Environmental Update

Environmental Update - February 2002

February 01, 2002
With Congress back in session, consideration of multi-pollutant legislation to cap and reduce air emissions from power plants is expected to take center stage in US Congressional committees with jurisdiction over environmental issues.

The Bush Administration is planning to enter the fray with its own multi-pollutant legislative proposal that is anticipated to be unveiled by mid-February.

Meanwhile, the Senate Environment and Public Works Committee has commenced a full-scale investigation of the Environmental Protection Agency’s deliberations that are expected to culminate in new changes to the “new source review,” or NSR program. EPA is expected to announce its revisions to the NSR program soon, with the release of final and proposed standards for overhauling the program.

In related news, the US Department of Justice recently announced that it will continue to pursue NSR enforcement actions filed against several utilities in 1999 and 2000. The department concluded that EPA has a reasonable basis for its allegations that several coal-fired plants were modified without undergoing Clean Air Act-required NSR permitting reviews.

New Source Review

EPA’s enforcement actions against several utilities operating coal-fired plants received a boost in mid-January. The Department of Justice announced on January 15 that EPA’s interpretation of what constitutes a “major modification” versus “routine maintenance, repair, and replacement” of a power plant is defensible, and that the high-profile NSR lawsuits and administrative actions against owners of coal-fired power plants, oil refineries and other industrial facilities can continue.

The Department of Justice also said that EPA’s long delay in filing NSR enforcement actions — the NSR provisions have been in place since the late 1970s — was not the result of a new substantive reinterpretation of the disputed NSR provisions that would have required notice and comment by the public before the agency could act.

The Justice Department’s conclusions are not surprising given the limited case law and EPA guidance on the issue of what qualifies as “routine maintenance” and the deference given to agency interpretations of their own regulations. The report is careful to point out that it involves only a retrospective review and does not consider whether EPA’s NSR enforcement actions were wise policy. The Justice Department review checks off one of the recommendations in the national energy plan that the Bush administration released last May.

The NSR permitting program has been criticized in the past as an overly burdensome, time-consuming and costly regime that hampers plant modifications and upgrades. EPA is in the midst of its own review of the NSR permitting program, and significant changes will reportedly be announced soon.

The anticipated NSR reforms are expected to include provisions for setting plant-wide applicability limits or “PALs” that would allow plants more flexibility in making changes under a facility emissions cap without obtaining an NSR permit for the modifications and providing an NSR permitting review exemption for “clean units” that have recently installed state-of-the-art emissions controls. The reforms are also expected to include a change in the emission accounting for calculating what constitutes an emissions increase — they are expected to use projected “actual” emissions instead of “potential” emissions in certain circumstances — and to allow the use of a cost threshold or investment test in the definition of what constitutes “routine maintenance.”

Several of EPA’s anticipated NSR reforms are expected to be proposed in a new rulemaking procedure that would require formal notice and comment prior to publication of a final rule. A final rule is also expected that will contain several other NSR regulatory changes that were previously proposed in 1996 — for example, the PAL concept and the exemption for clean units.

The Senate Environment Committee has launched an investigation into how EPA developed the NSR reform package. In mid-December, the committee sent a letter to EPA Administrator Christine Todd Whitman seeking full disclosure of the NSR reform efforts. The Senate Environment and Judiciary Committees expect to hold joint hearings in the next few weeks on this issue.

In a related development, in early January, New York State filed its own lawsuit in federal district court alleging that two coal-fired plants near Buffalo, New York — formerly owned by Niagara Mohawk — were modified without undergoing an NSR review, obtaining the requisite permits and installing appropriate pollution controls. The New York enforcement action is an indication that certain states may continue aggressively to pursue coal-fired plants that were suspected of implementing past plant upgrades that were not subject to NSR scrutiny. The northeastern states, and particularly New York, have raised concerns about EPA’s planned NSR administrative reforms alleging that such reforms will roll back the protections of the Clean Air Act. New York and eight other northeastern states have threatened to challenge whatever NSR reform package the Bush administration ultimately unveils.

AnchorMulti-Pollutant Legislation

The Bush administration is expected to release its multi-pollutant proposal by early February — before scheduled deliberations in the Senate Environment Committee on a multi-pollutant bill introduced by the committee chairman, Senator James Jeffords (I.-Vermont). The Jeffords bill — called the Clean Power Act — would require significant reductions in nitrogen oxide or NOx, sulfur dioxide or SO2, mercury, and carbon dioxide or CO2 from power plants to be achieved by January 1, 2007. The Jeffords bill would mandate 75% reductions in NOx and SO2 from 1997 and 2000 baselines, respectively; a 90% reduction in mercury levels from 1999 levels; and a reduction to 1990 CO2 levels.

The Bush administration’s proposal, which is being developed by EPA with substantial input from the US Department of Energy, is also expected to call for significant reductions in NOx, SO2 and mercury emissions from power plants. However, EPA staff confirmed that the agency’s legislative proposal will not include provisions requiring reductions of CO2, a greenhouse gas. The issue of requiring mandatory CO2 reductions has generated a significant amount of controversy. Senator Jeffords has previously vowed to push forward with a multi-pollutant bill that specifically includes mandatory CO2 requirements. The Bush administration has repeatedly stated that it opposes mandatory CO2 reductions.

EPA is expected to ask for a reduction in the current SO2 emissions cap and create new annual emission caps for NOx and mercury emissions as well as call for a market-based trading approach to achieving the emission reductions. A market-based approach is generally viewed as more cost effective and as providing greater flexibility to achieve compliance. The EPA proposal is also expected to include the streamlining and replacement of certain existing air regulations that affect power plants, including the regional haze rule, the NOx SIP call rule, the acid rain program requirements and the maximum achievable control technology standard for mercury.

The House Energy and Commerce Committee is also expected to hold hearings on the need for new multi-pollutant emission control levels for power plants in the coming months. Despite heightened interest by members of both houses of Congress in multi-pollutant legislation for power plants, the odds that such a measure will be enacted this year are low. House and Senate leaders are unlikely to agree on a multi-pollutant measure during an election year. Nevertheless, this year’s debate could set the stage for passage of such a measure in the next Congress, particularly in light of the Bush administration’s support for some level of coordinated reductions in NOx, SO2 and mercury emissions from power plants.

NOx

EPA Administrator Christine Todd Whitman recently announced that the agency will delay implementation of the so-called “section 126 rule” that requires reductions in NOx from specific power plants and industrial plants in 12 states in the eastern half of the United States where EPA has found that such sources contribute to air pollution in down-wind states. The section 126 rule is a parallel rule to the “NOx SIP call rule” that requires similar NOx reductions from such facilities as power plants.

Administrator Whitman also confirmed that EPA will ultimately withdraw the requirement for states to implement the section 126 rule at least in cases where a state is on track to implement the NOx SIP call provisions fully.

EPA plans to align the section 126 rule requirements with EPA’s NOx SIP call provisions. The section 126 compliance deadline will now be extended from May 1, 2003 to May 31, 2004 to coincide with a recent US appeals court extension of the NOx SIP call compliance deadline. The delay of the start date for compliance from the 2003 ozone season (May to September) to the 2004 ozone season will give affected plants additional time to install pollution control equipment.

EPA’s NOx SIP call rule and section 126 rule are expected to force many existing power plants and industrial facilities to install costly pollution control technology, such as low NOx combustion systems and selective catalytic reduction systems, to reduce NOx emissions.

Brownfields

After several years of false starts, Congress recently enacted limited reforms to the federal Superfund law. Congress passed the reforms in late December and President Bush signed the legislation into law in early January. The reforms are intended to promote the redevelopment of “brownfield” properties that have existing contamination from past industrial operations.

The “Small Business Liability Relief and Brownfields Revitalization Act” includes three key components. The first is a “de micromis” liability exemption for businesses that sent less than 110 gallons of liquid materials or less than 200 pounds of solid materials to a Superfund site on the national priorities list — unless the materials have contributed significantly to the costs to remediate the site. The second major component includes an authorization of $250 million annually from 2002 through 2006 to provide grants to state and local governments to foster the site characterization and cleanup of brownfield properties.

Third, the new law also creates a new set of criteria to qualify for the “innocent landowners” defense from Superfund liability and adds two new defenses for contiguous properties and bona fide prospective purchasers who did not cause or contribute to a release of hazardous substances and who are not otherwise potentially liable or affiliated with an entity that is potentially liable for a release of hazardous substances. The “contiguous properties” defense would potentially apply to properties that are contaminated by releases from an adjacent property.

In order to qualify for the “innocent landowners” defense and the two new defenses, the entity acquiring the property must have conducted “all appropriate inquiry.” The new law generally equates this level of inquiry to the current ASTM standards for conducting a Phase I environmental site assessment. For the next two years, the ASTM Phase I standards will satisfy the “all appropriate inquiry” requirement until EPA develops its own regulations. In addition to the “all appropriate inquiry” provisions, Congress also added new elements to clarify Superfund’s “due care” requirements for asserting the defenses, including that the landowner must take reasonable steps to stop any continuing release and prevent or limit exposure to a previously released hazardous substance.

In order to qualify for the “innocent landowners” and “contiguous properties” defenses, the entity must not have known or had reason to know that the property was contaminated when it was purchased. This requirement, coupled with the “all appropriate inquiry” standard, has historically limited the utility of the “innocent landowners” defense and will probably restrict the application of the new “contiguous properties” defense as well. More promising is the “prospective purchaser” defense. While this defense also requires meeting essentially the same prerequisites as the other two defenses, a landowner can qualify for the “prospective purchaser” defense even if he knew the site was contaminated before it was purchased. The “prospective purchaser” defense is limited to purchases occurring after the date of enactment of the new statute.

Cooling Water

Environmental groups and a group of electric utilities have filed petitions challenging a final rule that EPA issued on December 18 that prescribes cooling water intake standards for new power plants and manufacturing facilities that withdraw water from rivers, streams, lakes and other waters of the United States for cooling purposes.

EPA’s new rule creates a two-track approach, and facilities may choose either track. The first track describes default technology-based performance standards based on a closed cycle, recirculating cooling system — that is, a “wet” cooling system — and the second track allows applicants to conduct site-specific studies to demonstrate that alternative approaches will achieve comparable intake flow reductions and meet similar aquatic organism protection standards. The environmental groups argue that EPA’s rule should have been based on “dry” cooling towers that use less water but are more costly than “wet” cooling systems.

EPA’s cooling water rule is expected to impose some significant costs on new plants. They will have to install intake structures that minimize the amount of water withdrawn for cooling purposes. EPA is expected to propose a similar cooling water intake system rule for existing utility and non-utility power producers by February 28, 2002. The cooling water intake standards for certain existing facilities must be finalized by August 28, 2003.

CO2 legislation

Several new bills calling for the reporting of greenhouse gas emissions and the creation of a greenhouse gas registry have recently been introduced in the US Senate. The new proposals may signal renewed debate over whether to implement a program to track domestic greenhouse gas emissions and award early credits for voluntary reductions that may be later used in any new mandatory program adopted by the US to reduce greenhouse gas emissions.

The chairman of the Senate Environment Committee and two other senators introduced a bill on December 20 that would require companies to submit mandatory greenhouse gas emission reports to EPA. The measure is modeled on the national toxics release inventory or TRI program that requires mandatory reporting of releases of toxic chemicals. The TRI program is credited with generating significant reductions in chemical releases by US companies. Since the TRI report data is made public, many companies take steps to reduce such releases.

The bill would also create a greenhouse gas registry that would be available to record greenhouse gas reduction projects. Reductions reported to the registry would be subject to verification, and could include a number of activities including fuel switching, use of renewable energy, use of combined heat and power systems and methane recovery.

Senators John McCain (R.-Arizona) and Sam Brownback (R.-Kansas) also recently introduced a voluntary greenhouse gas registry measure. They propose to have the voluntary greenhouse gas registry be managed by the US Department of Commerce. Any reductions recorded on the registry would be eligible for credit against any future mandatory greenhouse gas reductions established by the federal government. Several other greenhouse gas reporting and registry bills are also pending in Congress.

A comprehensive energy bill that is advancing through Congress could serve as a possible vehicle this year to adopt new greenhouse gas emission reporting and registry requirements.

contributed by Roy Belden, in Washington.