Environmental Update

Environmental Update April 2002

April 01, 2002
Multi-Pollutant Legislation

The Bush administration unveiled a multi-pollutant proposal in February that, if enacted by Congress, could impose substantial costs on the electric generating industry.

The plan labeled the “Clear Skies Initiative” advocates setting stringent new emission limits for nitrogen oxide, or NOx, sulfur dioxide, or SO2, and mercury to reduce air emissions from electric generating stations. The initiative calls for a first phase of steep emissions reductions beginning in 2010, followed by a second phase of cuts commencing in 2018.  The plan would implement a new, nationwide “cap and trade,” market-based approach to reduce NOx and mercury emissions by 67% and 69%, respectively.  It would also build upon the existing acid rain SO2 emissions trading program and implement deeper, across-the-board cuts to reduce SO2 emissions by 73% of current levels.

The initiative is intended to be fuel neutral, but it remains to be seen whether a multi-pollutant measure could lead to increased fuel switching. The mercury reduction requirements in particular may drive a plant’s response to the initiative.  Unlike pollution control technology to reduce NOx and SO2 emissions, there are currently no clear-cut methods of substantially reducing mercury emissions, and new control technologies are now under development.  Some existing technologies, such as wet or dry scrubbers and fabric filter, may be effective in capturing a large percentage of mercury emissions; however, this is largely dependent on the type of combustion unit and the type of coal that is burned.

Debate over multi-pollutant legislation is expected to be the primary focus of the Senate Environment and Public Works Committee for the rest of this year. The committee chairman, Senator James Jeffords (I.-Vermont), has introduced his own multi-pollutant bill that calls for even greater reductions in NOx, SO2, and mercury emissions as well as mandatory reductions in carbon dioxide, or CO2, a greenhouse gas. The Jeffords bill imposes tighter implementation timeframes — the reductions are required to be achieved by January 1, 2007 — and more drastic emission reduction targets. The bill would mandate 75% reductions in NOx and SO2 from 1997 and 2000 baselines, a 90% cut in mercury levels from 1999 levels, and a reduction to 1990 CO2 levels.

Senator Jeffords has vowed to push forward with a multi-pollutant bill that includes mandatory CO2 reductions, and he has expressed disappointment that the administration’s initiative did not include such reductions.  It remains to be seen whether the parties can broker a compromise on this issue, which has generated a significant degree of controversy.  It may end up torpedoing any hope for a compromise multi-pollutant measure in Congress this year.

Another controversial aspect of the administration’s proposals is the extent to which they are intended to replace certain existing or expected air regulations that affect power plants.  For example, Environmental Protection Agency Administrator Christine Todd Whitman recently confirmed that the agency is committed to eliminating the Clean Air Act’s new source review, or “NSR,” permitting program once the proposed caps on NOx, SO2, and mercury emissions are achieved.  Whitman expects that the NSR program — and possibly other air programs — will become obsolete for the power industry after a multi-pollutant regime is fully implemented.  Not surprisingly, some members of Congress and environmental organizations are strongly opposed to eliminating the NSR program, and the debate over the potential sunsetting of the NSR program and other air programs will be contentious.

The Senate Environment and Public Works Committee is expected to begin “marking up”a multi-pollutant measure later this year.  Several members of the committee from both parties are reportedly already in discussions to find common ground for a compromise measure.

Meanwhile, on the House side, Rep. Joe Barton (R.-Texas), chairman of the House Energy and Air Quality Subcommittee, is expected to hold hearings starting in April with the aim of identifying areas where changes are needed in the Clean Air Act.

Prospects for enactment of a comprehensive multi-pollutant measure for power plants remain low.  Senate and House leaders are unlikely to agree on a multi-pollutant measure during an election year.  However, clean air measures, including more stringent emission limits for power plants, could turn into a campaign issue and create a catalyst for action in the next Congress.

Global Climate Change Initiative

President Bush also announced in February his eagerly-anticipated “global climate change initiative,” a plan that is supposed to achieve significant voluntary reductions in greenhouse gases without stalling US economic growth.  Most of US industry supported the Bush proposals.  However, the initiative has been criticized by many environmental organizations as well as by several European countries.

The global climate change initiative sets a 10-year national goal of reducing by 18% the greenhouse gas intensity of the US economy, as measured against the gross domestic product. The proposal builds on the Bush administration’s earlier decision to increase funding for global climate research and for the development of new technologies to reduce greenhouse gas emissions. The plan calls for voluntary measures to achieve an economy-wide emission reduction target that takes into account declining greenhouse gas emissions and projected increases in economic activity.  The current US rate of greenhouse gas emissions is 183 metric tons per million dollars of GDP.  The Bush proposal sets a target level of 151 metric tons.  Administration officials said the voluntary reduction target equates to approximately a 4.5% reduction beyond business-as-usual forecasts.

The initiative focuses on voluntary commitments from industry to reduce greenhouse gas emissions in the short term, while devoting substantial resources to developing science and technology, conservation efforts, renewable fuels, and sequestering carbon as part of a long-term strategy.  Under the administration’s plan, the US climate change approach will be reassessed by 2012, and if the country is “not on track to meeting our goal, and sound science justifies further policy action,” the US will respond with additional measures that may include a “broad, market-based program” and additional incentives for limiting greenhouse gases.

The administration’s growth-based approach is a clear departure from the mandated emission reduction targets of the Kyoto protocol.  Last year, President Bush rejected the Kyoto protocol, concluding that drastically reducing greenhouse gas emissions would harm the US economy and potentially undermine investments in long-term technological solutions and clean energy.  Critics of the President’s plan argue that voluntary reduction measures are ineffective and US businesses will be free to continue business as usual.

The President and EPA have already launched a new, voluntary “climate leaders” program.  Participating companies will establish individual goals for reducing greenhouse gases and will report on their emission reductions.  The list of participants currently stands at 17 companies, including Cinergy, Florida Power & Light and PSEG.

In addition to establishing the voluntary emission reduction targets, the global climate change initiative calls for the Department of Energy to improve its voluntary emissions reduction registry and to develop a strategy to ensure that companies are not penalized for registering voluntary emission reductions under any future climate change program. The initiative also calls for $4.6 billion in clean energy tax incentives — such as tax credits for fuel cells and landfill gas conversion — over a 5-year period.

It is not clear if Congress will tackle climate change issues this year.  Climate change is a politically-divisive issue, and many companies are divided on the question of whether mandatory greenhouse gas reduction requirements should be imposed.  In an election year, it remains highly doubtful that Congress will take action on such a controversial issue.

Cooling Water

More than 550 electric generating facilities may be forced to make significant improvements to their cooling water intake structures if a recently-proposed EPA rule becomes law.  On February 28, EPA chief Christine Todd Whitman signed a proposed rule that would impose new requirements on cooling water intake structures at existing power plants in order to reduce the effect of such structures on aquatic life.  If the proposed regulations become law, extensive upgrades to existing electric generating facilities could be required.

The proposed rule would cover existing power plants that withdraw 50 million gallons per day or more from waters of the US and use at least 25% of the water for cooling purposes. The proposal establishes location, design, construction and capacity requirements that are based on the best technology available for minimizing the impact on aquatic organisms.

A power plant generally will be able to choose one of three ways to comply.  First, the plant could demonstrate that its cooling water intake structure meets specified technology performance standards that are based on a closed-cycle, recirculating cooling system. The second option is to implement design and construction technologies and operational or restoration measures to meet technology performance standards, including measures to reduce harm to aquatic life. The third option is to make a site-specific determination of what is the best technology available, taking into account the costs of compliance.  In addition, facility owners can satisfy the applicable performance standards by substituting restoration and other conservation measures to maintain fish and aquatic organism populations in lieu of — or to supplement — improvements in intake systems.

The proposed rule allows existing plants flexibility to implement creative solutions that achieve an equivalent level of environmental performance to the presumptive technology requirements.  Nevertheless, the rule is expected to impose significant costs on existing plants, particularly plants withdrawing water from water bodies with sensitive aquatic habitats and species.

The new requirements will be implemented through the existing “national pollutant discharge elimination system,” or “NPDES,” program.  Once the rule is finalized, plants applying for reissuance of an NPDES permit will have to submit information demonstrating how the facility intends to comply with the new requirements. The reissued NPDES permit will incorporate a new section containing the cooling water intake structure provisions.  EPA estimates that upgrades to existing cooling water intake systems will cost the industry approximately $182 million a year.  Comments on the proposed rule are due within 90 days after the proposed rule is published in the Federal Register.

New York

The New York State Department of Environmental Conservation issued proposed regulations in mid-February that will require in-state electric generators to reduce SO2 emissions by another 50% below current acid rain program levels. The proposed regulations also extend to the entire year the current summer ozone season NOx requirements.  Under the proposal, NOx emissions would be reduced approximately 18% from 2000 levels. The new regulations, which implement a plan originally proposed by Governor George Pataki, would impose some of the most stringent SO2 and NOx emission reduction requirements in the nation.

The proposed regulations call for the new SO2 reduction regulations to take effect starting on January 1, 2004.  If finalized, the regulations may necessitate that plants either install additional SO2 emission controls, use lower-sulfur coal, or purchase surplus SO2 allowances.  The proposed rule creates a new, state-based SO2 emissions trading program that would mirror the existing federal acid rain program; however, in-state sources would essentially receive an allowance allocation that is 50% of the current federal allocations.  The New York SO2 program would not affect current SO2 allowance allocations under the federal acid rain program.

The proposed NOx regulations call for implementation of the new year-round NOx standards to take effect starting on October 1, 2004.  Under the proposed regulations, the existing five-month ozone season requirements would remain in place, and the new program would apply to the remaining seven months.  New York will issue new NOx allowance allocations to power plants for use during the additional seven months. The new program will base its NOx allowance allocations on the same emission rate as the summer ozone season NOx allocations.  In order to comply with the new NOx standards, some plants may need to install additional emissions control equipment, such as selective catalytic reduction, or “SCR,” systems.

NYSDEC staff predict that the new regulations will result in a reduction of 130,000 tons per year of SO2 and an additional 20,000 tons per year of NOx.  The new SO2 and NOx rules will provide set-aside allowances (3% and 5%, respectively) for new sources, as well as create a set-aside allocation for renewable energy projects and plants that implement energy efficiency projects.  The comment period on the rules was recently extended to May 27, 2002, and the rules are expected to be finalized later this year.

Brief Updates

The European Parliament approved the European Union’s ratification of the Kyoto protocol plan to reduce greenhouse gas emissions in February.  The 15 EU member states also need to agree individually to ratify the Kyoto protocol. The Kyoto protocol commits the EU to a reduction target that is 8% below 1990 levels by 2012.  Most EU countries appear to be on track to ratify the protocol by the end of the summer.  Four EU countries — Denmark, France, Luxembourg, and Portugal — have already ratified the treaty.

In early March, the US Department of Energy released a solicitation seeking proposals for clean coal projects.  The Bush administration’s clean coal power initiative will make $300 to $400 million available for the initial round of projects. The department is looking for innovative projects to demonstrate reductions in SO2, NOx, mercury and fine particulate matter from coal-based power generation.  Projects selected must enter into cooperative agreements with the department and must cover at least 50% of the costs either by cash outlays or in-kind contributions.  Accepted projects will also be required to enter into 20-year repayment agreements.  Submissions are due by August 1, 2002.

On March 21, Tennessee lifted its seven month moratorium on accepting new power plant permit applications.  Tennessee Governor Don Sunquist’s order will allow new permit applications for up to four new power plants to begin construction before January 1, 2004.  Existing plants may still apply to expand during this period. The order also requires applicants for new merchant plants with a capacity of 50 megawatts or greater to file an environmental and economic impact statement, an analysis of required water usage, a financing statement, and a demonstration of local support with the Tennessee Department of Economic and Community Development.

The EPA has once again delayed its long-awaited revisions to the “new source review,” or “NSR,” program that applies to new and modified major sources of certain air contaminants.  Opposition from several northeastern states, several key members of Congress, and the environmental community appears temporarily to have derailed release of the NSR changes.  EPA is expected to release revisions overhauling the program by the end of this year.

Finally, in March, a US appeals court in Washington ruled that the EPA did not act arbitrarily or capriciously when it issued new air quality standards for ozone and fine particulate matter in 1997. The court’s decision resolved the remaining legal challenges to the standards, which had been the subject of earlier rulings of both the same appeals court and the US Supreme Court.  Now that its path is clear, EPA is expected to proceed with implementing the standards over the next several years.

— contributed by Roy Belden in Washington.