US Moves to Reduce Pollution From Power Plants

US Moves to Reduce Pollution From Power Plants

February 01, 2004

The US Environmental Protection Agency published two proposed emission standards in the Federal Register in late January that will require spending on costly new pollution control equipment at many power plants.

The first proposal — called the “utility mercury reductions rule”— would regulate mercury and nickel emissions from existing and new coal- and oil-fired electric power plants.

The second proposal — called the “interstate air quality rule”— would require 29 states and the District of Columbia to adopt plans that would dramatically reduce nitrogen oxide, or NOx, and sulfur dioxide, or SO2, emitted from power plants and other sources.

The two rules are intended to work in tandem.  The government has asked for comments by the end of March, and public hearings have been scheduled for February 25 and 26 in Chicago, Philadelphia and Research Triangle Park, North Carolina.  According to EPA Administrator Mike Leavitt, the two rules will trigger “the largest investment in air quality improvement in the history of this nation.” Both rules are closely modeled after a “clear skies initiative” that the Bush administration has been pushing unsuccessfully in Congress to reduce NOx, SO2 and mercury emissions from power plants.

Environmental groups immediately criticized the new proposals as not going far enough.  The government proposed two alternative methods for reducing mercury and nickel emissions.  It said emissions from power plants would be reduced by 70% by 2018 under one of the alternatives and by 30% by 2007 under the other approach.

Environmental groups are seeking at least a 90% reduction in mercury from coal-fired power plants.  The final mercury rule must be adopted by the end of this year under terms of a 1998 settlement of a lawsuit brought against EPA by the Natural Resources Defense Council.  Like so many environmental regulations, the details will be settled ultimately in court.

The interstate air quality rule would bring about a 65% reduction in NOx from current levels by 2015, according to EPA officials.  The reductions in SO2 from current levels would be 58% by 2010 and 70% by 2015. The Bush administration proposed it, in part, in an effort to head off legal action by northeastern and mid-Atlantic states to force more stringent reductions in the pollutants.  The states complain that their troubles meeting national ambient air quality standards for fine particulate matter, or PM2.5 and ozone are due to migrating pollutants from coal-fired power plants in the rust-belt states of the midwest.  EPA is expected to issue the final interstate air quality rule in early 2005 after incorporating input received during the comment period.

Mercury

As a court-mandated deadline for proposing mercury standards for coal-fired power plants approached, EPA faced a dilemma over possible approaches to regulate mercury without crippling utilities that own coal-fired power plants.  EPA has recognized that mercury is highly toxic, persistent, and accumulates in the environment; however, there is no technology “silver bullet” currently available to achieve significant mercury air emission reductions from power plants.  Another complication is that there are several different types of coal, including bituminous, sub-bituminous and lignite, and each of these types of coal has different levels of mercury content.  There are also significant differences in the types of mercury within these coals.  In general, bituminous coal contains higher levels of mercury than sub-bituminous and lignite coals, but the mercury is much harder to remove from sub-bituminous and lignite coals.

The Bush administration favors regulating mercury under a cap-and-trade approach under which emissions limits are established and each existing power plant is given the right to emit a certain amount of mercury.  Anyone who wants to build a new facility or emit more mercury than he has been authorized must first purchase credits from others who have them.  This is similar to the way sulfur dioxide emissions are limited currently under the federal acid rain program.

EPA proposed two alternative approaches for reducing mercury emissions from coal-fired plants and nickel emissions from oil-fired plants based on different sections of the Clean Air Act.  It will choose one of the approaches by the end of this year.

The first approach is a traditional “command and control” approach based on legal authority to order reductions under section 112 of the Clean Air Act.  The alternative is a “cap and trade” program based on legal authority under section 111 of the Clean Air Act.

Both alternatives would apply to coal-fired power plants with a capacity of more than 25 megawatts that produce their entire output for sale and to cogeneration facilities that put more than one-third of capacity and more than 25 megawatts on a utility grid for sale. (A cogeneration facility is a power plant that generates two useful forms of energy from a single fuel.  An example is a power plant that burns coal to boil water and produce steam, some of which is used as steam and the rest of which is run through a steam turbine to generate electricity.)

The proposed rule that uses a command-and-control approach would apply to both new and existing coal-fired power plants.  Section 112 of the Clean Air Act requires EPA to set emission limits for major hazardous air pollutants at a level representing “maximum achievable control technology,” or “MACT.” For existing plants, the MACT level is set at the average emission limitation achieved by the best performing 12% of plants in a particular category or subcategory of sources.  For new plants, the MACT level must be set by law at the level of control achieved by the best controlled similar source.

The government had little choice but to regulate mercury after a December 2000 EPA study identified mercury as the hazardous air pollutant of greatest concern from a public health perspective.

Given the uncertainties surrounding the technologies that will be available to achieve mandated mercury emission reductions, EPA has embraced the regulated community’s argument that different mercury emission reduction targets should apply based on the type of coal being burned.  Both EPA proposed mercury reduction rules include different emission standards for plants burning bituminous, sub-bituminous, lignite and coal refuse.  Anthracite-fired plants would be subject to the same limits as bituminous-fired power plants.

In the command-and-control proposal, EPA proposed the following MACT emission limitations for existing power plants based on five subcategories.  These plants would have the option of complying either with an input-based pounds-per-trillion Btus or an output-based pounds-per-megawatt-hour standard.  The proposed MACT standards for existing plants include: 2.0 pounds per trillion Btus or 21 x 10-6 pounds per megawatt-hour for bituminous, 5.8 pounds per trillion Btus or 61 pounds per megawatt-hour for sub-bituminous, 9.2 pounds per trillion Btus or 98 pounds per megawatt-hour for lignite, 0.38 pounds per trillion Btus or 4.1 pounds per megawatt-hour for coal refuse, and 19 pounds per trillion Btus or 200 pounds per megawatt-hour for integrated gasification combined-cycle, or IGCC, units.

Under the command-and-control proposal, there would be the following output-based mercury MACT standards for new coal-fired power plants: 6.0 x 10-6 pounds per megawatt-hour for bituminous, 20 x 10-6 pounds per megawatt-hour for sub-bituminous, 62 x 10-6 pounds per megawatt-hour for lignite, 1.1 x 10-6 pounds per megawatt-hour for coal refuse, and 20 x 10-6 pounds per megawatt-hour for IGCC units.  EPA projects that mercury emissions would be reduced from 49 tons to 34 tons through implementation of the proposed mercury MACT standards.

Plant owners would be required to reduce mercury emissions to these levels by December 15, 2007.

For existing oil-fired units, the command-and-control proposal calls for a MACT nickel emission limit of not to exceed 210 pounds per trillion Btus or 0.0020 pounds per megawatt-hour.  New oil-fired units would be subject to an output-based MACT limit of 0.0008 pounds per megawatt-hour.  Compliance with both the mercury and nickel MACT standards would be based on a 12-month rolling average.

The alternative to a command-and-control approach is a cap-and-trade program for mercury.  EPA is proposing a 34 ton mercury emission cap for the first phase commencing in 2010 and a 15 ton cap for the second phase starting in 2018.  This is the amount of mercury emissions that would be allowed each year from all coal-fired power plants nationwide.  During the first phase, EPA estimates that the mercury reductions would be achieved without too much additional effort by power companies as a consequence of other steps the companies must take to reduce NOx and SO2 emissions at their facilities under rules that are already in effect or are scheduled to take effect.  Put differently, EPA does not believe its rule will be a burden to utilities with coal-fired power plants until after 2010.  Mercury allowances would be issued to coal-fired plants based on a unit’s share of the total heat input from existing coal units multiplied by an adjustment factor that depends on the type of coal.  The adjustment factors are 1.0 for bituminous, 1.25 for sub-bituminous and 3.0 for lignite coals.

A cap-and-trade system will require some legal gymnastics to implement.  EPA painted itself into a corner with its December 2000 study because the study concluded that regulation of mercury and other hazardous air pollutants from coal- and oil-fired utilities is “appropriate and necessary” within the meaning of section 112 of the Clean Air Act.  Section 112 does not allow much leeway in how the regulation must occur.  The agency must usually use a command-and-control approach.  EPA prefers to set a limit and let the market decide how best to achieve it — the so-called cap-and-trade approach — but it can only get there if it backtracks from its earlier legal finding.  Thus, EPA said when it published its competing proposals for mercury regulation in late January that while it still agrees that the regulation of mercury from coal-fired plants and nickel from oil-fired plants is “appropriate,” it no longer believes that such regulation is “necessary.” This gives it the latitude to regulate under section 111 of the Clean Air Act.  Section 111 is much less prescriptive than section 112, and it allows the agency more flexibility in setting mercury and nickel emission standards for new and existing plants.

Under the cap-and-trade approach, EPA would set mercury MACT standards for new plants at the following output-based mercury levels: 0.00075 nanograms per joule (6.0 x 10-6 lb/MWh) for bituminous, 0.0025 nanograms per joule (21 x 10-6 lb/MWh) for sub-bituminous, 0.0078 nanograms per joule (67 x 10-6 lb/MWh) for lignite, 0.00087 nanograms per joule (0.53 x 10-6 lb/MWh) for coal refuse, and 0.0025 nanograms per joule (16 x 10-6 lb/MWh) for IGCC units.  These limits are substantially the same as the mercury MACT emission limits proposed in the command-and-control proposal.

For existing oil-fired units, the cap-and-trade limit for nickel emissions would be 210 pounds per trillion Btus or 0.0020 pounds per megawatt-hour.  For new oil-fired units, the limit on nickel emissions would be 0.0008 pounds per megawatt-hour.  Compliance with the mercury and nickel standards would be calculated on a 12-month rolling average basis.

The two competing proposals are expected to touch off a raging debate that will play out ultimately in the courts.  EPA must issue a final rule by December 15, 2004.  The costs to comply with the new rule are expected to be substantial.

Migrating Air Pollution

EPA also published a proposed “interstate air quality rule” in late January that focuses on reducing the interstate transport of NOx and SO2 emitted from power plants and other sources that significantly contribute to fine particulate, or PM2.5, and ozone pollution in downwind states.  NOx and SO2 are precursors of PM2.5 and NOx is a precursor of ozone.  The proposed rule directs 29 states and the District of Columbia to issue new regulations that will require major SO2 and NOx reductions in two stages.

The proposed rule encourages use of a cap-and-trade approach.  While states will be given the flexibility to choose how best to achieve the NOx and SO2 emission caps in the proposed rule, the tenor of the proposed rule strongly suggests that EPA expects the states to adopt a cap-and-trade program.

This rule is much more likely to survive expected legal challenges since it is modeled after another proposal — called the NOx SIP call regulation — that was upheld by a US appeals court last year after a protracted legal battle.  Most environmental regulations end up in the courts.

The interstate air quality rule would require NOx and SO2 reductions in two stages.  EPA proposes a cap of 3.9 million tons on SO2 emissions by 2010, or approximately a 58% decrease from current SO2 emission levels.  It proposes a further cut to a cap of 2.7 million tons of SO2 emissions by 2015 for a total reduction of about 70% from current SO2 levels.  Under the proposed rule, NOx emissions would be reduced to a cap of 1.6 million tons by 2010, with an additional reduction to a cap of 1.3 million tons by 2015, for a total NOx reduction of about 65%.  Under the new rule, the SO2 and NOx emissions would be permanently capped and cannot increase.

Power plants that are subject to the new rule would be allowed to submit acid rain allowances at particular retirement ratios to meet their SO2 reduction obligations under the new rule.  Regulated utilities would be able to use pre-2010 vintage SO2 allowances on a one-to-one basis.  Vintage 2010 to 2014 SO2 allowances could be used at a two-to-one ratio, and vintage 2015 SO2 allowances and beyond could be used at a three-to-one ratio.

One effect of the proposal is it could reduce the value of post-2009 SO2 allowances.  EPA is expected to receive a significant number of comments regarding how the new program should interact with the existing federal acid rain program.  Many utilities have built up banks of unused SO2 allowances and list them as valuable assets on their balance sheets.  The new program could affect the value of these assets.  EPA is concerned that “leakage” in SO2 allowances may occur, meaning there would be a net outflow of surplus SO2 allowances in states covered by the rule to non-affected states.

The interstate air quality rule will require the installation of a new round of costly pollution control measures at certain power plants and other industrial facilities, including flue gas desulfurization units to control SO2 emissions and selective catalytic reduction systems and other NOx control measures in order to meet the 2010 first phase NOx and SO2 emission reduction targets.