Environmental Update - October 2003

Environmental Update - October 2003

October 01, 2003

Combustion Turbines

The US Environmental Protection Agency issued a final rule in late August that sets maximum achievable control technology, or “MACT,” standards for new and reconstructed stationary combustion turbines built after January 14, 2003.

Under the new rule, existing combustion turbines do not need to meet specific emission limitations. Because there were not enough existing combustion turbines to establish a “floor” level of control for the different subcategories of turbines, EPA concluded that no emission reductions are required from existing sources. EPA also determined that to go beyond the floor by requiring existing sources to install add-on pollution controls would be cost prohibitive.

The rule affects major sources of air pollutants. It requires them to reduce formaldehyde emissions to 91 parts per billion or less. Four categories of combustion turbines must meet this standard, including “lean premix” and “diffusion flame” combustion turbines that burn either natural gas or distillate oil. The rule focuses on reductions of acetaldehyde, benzene, formaldehyde, and toluene, and uses formaldehyde reductions as a surrogate for achieving similar reductions of the other air toxics.

Turbines covered by the rule must comply when they are brought on line and plants will have six months after startup to demonstrate compliance.

The final rule is based on the emission reductions achieved by installing a carbon monoxide catalytic oxidation system. Under the rule, affected sources may install either a carbon monoxide oxidation catalyst system or reduce formaldehyde emissions to 91 parts per billion to achieve compliance. If a source elects to comply without installing an oxidation catalyst, then the source must petition the EPA Administrator for approval of either plant-specific operating limitations or no operating limitations. Sources using an oxidation catalyst must also install a continuous parameter monitoring system.

Regional Haze

The Environmental Protection Agency and Environmental Defense, an environmental group, reached a proposed settlement in August on a new timetable for issuing revised rules that would require the installation of best available retrofit technology, or “BART,” on certain plants and other industrial facilities that affect visibility in national parks and federal wilderness areas or so-called “class I” areas under the Clean Air Act.

EPA agreed as part of the proposed settlement to propose revised BART regulations by April 15, 2004 and to issue final regulations by April 15, 2005. The proposed settlement will be subject to a public comment period.

A federal appeals court set aside a key provision of the EPA “regional haze” rule last year that would have allowed states to impose pollution control requirements on a group of sources as a class instead of individual sources. The court concluded that the Clean Air Act requires a finding that a particular source contributes to visibility impairment at a class I area before BART controls can be imposed.

The regional haze rule, issued in July 1999, requires states to review all major air emission sources built between 1962 and 1977 that emit over 250 tons per year of any of five visibility-impairing pollutants and are located up-wind of class I areas. The five pollutants are nitrogen oxide, sulfur dioxide, particulate matter, volatile organic compounds and ammonia. The rule provides that sources that are reasonably anticipated to cause or contribute to class I visibility impairment must install BART controls.

In 2001, EPA proposed BART guidelines that recommend flue-gas desulfurization or scrubbers as the presumptive BART standard for utility boilers. Installing a scrubber on a large electric generating unit could result in costs ranging from $50 million to $100 million. As a result of the federal court decision, EPA will have to go back to the drawing board and repropose several key provisions of the BART regulations.

In practice, it may be difficult to demonstrate that an individual source affects visibility at a downwind class I area, except for situations involving very large air emission sources. EPA’s proposed revisions to the regional haze rule are expected to identify a new mechanism for identifying BART-eligible sources in conformance with the court’s decision.

New EPA Administrator

Senate Democrats are threatening to hold up confirmation of the man President Bush has appointed to the post of EPA administrator.

Bush named Utah governor Mike Leavitt to replace Christine Todd Whitman. The Senate Environment and Public Works Committee has held one hearing on the nomination and is expected to vote on it in early October. However, a number of Democratic senators have placed holds on the nomination, and presidential election politics are playing a role in the confirmation process.

At his September 23 confirmation hearing, Leavitt faced tough questioning from senators about the Bush administration environmental policies. Leavitt said he supports the administration’s efforts to reform the new source review, or “NSR,” air permitting program and would not consider freezing implementation of new NSR rules that were issued by EPA on August 27.

Several senators have placed “holds” on the nomination as a way to show displeasure about administration environmental policies. A hold prevents the nomination from reaching the full Senators for a vote. The Senate must confirm appointees to head government agencies. Two of the Senator who put holds on the nomination — Hillary Rodham Clinton (D-New York) and Joseph Lieberman (D-Connecticut) — want EPA to provide more information about the air quality in New York City after the September 11, 2001 terrorist attack on the World Trade Center. Senator John Edwards (D-North Carolina) has a hold linked to his calls for a new National Academy of Sciences study to review the projected impacts of the Bush administration’s NSR reforms. Senator John Kerry (D-Massachusetts) put a hold on the nomination until EPA funds a Superfund site cleanup in Massachusetts, and Senator Harry Reid (D-Nevada) placed a hold as leverage to seek White House action on a pending appointment to the Nuclear Regulatory Commission.

None of the holds on the Leavitt nomination is expected ultimately to derail the nomination, but they could delay his confirmation.

Clear Skies

New air toxics limits on mercury emissions expected to be issued by EPA in December are taking on added importance, as the Bush administration appears to be getting nowhere with its plan to enact different limits as part of its “clear skies” initiative. Compliance costs with the new rules are expected to be high for certain coal-fired power plants.

President Bush went on the offensive in early September, making two separate addresses advocating passage of his initiative by the end of the year. The clear skies initiative would set limits on sulfur dioxide, nitrogen oxides and mercury emissions from power plants. His words fueled speculation that the administration will try to attach the clear skies initiative to the comprehensive energy bill that is currently being considered by a joint House-Senate conference committee. However, chances of this are slim.

The mercury provisions in the clear skies initiative would supplant the maximum achievable control technology, or “MACT,” standards scheduled to be proposed by EPA for utility plant boilers in December. Thus, assuming the clear skies initiative is stuck in neutral for the remainder of the current Congress — which runs through the next year — the MACT standards take on added importance. These new federal MACT standards are scheduled to be finalized by December 15, 2004. The potential compliance costs for achieving the mandated mercury reductions in the utility MACT rule may be considerable for certain coal-fired plants.

The MACT rule for power plants will apply to major sources of air toxics – that is, plants that have a potential to emit 10 tons or more of any one hazardous air pollutant or 25 tons or more of any combination of such pollutants.

The rule, if finalized, is expected to require many coal-fired plants to install pollution control technologies to reduce mercury emissions starting in December 2007.

The new emission standards will probably be based on the particular type of coal being burned. This subcategorization based on the coal types is a critical issue for utilities. There are several different types of coal, including anthracite, bituminous, sub-bituminous, and lignite, and each type of coal has a different level of mercury content. There are also differences in the types of mercury within each type of coal. For example, divalent oxidized mercury is soluble in water and is more easily removed than elemental mercury, which is insoluble in water.

Energy Bill

A House-Senate conference committee was still working on the comprehensive energy bill as the NewsWire went to press.

The Senate version of the bill would establish a comprehensive greenhouse gas inventory reductions registry. Reporting emissions of greenhouse gases to the registry would be voluntary, but would become mandatory if reporting does not cover 60% of the total US greenhouse gas emissions within five years. If the program becomes mandatory, nonexempt companies failing to report could be subject to penalties of up to $25,000 per day.

The Senate bill would also establish a renewable portfolio standard, or “RPS,” that would eventually require 10% of electricity generated in the US to come from renewable energy sources such as wind, solar, and landfill gas. The conferees decided not to put an RPS in the final bill. Fifty-three Senators wrote the conference committee as the NewsWire went to press urging them to reconsider.

Both the House and the Bush administration oppose both the Senate climate change language and a national RPS standard.

CO2 Reductions

EPA denied a petition asking the agency to regulate motor vehicle emissions of carbon dioxide, or “CO2,” and other greenhouse gases in early September. The rejection of the petition was expected, and it will now set up a court battle on whether CO2 and other greenhouse gases can be directly regulated under the Clean Air Act.

In October 1999, the International Center for Technology Assessment and eighteen other environmental and public interest groups filed a petition asserting that the Clean Air Act provided authority to regulate CO2 and other greenhouse gases. In their petition, the interest groups argued that CO2 and other greenhouse gases, including methane, nitrous oxide, and hydrofluorocarbons, emitted by motor vehicles fell within the scope of the definition of “air pollutant” under the act. The groups also asserted that prior agency statements acknowledged that these greenhouse gases may be reasonably anticipated to endanger public heath and welfare.

In its notice of denial, EPA concluded, based on its review of the statute and its legislative history, other Congressional action and Supreme Court precedent, that it lacks authority to address global climate change under the Clean Air Act. EPA also found that it lacks authority to develop motor vehicle fuel standards regarding fuel efficiency since this area is governed by a statute administered by the Department of Transportation.

The coalition of environmental and public interest groups is expected to file suit in federal court challenging the agency’s decision. The attorneys general of Connecticut, Maine and Massachusetts also plan to file their own suit challenging the notice of denial. A decision by a federal court that reverses the EPA decision could have far-reaching implications; however, EPA will be starting with a distinct advantage — in general, courts are reluctant to overturn agency actions. A decision in the case is not expected until late 2004.

In related climate change news, three Western governors — Gray Davis (D-California), Ted Kulongoski (D-Oregon) and Gary Locke (D-Washington) — announced a plan in late September to develop regional climate change policies, including the development of greenhouse gas registries and accounting procedures and purchasing fuel-efficient motor vehicles. The pact by the governors follows a similar announcement by a group of New England and mid-Atlantic governors to develop regional climate change policies. Their announcement signals a continuing trend by states to address climate change issues on a state and regional basis since the federal government has shown no interest in acting.

Kyoto Protocol

The Kyoto protocol remains on indefinite hold while Russia debates whether to ratify the treaty.

International implementation of the Kyoto protocol hinges on Russia’s actions. The agreement’s chances of entering into force by the end of 2003 were recently dashed when the Russian premier, Vladimir Putin, announced that the Russian government wants to continue to evaluate the implications of ratifying the treaty. The Kyoto protocol will enter into effect after it is ratified by 55 or more countries (including both industrialized “annex I” nations and developing “annex II” countries) whose emissions represent at least 55% of the carbon dioxide emissions from annex I countries in 1990. To date, 119 nations have ratified the Kyoto protocol accounting for 44.2% of the 1990 carbon dioxide emissions. Russia accounts for 17.4% of the emissions and, thus, its ratification would put the agreement over the 55% implementation threshhold.

Russia is reportedly considering the potential impact that entering the Kyoto protocol will have on oil and natural gas prices if there is a shift toward renewable fuel sources. Russia is also apparently interested in greater certainty that there will be a market for Russian greenhouse gas credits. The decline in Russian industry has resulted in large emission decreases since 1990, which should translate into a significant surplus of carbon credits to sell to other industrialized countries that have ratified the Kyoto protocol.

Once in effect, the Kyoto protocol will require approximately a 5.2% reduction in greenhouse gas emissions during the first commitment period — 2008 to 2012 — compared to 1990 emission levels. The United States has rejected the Kyoto protocol.

Brief Updates

A US appeals court upheld a lower-court decision in Clean Air Markets Group v. Pataki finding that a New York law to impose financial sanctions on the sale of sulfur dioxide allowances by in-state utilities to certain upwind states is unconstitutional. The lower court had ruled that the federal Clean Air Act preempts the New York law and, accordingly, the state law violated the “supremacy clause” in the US constitution.

In August, the first renewable energy certificate — or REC — trade was announced in Connecticut. Under the trade, 10,000 vintage 2004 Connecticut “class I” New England Power Pool certificates were sold for $37.50 per certificate. A certificate represents the renewable attributes of one mWh of electricity. As of January 1, 2004, Connecticut utilities must hold RECs equivalent to 1% of their supply portfolios, and the percentage increases to 7% by 2010. Class I certificates in Connecticut may be generated by wind, landfill gas, fuel cells, solar photovataic, and some biomass generation sources.

Massachusetts has proposed mercury emission standards that will apply to the state’s four coal-fired power plants starting in October 1, 2006. The Massachusetts rule will be issued under a law that was enacted in 2001 and that calls for substantial nitrogen oxide, sulfur dioxide, mercury, and CO2 emission reductions from the six oldest power plants in the state. Four of the state’s plants are coal-fired, and the others are fired by natural gas and oil. Under the proposed rule, the four coal-fired plants will need to meet an 85% mercury reduction level by October 1, 2006. A second phase starting on October 1, 2012 requires further mercury reductions to a 95% level. The rules are expected to be finalized in 2004.

California governor Gray Davis signed into law a bill that sets minimum standards for implementing new source review, or “NSR,” requirements in each of the state’s 35 air districts. The law prohibits any of the state’s air districts from implementing the EPA revisions to the federal NSR rules that were issued in December 2002, and it codifies into state law the pre-existing NSR program rules. The California air districts are also free to enact stricter local NSR programs.

At the end of August, the US Export-Import Bank board voted 2-1 to reject financing for the Camisea natural gas project in Peru. The Ex-Im Bank reportedly decided against making a loan of $213.6 million to the project because it did not fully meet the Ex-Im Bank’s environmental guidelines. The Inter-American Development Bank approved a $135 million loan to the Camisea project in early September. The US member to the IADB’s board of directors abstained from the vote due to concerns raised by the environmental impact review.