Environmental Update

Environmental Update

June 01, 2005

Renewables

The US Senate is expected to debate in June whether to adopt a national “renewable portfolio standard,” or law that would require electric utilities in the United States to supply a certain percentage of their electricity from renewable sources. Nineteen states and the District of Columbia have such laws currently. A federal standard would apply in all states.

The issue is expected to come up during debate on the national energy bill. The bill passed the House in April without a renewable portfolio standard. The Senate energy committee passed its own version of the bill in May, also without such a standard. Democrats are expected to raise the issue when the bill is taken up by the full Senate in mid- to late June.

The energy bill still faces a long road before it can become law. Assuming it passes the Senate, then a “conference committee” of senior members from the House and Senate will have to iron out differences between House and Senate versions of the bill. There are many contentious issues. President Bush has asked Congress to send him a final bill by early August.

Senator Lamar Alexander (R-Tennessee) is considering trying to add language to the bill in the Senate that would set up additional barriers to development of onshore and offshore wind farms. Alexander wants wind farm developers to get a siting approval from local authorities as a prerequisite to the required Federal Energy Regulatory Commission approval before they can build a project. If the local authorities deny the siting approval, then FERC would be unable to grant the project status as an “exempt wholesale generator” or issue market-based rate authority or help the project enforce its rights to avoided-cost prices for its electricity in cases where the project is a “qualifying facility,” or QF. Second, Alexander’s language would prevent production tax credits from being claimed on the output from projects located within 20 miles of a coast line, military base, national park or other highly scenic area, and such projects would require the preparation of a detailed environmental impact statement. Third, wind farms proposed for construction within 20 miles of a neighboring state’s boundary could be vetoed by the neighboring state.

In related news, Montana became the nineteenth state to adopt a renewable portfolio standard. Under the Montana program, electric utilities must purchase or generate 5% of their power from renewable energy sources by 2008. The percentage ramps up to 10% over the period 2010 to 2014 and to 15% by 2015. The new law defines eligible technologies to include geothermal, solar, wind, landfill gas or other methane gas projects, biomass, small hydroelectric plants and fuel cells where hydrogen is produced with renewable fuels. The Montana Public Service Commission has been directed to issue regulations implementing the program by June 1, 2006.

Global Warming

Canada unveiled a plan in April for achieving the commitment the country made in the Kyoto treaty to reduce greenhouse gas emissions by 6% below 1990 levels during the first commitment period of 2008 to 2012. The plan calls for spending as much as C$10 billion over the next seven years to achieve reductions of approximately 270 megatons of CO2-equivalent per year during 2008 to 2012.

Canada plans to achieve a 75- to 115-megaton reduction through a new climate fund that will reward domestic greenhouse gas reductions by farmers, businesses and local communities as well as pay to buy certified international greenhouse gas emission reductions. It expects another 55- to 85-megaton reduction from agreements with the Canadian provinces and territories to help fund infrastructure projects on a cost-sharing basis, including clean coal projects and carbon storage projects and shutdowns of existing coal-fired power plants. The Canadian plan also calls for a 45-megaton reduction from large industrial greenhouse gas emitters, including oil and gas companies, power plants, mines and other segments of the manufacturing sector. Energy efficiency initiatives are expected to contribute reductions of up to 40 megatons, and carbon sequestration in forests and soil is supposed to contribute CO2-equivalent reductions of up to another 30 megatons a year. Renewable energy incentives are expected to provide approximately 15 megatons of reductions, and other programs, including consumer initiatives, reductions from government sources, and motor vehicle efficiency improvements are anticipated to contribute about 11 megatons of reductions per year.

Meanwhile, the pressure continues to build slowly in the United States to act on greenhouse gases. Two senior Senators — John McCain (R-Arizona) and Joseph Lieberman (D-Connecticut) — reintroduced a modified version of a bill they have been pushing for several years that calls for reductions in greenhouse gases from four major sectors of the US economy — electricity generation, transportation and the industrial and commercial sectors. These sectors account for approximately 85% of greenhouse gas emissions in the US. The bill would require the affected sectors to reduce greenhouse gas emissions to 2000 levels by 2010. The Senate rejected an earlier version of the bill in the last Congress by a vote of 55 to 43. The new version of the McCain-Lieberman bill includes a new title that is supposed to promote development and use of new low or zero greenhouse gas emitting technologies. The bill would also create a greenhouse gas emission allowance trading system that would be tied to the 2010 mandatory reduction target.

There do not appear to be any more votes for the new version of the bill than there were in the last Congress. Nevertheless, the Senators plan to try to add the text as a rider to the energy bill in the Senate in late June.

Meanwhile, the Regional Greenhouse Gas Initiative, or RGGI, organized by nine northeastern and mid-Atlantic states is moving forward with a state-led regional approach to reducing CO2 emissions from power plants. The nine states — Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont — agreed in 2003 to work together on a regional cap-and-trade program to reduce CO2 emissions. Representatives from Maryland and Pennsylvania also attend RGGI meetings as observers.

The RGGI states are expected to announce a memorandum of understanding and a final emissions trading model this summer. The focus is reducing CO2 emissions from power plants. The program may ultimately expand to cover other industries and additional greenhouse gases. The states have not decided yet what level of CO2 emissions reductions will be targeted under RGGI. In 2001, the New England governors and the premiers of the eastern Canadian provinces signed a climate action plan calling for a 10% reduction below 1990 CO2 emissions by 2020. A large coalition of environmental groups is pressing the RGGI states for a 25% reduction.

The California governor, Arnold Schwarzenegger, issued an executive order in early June that establishes aggressive greenhouse gas emission reduction targets for the state. The order calls for emission reductions to 2000 levels by 2010, and a reduction to 1990 levels by 2020, and an 80% reduction below 1990 levels by 2050. The state legislature is also working on legislation that would achieve similar greenhouse gas emission reductions. The legislation was passed by the State Assembly at the end of May, and is now pending before the state Senate.

Chemical Security

The level of talk in Congress is increasing about the need for tighter security at power plants and other industrial facilities that use or manufacture potentially dangerous chemicals.

Two bills have been introduced in the House. The Senate homeland security and governmental affairs committee held a hearing on the subject in late April, and committee staff are drafting a bill to present to the full committee.

Legislation on chemical security got through the committee in the last Congress, but was never taken up by the full Senate.

Under the House bills, the Department of Homeland Security would draw up a list of “high priority” facilities. In identifying high priority plants, a number of security-related factors would be considered, including the severity of harm that would be caused by an unauthorized release of dangerous chemicals, the proximity to population centers, the threats to national security, the quantity of substances of concern at the site and the threats to critical infrastructure. The “high priority” plants would have to prepare vulnerability and hazard assessments and develop a prevention and response plan. Companies will then have to get their implementation of the plans certified by the Department of Homeland Security.

Under the House bills, covered “chemical sources” are plants required by section 112(r) of the Clean Air Act to complete a risk management plan. Power plants that store anhydrous ammonia in large amounts for use in selective catalytic reduction systems are typically subject to the 112(r) requirements.

One issue that derailed the chemical facility security legislation in the last Congress was whether plants should be required to use “inherently safer technologies.” Industry groups have opposed this provision arguing that it would be too costly and burdensome to implement.

The chemical security bills are expected to gather momentum in the coming months. If enacted, they could require big new capital investments in covered facilities.

State Emissions Reductions

Environmental officials in the northeastern and mid-Atlantic states are considering whether to adopt a regional plan that would require further reductions in nitrogen oxide, or NOx, and sulfur dioxide, or SO2, emissions that go beyond anything the federal government has ordered. The states are members of an Ozone Transport Commission, or OTC, that was created in 1990 to address elevated levels of smog or ozone pollution in the eastern US. The smog moves across borders, and a regional approach is more effective in achieving emission reductions. The states met in April to discuss potential strategies for implementing additional emission reductions.

The OTC states have had a history of acting before the federal government to force reductions in NOx and volatile organic compound or VOC emissions in the region.

The OTC states also want a nationwide cap on SO2 and NOx emissions from power plants that goes well beyond the levels proposed so far by the Bush administration. They want a nationwide cap of three million tons on SO2 emissions and 1.87 million tons of NOx emissions by 2008 — with further reductions to an SO2 cap of two million tons and a NOx cap of 1.7 million tons by 2012. The states also want a more stringent crackdown on mercury emissions.

Discussions are underway between the OTC states and environmental officials in several midwestern and southern states about possibly bringing other states into a regional partnership to limit NOx and SO2 emissions from power plants. The OTC states have in mind a regional NOx and SO2 emissions trading scheme that would take effect as early as late 2006.

Mercury

Eleven states are suing the US government challenging the “clean air mercury rule” that requires reductions in mercury emissions from existing coal-fired power plants in a two-phased “cap-and-trade” approach. The 11 states are predominantly New England and mid-Atlantic states, but also include California, New Mexico and Wisconsin. Illinois has also announced that it plans to appeal the final rule.

Twelve environmental and conservation groups also filed lawsuits challenging the final mercury rule on the same day it was published in the Federal Register. The lawsuits were filed with the US court of appeals in Washington, DC.

The clean air mercury rule has been controversial from the start, and several states and environmental groups have criticized the Environmental Protection Agency for deviating from the more traditional framework 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.” For existing facilities, the MACT level is based on the average emission limitation achieved by the best performing 12% of plants in a particular category or subcategory of sources. For new facilities, the MACT level is set at the level of control achieved by the best-controlled similar source.

Instead of using its section 112 legal authority to set such standards, the Environmental Protection Agency looked to its “new source performance standards” program in section 111 of the Clean Air Act as a model for what to do about mercury. Section 111 is much less prescriptive and provides more flexibility in establishing emission standards. The petitioning states and environmental groups want tighter controls. They argue that the Clean Air Act does not authorize EPA to regulate mercury under section 111.

Strict MACT limits would probably require reductions in mercury emissions by as much as 90% from 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 a MACT standard, coal-fired power plants would have to implement mercury reductions within a three-year time frame. The states and environmental groups argue that the “cap-and-trade” approach the Bush administration adopted will potentially leave toxic “hot spots” of mercury because companies will have a choice of reducing mercury emissions or buying “allowances,” or rights to pollute. They argue that coal-fired plants clustered in certain parts of the country may find it cheaper to purchase allowances rather than invest in new pollution control systems.

Under the clean air mercury rule, the first phase of the mercury reductions commences in 2010 with the imposition of a 38-ton cap followed by a reduction to a 15-ton cap in the second phase starting in 2018. New coal-fired power plants that commence construction on or after January 30, 2004 will also have to meet stringent “new source performance standards” for mercury emissions. EPA anticipates that most coal-fired power plants will not have to take additional steps to reduce their mercury emissions until the phase two mercury cap takes effect. That’s because actions that the plant are expected to take to rein in NOx and SO2 emissions as a result of a separate government crackdown will also reduce mercury by a large enough amount to meet the mercury cap of 38 tons during phase one.

Coal-fired power plants capable of generating 25 megawatts of electricity and that sell more than 25 megawatts to the grid are subject to the clean air mercury rule. Cogeneration units capable of producing more than 25 megawatts of output and that put more than a third of their capacity and more than 25 megawatts into the utility grid for sale are also covered by the rule. Under the clean air mercury rule, states have the option of participating in the model EPA cap-and-trade program or electing to adopt their own state programs to achieve the mercury reduction targets.

A decision in the lawsuits over the mercury rules is not expected until late 2006 or early 2007.

Brief Updates

EPA said in April that it will delay issuing “best available retrofit technology,” or BART, guidelines for power plants and certain other industrial facilities built between 1962 and 1977 that potentially affect visibility in a so-called class I area, such as national parks or federal wilderness areas. The final rule implementing the regional haze guidelines is now scheduled to be issued by June 15 under an agreement with a citizens group. The rule is expected to require states to identify older power plants and industrial facilities that will be subject to BART requirements by January 2008. The required emission reductions are expected to take effect in 2014, with full implementation anticipated before 2018.

The Massachusetts Energy Facilities Siting Board approved construction of two undersea cables in May to connect the 420-megawatt Cape Wind project in Nantucket Sound to the regional electricity grid. The project still must obtain numerous other federal and state regulatory approvals before it can start construction. Portions of a draft environmental impact statement for the project prepared by the US Army Corps of Engineers have been criticized as inadequate by the US Environmental Protection Agency and several conservation groups. EPA commented that the study should have done a better job of evaluating the potential impact of the project on aquatic habitat, threatened and endangered species, eelgrass and migratory birds.

In April, a US appeals court in Washington heard oral arguments in a case filed by 12 states and 14 environmental groups challenging an EPA decision that it lacks legal authority to set motor vehicle emission standards for CO2 and other greenhouse gases. The states and environmental groups argue that CO2 and other greenhouse gases, including methane, nitrous oxide and hydrofluorocarbons, emitted by motor vehicles qualify as “air pollutants” that might adversely affect “public heath or welfare” under the Clean Air Act. EPA concluded that it is not authorized to regulate these substances as “air pollutants.” A decision is expected later this year.

Massachusetts is considering restrictions on offshore ocean projects, including wind farms. Massachusetts Governor Mitt Romney (R) has asked the state legislature to prohibit certain ocean projects unless they conform to an “ocean use management plan” to be developed by the state. In developing the plan, the secretary of environmental affairs is supposed to take into account the “existing natural, social, and economic” characteristics of the ocean planning area. The state legislature is expected to hold hearings on the proposal this summer.

— contributed by Roy Belden in New York