Environmental Update

July 02, 2010

The US government announced thresholds in mid-May for when greenhouse gas emissions, like carbon dioxide or CO2, at power plants and factories will trigger review under a US program called the “prevention of significant deterioration” or PSD program and require permits to operate under title V of the Clean Air Act.

Environmental lawyers call the thresholds the “tailoring rule.”

The PSD program requires anyone planning to build a new power plant or factory that is a “major source” of air pollution or to make a “major modification” to an existing major source to have a permit before work can start. “Major sources” are 28 types of facilities that emit at least 100 tons a year of a regulated air pollutant. Facilities not on the list of 28 are also covered if they have the potential to emit at least 250 tons a year of a regulated pollutant. Best available control technology to control emissions of these pollutants must also be installed as a condition to receive a permit.

The tailoring rule would be phased in during 2011. PSD review will not be triggered for new facilities that will be a major source of greenhouse gas emissions during the first six months of 2011. However, PSD review will be triggered for existing facilities that would be subject to the PSD program anyway and that increase their greenhouse gas emissions by more than 75,000 tons of CO2 equivalent per year. During the last six months of 2011, the PSD program will be triggered for new sources emitting more than 100,000 tons of CO2 equivalent per year or modified major sources emitting more than 75,000 tons of CO2 equivalent per year, regardless of if these sources trigger the PSD program for other regulated pollutants.

Challenges to this rule have already been filed and more are expected before the deadline of August 2, 2010. As a practical matter, the US Environmental Protection Agency does not have the ability to handle the vast number of permits that would be required under the current PSD and title V program regulations. EPA estimates that companies would need to apply for only about 1,600 additional permits a year under the PSD program after the tailoring rule takes effect fully, compared to about 82,000 permits under current rules.

Carbon Controls

A carbon cap-and-trade bill that Senators John Kerry (D.-Massachusetts) and Joe Lieberman (I.-Connecticut) unveiled in mid-May would require a reduction in US greenhouse gas emissions of 4.75% below 2005 levels by 2013 increasing to 83% by 2050.

The House passed carbon legislation as part of a larger energy bill in June 2009. The emissions caps in its bill are fairly close to the caps in the bill that Kerry and Lieberman are angling to have considered in the Senate. The House reductions are 3% in 2012, 17% in 2020, 42% in 2030 and 83% in 2050.

Many lobbyists doubt that Kerry and Leiberman have enough votes to put their proposal through the Senate this year.

As the NewsWire went the press, there was speculation that Senator Harry Reid (D.-Nevada), the Senate majority leader, will abandon plans to bring an energy bill, possibly with a carbon title, up for debate in July and, instead, put off consideration of energy and carbon until a “lame duck” session of Congress in late November and December after elections in early November that are expected to give Republicans control of one and possibly both houses of Congress.

Senators Maria Cantwell (D.-Washington) and Susan Collins (R.-Maine) have a competing carbon bill that they are eager to have the Senate take up in place of the KerryLieberman proposal. Their bill would limit carbon emissions, but not allow trading in carbon allowances, and return a large share of the revenue the government collects from the sale of carbon allowances to the public. The bill has been called a “cap-and-dividend” bill as opposed to the cap-and-trade plans that passed the House and that Kerry and Lieberman are proposing. Cantwell and Collins tout the fact that their bill is only 39 pages compared to more than 1,000 pages for the cap-and-trade proposals.

Under the Kerry-Lieberman bill, allowances — each a right to emit one ton of a greenhouse gas — would be given away by the government to current owners of covered power plants and other facilities during the early years of the program with increasing percentages of allowances auctioned over time.

The anticipated costs of allowances differ slightly between the House bill and the Kerry-Lieberman proposal. The House bill sets a minimum reserve auction price of $10 per ton of CO2 for auctions in 2012, and the price would increase by 5% over the annual rate of inflation. The KerryLieberman bill contemplates a price floor of $12 in 2013, which would then increase each year by 3% over the rate of inflation. The House bill sets a price ceiling of $28 in 2012 that would be increased by 60% of a rolling three-year average of the market price starting in 2014. Under the Kerry-Lieberman bill, the price ceiling would be set at $25 in 2013 and would increase by 5% over the rate of inflation each year thereafter. The ceilings in both bills will apply only to allowances sold in federal auctions. The prices at which allowances trade in the private market could be substantially higher.

Coal Ash

The Environmental Protection Agency is asking for comments on two proposals to address the structural integrity of coal ash impoundments and landfills and health concerns associated with certain pollutants found in coal ash, like mercury and arsenic.

Comments are due by September 20, 2010. The proposals respond to a 2008 spill of approximately 5.4 million cubic yards of wet coal ash from a Tennessee Valley Authority impoundment in Tennessee.

EPA proposes to either continue regulating coal ash as a non-hazardous waste under subtitle D of the Resource Conservation and Recovery Act or designate it as a “special waste” under the same statute. Classification as a “special waste” tightens regulation, but allows some ash to be used for beneficial purposes without the stigma that attaches to substances designated as “hazardous wastes.”

The proposal to continue regulating coal ash as a non-hazardous waste contemplates performance standards for disposal facilities. The use of coal ash impoundments could continue, but liners would have to be installed, which many believe will effectively phase out use of coal ash impoundments.

The proposal to regulate coal ash as a “special waste” contemplates federally-enforceable requirements for the storage, transport and disposal of coal ash. There would also be mechanisms for corrective action and financial responsibility. The use of wet ash handling and surface impoundments would be phased out during the first five years of the program.

Although the proposals contemplate the beneficial reuse of coal ash, EPA has asked for comments on the potential impact on the environment and acknowledged that some reuses of coal ash could be associated with health risks. It said the following in a paper it issued in support of its proposals:

One health risk issue is currently gaining attention in the use of fly ash in high-heat applications such as cement manufacture. When exposed to elevated temperatures (approximately 2,750 degrees Fahrenheit) in a cement kiln, laboratory experiments have found that mercury is readily released from fly ash [citation omitted]. At this time, the level of mercury in fly ash has not been considered significant enough to create a health risk. However, as coal utilities increasingly employ mercury capture technologies, some facilities may implement  technologies that result in fly ask with much higher mercury content that is not suitable for use in cement manufacture.

Developers, operators and financiers of facilities producing or using coal ash should monitor where EPA ends up on these rules, as they could lead to more costly disposal.

Sulfur Dioxide

EPA announced a new one-hour “national ambient air quality standard” for sulfur dioxide or SO2 of 75 parts per billion in mid-June. Until now, the government has had a 24-hour standard and a separate annual standard. One-hour standards are considered tougher to meet. EPA is revoking the existing 24-hour standard for SO2 of 140 parts per billion and the existing annual standard of 30 parts per billion.

The US government has nationwide standards for eight air pollutants, including SO2. Under the Clean Air Act, each state must designate so-called non-attainment areas where pollution from these substances is worse than the national standard and adopt a state implementation plan with measures to reduce pollution. States use the standards as a foundation from which to set specific emissions rates for individual power plants, factories and other “major sources” of these pollutants within the non-attainment areas.

Although it will take several years before the new one-hour SO2 standard gets translated into specific emissions limits in individual permits, owners of major sources of SO2 should calculate how much they may have to spend on additional pollution control equipment and start planning when to install such equipment and how to finance it.