry out projects to demonstrate new technologies in at least 10 developing countries. The eligible technologies include coal gasification, clean coal projects, carbon sequestration, cogeneration technologies, renewable energy projects and low-emission transportation.

In July, a US appeals court in Washington sided with the US government on the issue whether the government should set motor vehicle emission standards for CO₂ and other greenhouse gases. The Environmental Protection Agency has declined to set such standards. The court said, in a 2-1 decision, that EPA exercised its discretion properly when it denied petitions by a number of states and environmental groups urging it to do so. The court did not address whether EPA has legal authority to regulate CO₂ and other greenhouse gases as “air pollutants” that might adversely affect “public health or welfare” under the Clean Air Act. The one dissenting judge said that EPA not only has the authority but also the “obligation” to regulate greenhouse gas emissions from motor vehicles. The plaintiffs are expected to seek a rehearing before all 11 judges of the US appeals court in Washington, and possibly pursue an appeal to the US Supreme Court if the rehearing request is unsuccessful.

Mercury

The Environmental Protection Agency agreed in June to take another look at whether the regulation of mercury and other hazardous air pollutants from coal-fired utilities is “necessary and appropriate.” This follows on the heels of an EPA announcement in March that the regulation of mercury from coal-fired plants under the section 112 air toxic provisions of the Clean Air Act is no longer “necessary.” EPA is under pressure from 14 states and five environmental groups to reconsider its March decision.

The March decision was of critical importance because it paved the way for issuing a “clean air mercury rule,” which uses a two-phased “cap-and-trade” approach to achieve reductions in mercury emissions from existing coal-fired power plants instead of the “command-and control” regime that that would typically have been imposed under section 112.

In the letter granting reconsideration, EPA said that its “preliminary review of the petitions has not convinced us that our final decisions were erroneous or inappropriate.” It refused to delay implementation of its mercury rule in the meantime and suggested that people not conclude from its actions that “we agree with the petitioners’ claims.”

Most of the same states and environmental groups have also filed lawsuits with the US court of appeals in Washington challenging the clean air mercury rule. The appeals court will make a decision whether to “stay” enforcement of the rule while it reviews what EPA has done.

The clean air mercury rule is controversial, and there is an effort in Congress to overturn it using the Congressional Review Act of 1995. That statute lets Congress overturn an agency regulation by a majority vote. Resolutions calling for reversal of the clean air mercury rule have been filed in both the House and Senate, and the issue will probably be put to a floor vote in the Senate.

Senators Patrick Leahy (D-Vermont) and Susan Collins (R-Maine) are leading the effort in the Senate. They and 30 other Senators filed a “discharge petition” to send the resolution directly to the Senate floor without requiring a vote in the Senate environment committee. The resolution is unlikely to get a vote in the House where Republican leaders have more control over the floor schedule. Nevertheless, the congressional efforts to overturn the clean air mercury rule keep the pressure on EPA, and provide another forum for critics of the agency decision to deviate from the more traditional approach of regulating air toxics under section 112 of the Clean Air Act.

Under section 112, EPA must set emission limits for major sources of hazardous air pollutants at a level representing maximum achievable control technology or “MACT.” Strict MACT limits would probably require reductions in mercury emissions by as much as 90% at most coal-fired plants, resulting in a reduction in mercury emissions from the current nationwide figure of about 48 tons a year to approximately five tons. Under the clean air mercury rule, the first phase of the mercury reductions commences in 2010 with a 38-ton cap followed by a reduction to a 15-ton cap in the second phase starting in 2018.

Under the clean air mercury rule, states have the option of participating in a model EPA cap-and-trade program or of electing to adopt their own state programs to reach mercury reduction targets.

Decisions in the lawsuits challenging the EPA actions in this area are not expected until late 2006 or early 2007.

New Source Review

After more than 12 years of rulemaking deliberations and litigation, a decision by the US appeals court in Washington in New York v. EPA added some much-needed certainty to determining which air emission sources are subject to the “new source review,” or NSR, air permitting program. Most new power plants and factories — including improvements at existing facilities — must undergo an NSR permit review before construction can start. The Bush administration made changes to the NSR rules in December 2002, and the changes were immediately challenged by 14 states and various environmental groups.

The US appeals court in Washington upheld the more controversial parts of the rule, including the government’s approach to calculating baseline emissions and measuring a significant net emissions increase. The court also agreed that EPA’s “plant-wide applicability limitation” or PAL provision was not arbitrary and capricious. The PAL provision allows a company to take an emissions cap at a facility and make necessary changes to emission units without going through NSR permitting so long as the emissions stay under the cap.

However, the court set aside two parts of the EPA rules that let certain “clean units” and “pollution control projects” avoid NSR permitting. EPA has allowed certain exceptions to NSR permitting for pollution control projects for years, and Congressional action may now be required to authorize these types of exemptions. The court held that the two EPA-created exceptions to the NSR program were not authorized by the Clean Air Act.

The latest court decision brings into clear view a significant split in the federal appeals courts over whether the term “modification” as used in the NSR program has the same meaning as in the “new source performance standards,” or NSPS, program. This is significant because it is much harder to trigger a “modification” under the NSPS program. Under the NSPS program, a modification occurs when there is an increase in the hourly emission rate. In the NSR program, a modification is triggered when there is a significant increase in annual emissions at a plant. For example, modifications to a boiler that restore the unit to its original hourly emission rate would not trigger a modification under the NSPS program, but they would probably trigger a modification under the NSR program.

The court said in the New York v. EPA decision that Congress did not require EPA to use the NSPS definition of “modification” in the NSR program. Two other courts came to the opposite conclusion in June. The US appeals court in the 4th circuit said EPA had to use the NSPS definition in a June 15, 2005 decision in US v. Duke Energy Corp., and a federal district court in Alabama said the same thing in U.S. v. Alabama Power Company in early June. In early August, the US Department of Justice asked the entire panel of judges on the 4th circuit appeals court to review the decision. If this request is denied, then the Justice Department might try to have the Duke Energy decision reviewed by the US Supreme Court.

The New York v. EPA decision is generally a victory for the regulated community, and the NSR revisions that were upheld should be helpful in making the NSR permitting process a little less complex and time consuming.

In related news, an NSR enforcement action against American Electric Power went to trial in early July. Final briefs in the case are due by early September with closing arguments set for September 19. Pennsylvania, Connecticut, Maryland, New Jersey and New York filed suit against Allegheny Energy in a US district court in Pennsylvania alleging that Allegheny Energy undertook major modifications at six coal-fired generating units in Pennsylvania that significantly increased the emissions without obtaining NSR permits. A decision in the case is not expected until 2006.

EPA also announced in June that it plans no further changes in the types of “routine maintenance, repair, and replacement” of equipment that can be done at existing power plants without the need for an NSR permit. Several environmental groups petitioned the agency to revisit the definition. EPA said that it believes that its current definition — adopted in October 2003 — is “fully justified and will provide much needed clarification to the NSR program while still ensuring environmental protection.” However, the US appeals court in Washington has put enforcement of the current definition indefinitely on hold until the court decides the merits of lawsuits filed by several state and local governments and multiple environmental groups.

Regional Haze

EPA issued a “clean air visibility rule” in early July that will require states to identify older power plants and industrial facilities that should be subject to “best available retrofit technology,” or BART, requirements.

The potentially affected plants were built between 1962 and 1977 and have the potential to emit more than 250 tons a year of NO_x, SO₂, PM2.5 or volatile organic compounds that affect visibility in so-called class I areas, such as national parks or federal wilderness areas.

States will have until December 2007 to identify the facilities that will have to install BART controls. Upon approval of the state plans, there will be a five-year implementation period, and most of the required emission reductions are expected to take effect in 2014, with full implementation anticipated before 2018.

The program has the potential to affect large utility and industrial boilers as well as significant industrial plants such as pulp mills, refineries and smelters. As many as 800 power plants and 2,300 industrial combustion sources are potentially affected. The BART controls could be expensive to install.

In mid-July, EPA proposed letting states adopt an emissions trading program as an alternative to ordering BART controls. The BART requirements for affected sources in the state would be satisfied if the trading program meets or exceeds the visibility benefits resulting from BART-level controls. The proposed rule will be subject to a 45-day comment period after the rule is published in the Federal Register. EPA expects to take final action on the proposed BART emissions trading rule by November 2005.

Brief Updates

The Texas legislature voted to increase the amount of electricity that utilities in the state must supply from renewable fuels from 2,880 megawatts by 2009 to 5,880 megawatts by 2015. The bill also sets a target of 10,000 megawatts by 2025. Texas Governor Rick Perry is expected to sign the bill into law. The current “renewable portfolio standard” requires 2,880 megawatts from renewables by 2009, but the state is on track to reach this level by next year.

In California, the Alameda County board of supervisors gave preliminary approval in July to new 13-year permits for about 3,000 existing wind turbines in the Altamount Pass area to continue operating. The Board of Supervisors imposed nine new conditions to reduce bird deaths, including the immediate shutdown of the most dangerous 2% of wind turbines and restrictions on winter operation when turbines pose the most danger to raptor and songbird populations. All of the turbines must be shut down for two months during the winter for the first five years and 31 ⁄2 months during the winter thereafter. Other conditions include a requirement that 10% of the wind turbines be repowered or removed in the next four years with 100% of the wind turbines being repowered or replaced within 13 years as well as completion of an environmental impact report for the entire area within three years. The board of supervisors will take final action on the permits in September. Environmental groups are threatening to sue to stop the permits from being issued.

The Illinois Commerce Commission approved a renewable portfolio standard in July that will require Illinois utilities to supply 2% of their electricity from renewable fuels by 2006. The amount will increase to 8% by 2013. Illinois has had only a voluntary program to date. It becomes the 20th state to adopt a renewable portfolio standard. Under the Illinois plan, at least 75% of the renewable energy must come from windpower by 2013.

The EPA staff issued a final “staff paper” that recommends revisions to the standards for fine particulates or PM2.5 and coarse particulates or PM10. Existing rules for fine particulate matter were first set in 1997. EPA now has until December 20 this year to evaluate whether the particulate standards should be revised under terms of a consent decree with the American Lung Association. A final rule must be issued by September 27, 2006. It is not clear whether the agency will adopt the staff recommendations and make the existing particulate standards more stringent.

The Bureau of Land Management has developed a model form of environmental impact statement for wind projects on public lands in 11 western states, including Alaska. This is supposed to make for faster consideration of environmental issues that must be evaluated before the Bureau of Land Management can authorize construction of a wind farm on public land.