New Source Review

The US Environmental Protection Agency released long-awaited plans to reform the new source review, or “NSR,” air permitting program in mid-June.

The NSR permitting program governs air permits for prevention of significant deterioration, or “PSD.” Such permits are required for all new and modified plants that are major emitters.

The NSR permitting program has been criticized for making it too costly to build new power plants. The US government has been considering whether to change the program for the past 10 years.

EPA said in a report to the president that accompanied the new proposals that it does not believe the NSR program significantly impedes investment in new facilities. However, it concedes that the program has been an impediment to upgrading existing plants.

EPA proposed five major reforms. Four of the reforms are not new; the Clinton administration proposed the same reforms in 1996. EPA is planning to finalize these four NSR reforms later this year in a final rule without further public notice and comment.

The first reform is to establish plantwide applicability limits, or “PALs.” This means that a source would be able to make changes to its plant without obtaining a major source NSR permit, provided that the emissions do not exceed the plant-wide cap. A PAL would generally be effective for 10 years.

The second reform would allow plants that have recently installed state-of-the-art emission controls on new or modified emission units as part of an NSR permitting review to make certain future changes without trigging additional NSR permitting for approximately 10 to 15 years.

Under the third proposal, EPA’s rule for calculating emission increases for power plants that have already begun normal operations — it compares past actual emissions to future actual emissions — would be expanded to other industries, including plants with industrial boilers. Currently, EPA arrives at this “emission increases” calculation for industrial boilers and non-utility plants by comparing past actual emissions to a plant’s potential future emissions.

Fourth, EPA will put into law its policy of excluding pollution control and prevention projects from NSR permitting review where the projects have a net beneficial impact on the environment. EPA will provide a presumptive list of technologies that will automatically qualify for the exclusion.

The fifth — and only new — reform would clarify the agency’s definition of “routine maintenance, repair and replacement.” This is important because performing routine maintenance, repair or replacement at a facility does not trigger NSR permitting requirements. Under the new proposal, EPA will develop a cost-based “safe harbor” test. Projects below the cost threshold would automatically be treated as routine. EPA will also propose a list of activities that will normally qualify as routine maintenance, repair and replacement and, therefore, not trigger NSR permitting.

EPA must give notice and gather comments from the public on the fifth proposal, as well as some more minor provisions of its NSR reform package, before it can implement the changes.

The EPA proposals have already come under heavy fire from Democrats in Congress and environmental groups.

Once finalized, the reforms are expected to be challenged in court by several northeast states and various environmental groups. Both the New York and Vermont attorneys general testified in opposition to the reforms at a July 16 Senate committee hearing.

Multi-Pollutant Legislation

The Senate environment committee voted 10-9 in a contentious committee meeting on June 27 to send the “Clean Power Act of 2002” to the full Senate.

The bill calls for deep cuts in emissions of nitrogen oxides, or NOx, sulfur dioxide, or SO2, mercury, and carbon dioxide, or CO2, from power plants. The committee vote was largely along party lines. One Republican — Senator Lincoln Chafee (R.-Rhode Island) joined the Democrats in supporting the measure. One Democrat — Senator Max Baucus (D.-Montana) — opposed it.

The bill imposes a tight implementation timetable and sets a stringent annual emissions cap starting in 2008 of 2.25 million tons for SO2, 1.51 million tons for NOx, 2.05 billion tons for CO2, and five tons for mercury. These would be the annual limits for the entire country.

Under the bill, EPA is obligated to issue by 2008 regulations that implement the emissions caps. Absent regulations, each power plant will have to achieve the following performance standards in relation to an uncontrolled source: a 95% reduction in SO2, an 85% reduction in NOx, a 25% reduction in CO2, and a 90% reduction in mercury. The implementation timeframe and the emission reduction targets are generally more restrictive than the “clear skies initiative” unveiled by the Bush administration in February.

The bill would create a market in emission allowances for each of the pollutants, except for mercury. The measure also includes a fairly dramatic departure from previous federal emission trading programs in that it directs EPA to distribute the majority of allowances (approximately 64%) to households and consumers. Twenty percent of the allowances would be allocated to electricity generators who use renewable energy sources such as wind, biomass, landfill gas, solar and geothermal. Only 10% of the allowances would be allocated to existing power plants.

The full Senate is not expected to vote on the bill. The committee voted it out largely to give Democrats a campaign issue in their efforts this fall to take back control of Congress. However, even though the opportunity for meaningful progress on multi-pollutant legislation this year has been lost, it will remain a significant issue in Congress next year.

State Actions

Attorneys general from 11 states sent a letter recently to President Bush urging national mandatory cuts in greenhouse gases. The letter highlights the recent efforts by individual states to curtail greenhouse gas emissions and advocates the adoption of a national emissions cap that would include implementation of a market-based trading system.

Attorneys general from the following states signed the letter: Connecticut, Massachusetts, Rhode Island, Maine, New Hampshire, Vermont, New York, New Jersey, Maryland, Alaska and California. The letter notes that states are being forced to rely on litigation and state-by-state regulations in the absence of a national approach to controlling greenhouse gases.

Many states are taking independent action to control pollutants from power plants without waiting for the federal government to act. The New Hampshire governor signed a measure into law earlier this year that requires the state’s largest utility — the Public Service Company of New Hampshire — to reduce NOx, SO2, mercury, and CO2 emissions from three of its plants built before 1977. Under the new law, CO2 must be reduced by 2010 to the level at which it stood in 1990. Massachusetts adopted new regulations last year requiring NOx, SO2, and CO2 emission reductions from the six oldest power plants in the state. Oregon has given its Energy Facility Siting Council the authority to set CO2 emission standards for new power plants.

If more states enact programs to regulate greenhouse gas emissions, private industry may ultimately demand that the federal government step in and impose uniform rules.

Kyoto Protocol

Seventy-five countries had ratified the Kyoto protocol by late July as the NewsWire was going to press, including all 15 European Union member countries and Japan.

The protocol will enter into effect after it is ratified by 55 or more countries that represented at least 55% of the CO2 emissions from industrialized nations in 1990. The countries that have signed to date represented approximately 36% of the world’s 1990 CO2 emissions.

The United States — which was responsible for 36.1% of world’s CO2 emissions in 1990 — and Australia (2.1%) have rejected the protocol. Implementation of the treaty hinges on Russia’s approval. If Russia (17.4%) ratifies the treaty, only another 1.6% is needed to meet the 55% test, and either Poland (3.0%) or Canada (3.3%) are possible candidates to adopt the protocol and trigger its implementation.

Canada is continuing to press for acceptance of its request for a “clean energy export credit” that would reward Canada for its exports of natural gas and hydroelectric power to the US. The EU countries are strongly opposed to the Canadian proposal, which would credit Canada with almost one third of its Kyoto protocol reduction targets. If the EU agrees to the Canadian proposal, it may set a precedent that other industrialized nations may try to exploit.

Russia is expected to be a net supplier of greenhouse gas emission reductions to EU countries under the protocol since many Russian industrial plants have shut down since 1990. Russia is still negotiating with EU countries and Japan for a forgiveness of some of its foreign debts in exchange for ratifying the treaty. Nevertheless, it is expected to ratify the protocol either later this year or early next year.

Brief Updates

A US appeals court recently ordered the parties in Tennessee Valley Authority v. EPA to participate in a series of mediation sessions. TVA is challenging EPA’s assertion that it made significant modifications to its plants without the requisite NSR permits. The central issue is EPA’s interpretation of what activities qualify as “routine maintenance, repair and replacement” under the NSR permitting program. The judge’s order to the parties to settle their differences through a mediator was surprising in a key Clean Air Act enforcement case. The judge may have felt that release of the reforms EPA is proposing to the NSR permit program created room for a settlement. Oral arguments in the case were presented on May 21, 2002.

The North Carolina government signed a new law in June — called the “clean smokestacks” law — that would significantly cut NOx and SO2 from the state’s 14 coal-fired power plants. The law will reduce NOx emissions from 245,000 tons in 1998 to 56,000 tons by 2009 (a 78% reduction) and SO2 emissions from 489,000 tons in 1998 to 250,000 tons by 2009 and 130,000 tons by 2013 (a 74% reduction). The measure also requires the state division of air quality to study potential reductions of mercury and CO2.

EPA Region XIII recently issued notices of violation to three power plants alleging a failure to undergo NSR air permitting reviews for equipment replacements and upgrades at the plants. All three plants increased their air emissions. The notices of violations assert that two of Xcel Energy’s coal-fired stations in Colorado and the Minnkota Power Cooperative coal-fired plant in North Dakota failed to obtain air permits authorizing the modifications.

Finally, the federal Office of Management and Budget has rejected portions of EPA’s proposed rule requiring certain existing power plants to upgrade cooling water intake structures. The budget office concluded that parts of the rule would impose burdensome paperwork requirements on utilities. EPA will have to reevaluate certain permit application requirements in the proposed rule and resubmit it to the budget office for further review.