Issue Date: October 20, 2008
Bad Air Coming
IN THE THREE MONTHS since a federal court unexpectedly threw out a 2005 regulation controlling emissions from power plants, signs are clear that the air could get dirtier. It is hazy, however, just what utilities and affected states will do in the wake of this decision.
Coal-fired utilities are pondering whether they will operate the pollution control equipment they have installed to comply with the defunct regulation. At issue for these utilities is whether to run these devices—which cost money—now that they are no longer required to do so.
The 28 eastern states affected by the now-dead Environmental Protection Agency regulation are scrambling to reconfigure their plans for meeting federal air quality limits on ground-level ozone and particulate matter. State regulators were relying on the overturned rule for big cuts in emissions of nitrogen oxides (NOx), which are precursors to ozone, and sulfur dioxide, which contributes to particulates. Ozone and particulate pollution cause health problems and are linked to premature deaths.
The regulation at issue is EPA's 2005 Clean Air Interstate Rule (CAIR). It was designed to help counties in the eastern U.S. meet the federal air quality standards for ozone and particulate matter. CAIR capped the amount of SO2 and NOx that power plants in the 28 states together could release and let facilities that made sharp curbs in their emissions sell pollution allowances to dirtier units.
By 2015, CAIR was expected to reduce SO2 by 57% and NOx by more than 61% compared with 2003 emissions levels in the affected states. EPA estimated the rule would prevent 17,000 premature deaths a year by 2015 and generate health benefits worth 25 times more than the costs of controlling the pollution. The overturned rule also included a second, though less steep, round of emissions cuts after 2015.
With the rule voided on July 11 and the outcome of a pending legal appeal uncertain, federal and state regulators may have no alternative but to issue new standards that clamp down on emissions from all large industrial polluters, including utilities and manufacturers, without allowing for emissions trading. This, in turn, could impact the chemical industry by boosting the power sector's demand for cleaner burning natural gas, a key chemical feedstock. And it might make it harder for new or expanding industrial plants to get air pollution permits.
The case before the U.S. Court of Appeals for the District of Columbia Circuit that led to the July 11 decision was brought separately by North Carolina and a group of utilities, both of which asked the court to send parts of the rule back to EPA for revision. No one sought to overturn the entire rule.
But that's what the court decided to do. "EPA's approach—region-wide caps with no state-specific quantitative contribution determinations or emissions requirements—is fundamentally flawed," the court stated. "No amount of tinkering with the rule or revising of EPA's explanations will transform CAIR, as written, into an acceptable rule."
This means EPA can't just recast portions of the regulation to pass the court's muster. If the agency decides to act, it must start from scratch on a new regulation to control SO2 and NOx from coal-fired power plants. If EPA chooses this path, it would likely produce a regulation to require stringent pollution controls at each power plant in 28 states and the District of Columbia. The process for EPA to draft, propose, take comments on, and write a final Clean Air Act rule of CAIR's magnitude—and finally get it approved by the White House—would takes years.
"WE FACE a serious situation," says Brian J. McLean, director of EPA's Office of Atmospheric Programs. Public health is at risk, and state regulators face the enormous task of meeting national clean air standards in the absence of CAIR, he says. At the same time, the utility industry, which is in the midst of buying and installing pollution control equipment, is unsure about what it must legally do about its emissions, McLean says.
To try to avoid a lengthy period of uncertainty, EPA, along with industry and environmental groups, is asking the D.C. Circuit Court to reconsider its decision to void the rule. The groups would like the court to allow EPA to make fixes to CAIR, which was already leading to cleaner air in the East when the court overturned it.
Power companies affected by the rule have cut their SO2 emissions from 9.35 million tons in 2005, when the regulation took effect, to 8.17 million tons in 2007, according to EPA. This reduction is due in part to utilities switching to low-sulfur coal.
Utilities have also invested billions of dollars in pollution control equipment to comply with CAIR. William M. Bumpers, a partner at the Washington, D.C., office of the law firm Baker Botts, represents about 35 large power companies covered by the rule. He says his clients collectively have spent more than $20 billion on pollution controls in anticipation of complying with CAIR.
Those investments, Bumpers says, are looking "uneconomical" in light of the court's decision, in part because utilities buying the emissions control equipment had hoped to cut emissions and sell pollution allowances to other companies. The price of SO2 emissions allowances has dropped to below $100 per ton since the court's decision, down from a high of about $600 per ton, according to EPA.
Bumpers says that currently, none of his clients anticipates halting their planned installations and operation of new emissions control equipment. But they could change their minds, he adds.
And following the court's decision, some companies are determining whether they can get out of contracts placed for new pollution control equipment to comply with CAIR, says Jeffrey R. Holmstead, a utility industry lawyer and partner in the Washington office of the law firm Bracewell & Giuliani.
According to Bumpers, some facilities that are in the midst of installing this equipment are facing price overruns because of the spiraling cost of steel. They, too, are looking into getting out of contracts for the pollution controls, he says.
And at any time, utilities that were buying low-sulfur coal could switch to higher sulfur coal if they find it economically prudent to do so, thus boosting their SO2 output, according to stakeholders in the government and environment groups.
States, meanwhile, are in a bind in the wake of the court's decision, says S. William Becker, executive director of the National Association of Clean Air Agencies, a group of state and local regulators.
If Congress or the federal courts don't act soon to put CAIR or something close to it in place, eastern states will have to impose specific pollution control requirements on each power plant and on large industrial facilities. "We have no choice," Becker says.
AN OVERTURNED CAIR also has other repercussions for industry, including chemical manufacturers, as states try to attain air quality standards without a federal program to curb power plant emissions. New and expanding industrial facilities may face difficulties getting the air pollution permits they need to operate, according to Vickie Patton, deputy general counsel for the Environmental Defense Fund.
Plus, a decision to leave CAIR overturned amounts to a decision to build new power plants that burn natural gas, according to Paul J. Allen, vice president and chief environmental officer of Constellation Energy, an electrical power company. CAIR gave incentives for electricity generators to stick with coal???and they are now gone, he explains. The chemical industry wants to see the power sector retain coal as a major fuel to reduce competition for natural gas, which chemical makers want at the lowest possible price to make their products profitably.
Since the court's ruling, federal and state policymakers, utilities, and environmental groups are hustling to find a substitute for CAIR. The seemingly quickest, easiest fix lies in the hands of Congress, which can trump the court's decision.
In August, the Bush Administration asked Congress to pass legislation to reinstate CAIR in its entirety. This contrasts with a more targeted plan supported by a number of the utilities, many of the eastern states, and some environmental groups. They want Congress to make the first phase of CAIR emissions reductions the law of the land for four years. Afterward, under their plan, Congress or EPA would, before the statute expires, craft a longer term pollution control strategy with deeper cuts in emissions than CAIR. Those more stringent emissions standards would become operative in 2015.
States are worried that the second round of pollution curbs prescribed under CAIR, the ones starting in 2015, would not be tough enough, meaning they couldn't either meet or stay in compliance with national air quality standards for ozone and particulate matter. Becker of the state air regulators group says CAIR should have required larger reductions in pollution from utilities after 2015 because the public health benefits of larger emissions cuts far outweigh the costs to the industry. Plus, EPA should have included other major industrial sources of SO2 and NOx pollution, such as cement kilns, in the rule, he argues.
Bracewell & Giuliani's Holmstead is a staunch defender of CAIR and backs the Bush Administration's call for Congress to make the whole rule, not just the first phase of emissions cuts, into law. Holmstead is considered the architect of the now-overturned rule; he oversaw its development while he was assistant administrator for EPA's air pollution programs from 2001 to 2005. Holmstead says making all of CAIR into law would not stop Congress—and even EPA—from later requiring deeper cuts in emissions after 2015, if they so chose.
A. Blakeman Early, a consultant for the American Lung Association, which pushes for tougher air pollution controls, opposes enactment of any part of CAIR. "We can do better," with a law that requires deeper cuts in emissions sooner, he says.
Bumpers, with the law firm Baker Botts, has a different take. His personal view is that Congress should hammer out legislation that curbs SO2 and NOx while also covering carbon dioxide. Since the design and installation of pollution controls is unique for each coal-fired unit, the process is capital-intensive. It would be more cost-effective to design equipment to simultaneously reduce emissions of all three pollutants rather than to require CO2 cuts separately from SO2 and NOx, Bumpers says.
He's not the only one thinking along these lines. Sen. Thomas Carper (D-Del.), chairman of the Senate Environment & Public Works Subcommittee on Clean Air & Nuclear Safety, for several years has sought bipartisan support for legislation to cut emissions of four pollutants—SO2, NOx, CO2, and mercury.
After the court's CAIR ruling, Carper at first pushed his four-pollutant legislation as a way to fix the overturned rule. But after gathering information at a hearing in July and an informal public roundtable in early September about the effects of CAIR's demise, Carper altered his position. He threw his support behind legislation implementing only the first phase of the regulation.
BY MID-SEPTEMBER, Carper and Rep. Frederick Boucher (D-Va.), chairman of the House Energy & Commerce Subcommittee on Energy & Air Quality, worked out a tentative deal on a bill to make the first phase of CAIR into law for four years. But Rep. Joe Barton (R-Texas), the powerful top Republican on the House Energy & Commerce Committee, scuttled the plan, saying he preferred a more comprehensive, longer term look at the Clean Air Act over a quick fix for CAIR.
Because the House of Representatives has adjourned until January 2009, the issue is dead for now. But an aide to Carper tells C&EN the Delaware senator intends to offer in early 2009 legislation that incorporates the first round of CAIR's SO2 and NOx cuts into a more comprehensive air pollution bill that also reduces CO2 and mercury emissions.
In the meantime, EPA, industry, and environmental groups are going back to court. Despite their differences, they have united in asking the court to reconsider its July decision to invalidate the entire rule. They want the court to send the regulation back to EPA with instructions to fix CAIR's flaws. This legal avenue would take less time than if the agency were to start from scratch on a new rule. The prospects for the court agreeing to rehear the case are slim, many observers say.
EPA's McLean predicts that if the court stands firm on its nixing of CAIR and if Congress does not act quickly, utilities' SO2 emissions will increase, reversing the clean air gains from this sector since 2005.
Early, the American Lung Association consultant, is pessimistic about prospects for a short-term congressional fix for CAIR anytime during the next two years.
"Thousands of people are going to die prematurely while we figure this out," he says.
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