EPA Proposes New Rules for Power Plant Emissions

A new rule proposed by the Environmental Protection Agency would regulate emissions from coal-fired power plants in Eastern and Midwestern states.[1] Known as the Transport Rule, EPA’s proposed regulation replaces EPA’s Clean Air Interstate Rule (CAIR), which would have established an interstate trading program for sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions from power plant. CAIR was struck down in 2008 by the U.S. Court of Appeals for the District of Columbia, which called the rule “fundamentally flawed.”[2] The court kept CAIR in place temporarily while EPA developed a new rule addressing the interstate transport of air pollution, and it remains in place until EPA’s new rule is finalized.

The proposed Transport Rule will require significant reductions in SO2 and NOx emissions from power plants in 31 states and the District of Columbia. Such emissions are often transported by air currents and impact the ability of downwind states to comply with the Clean Air Act’s ambient air quality standards for particulate matter and ground-level ozone. The new rules would allow for intrastate (and limited interstate) trading between regulated entities. EPA estimates that the program will reduce power plant SOx emissions by 71 percent and NOx emissions by 52 percent.

Senators Tom Carper (D-Del.) and Lamar Alexander (R-Tex.) have proposed legislation (S.2995) that would preempt the Transport Rule and authorize EPA to establish an interstate trading program for NOx, SO2, and mercury. S.2995 would require an 80 percent reduction in SO2 by 2018 and a 50 percent NOx reduction by 2015. Senators Carper and Alexander were hoping to attach S.2995 to the Kerry-Lieberman climate legislation. However, now that the Senate has abandoned efforts to move climate legislation forward this session, the fate of S.2995 remains uncertain.

Legislative Background

The Clean Air Act establishes a cooperative framework under which the EPA and the states regulate air quality. At the federal level, EPA is required to establish limits (known as National Ambient Air Quality Standards, or NAAQS) on the maximum concentrations of air pollutants allowable in various parts of the country.[3] EPA is also required to designate areas of the country as “attainment,” “nonattainment,” or “unclassifiable” for each air pollutant, depending on whether the area is in compliance with NAAQS.[4] States are primarily responsible for achieving air quality standards, and are required to develop plans (known as State Implementation Plans, or SIPs) for implementing, maintaining, and enhancing NAAQS.[5] EPA must develop a federal implementation plan (FIP) for states that are untimely in submitting a compliant state-level plan.

The Clean Air Act also includes provisions which address the interstate transport of air emissions. Section 110(a)(2)(D)(i)(I) requires states to prohibit emissions that “contribute[] significantly to nonattainment in, or interfere with maintenance by, any other State with respect to … [NAAQS].”[6]

The D.C. Circuit Vacates the CAIR Rule

In 2005, EPA issued CAIR after determining that emissions from power plants in 28 states and the District of Columbia “contributed significantly” to the nonattainment of air quality standards for fine particulate matter (PM2.5) and smog (eight-hour ozone) in downwind states.[7] CAIR was intended to reduce or eliminate the impact of upwind sources on nonattainment of particulate and smog NAAQS in downwind states. Because SO2 is a precursor to PM2.5 formation and NOx is a precursor to both ozone and PM2.5 formation, CAIR required upwind states to revise their SIPs to include control measures for SO2 and NOx.

Under CAIR, states could achieve the required emission reductions using one of two compliance options: 1) meet the state’s emission budget by requiring power plants to participate in an EPA-administered regional cap and trade system that capped emissions in two stages, or 2) meet an individual state emissions budget through measures of the state’s choosing. In CAIR’s interstate trading system, states were given initial emissions budgets, but sources could choose to sell or purchase emissions credits from sources in other states. By assuming that the program would eliminate regional (rather than state) contributions to nonattainment, states could potentially emit more or less pollution than their caps would otherwise permit.

In 2008, the U.S. Court of Appeals for the District of Columbia vacated CAIR on a number of grounds. The court’s central holdings pertained to CAIR’s interstate trading construct, which the court concluded was inconsistent with Section 110(a)(2)(D)(i)(I) of the Clean Air Act. As noted above, that section requires states to prohibit emissions that would contribute significantly to nonattainment (or interfere with attainment) in downwind states. Because CAIR assumed that regional contribution (rather than each upwind state’s contribution) to nonattainment in downwind states would be eliminated, upwind sources could ostensibly purchase sufficient NOx and SO2 allowances to cover their current emissions, resulting in no reductions to their emissions or contribution to nonattainment in downwind states.

The court held that this construct was impermissible in light of the Clean Air Act’s provisions which prohibit sources “within the State” from “contribute[ing] significantly to nonattainment in … any other State.”[8] As the court explained:

We must vacate CAIR because very little will “survive[ ] remand in anything approaching recognizable form.” EPA’s approach-regionwide caps with no state-specific quantitative contribution determinations or emissions requirements-is fundamentally flawed. Moreover, EPA must redo its analysis from the ground up. It must consider anew which states are included in CAIR, after giving some significance to the phrase “interfere with maintenance” in section 110(a)(2)(D).[9]

EPA’s Proposed Transport Rule

Under its proposal, EPA would establish an emission “budget” that would cap the emissions from covered sources within each state subject to the rule. State emission budgets would be calculated to ensure that emissions would not significantly contribute to nonattainment, or interfere with attainment, in downwind states, taking into consideration: (1) the magnitude of a state’s contribution; (2) the cost of controlling pollution from various sources; and (3) the air quality impacts of reductions.

Fossil fuel-fired power plants (referred to as electric generating units or EGUs) with a nameplate capacity of greater than 25 megawatts would be required to obtain an allowance for each ton of SOx or NOx it emits. In response to the flaws in CAIR identified in the D.C. Circuit’s North Carolina v. EPA opinion, EPA determined that unlimited interstate trading was impermissible. The Transport Rule would allow for intrastate trading, as well as limited interstate trading. Interstate trading would be limited by an “assurance provision” requiring that each state complies with its emission budget.

The Transport Rule would go into effect in 2012, and a second phase requiring further emission reductions would go into effect in 2014. To facilitate quick implementation, EPA has proposed FIPs for each state covered by the Transport Rule. Without a FIP, each covered state would be required to develop (and EPA required to review) a SIP – a lengthy process that would delay implementation of the program. While the program would initially be driven by FIPs, states would be permitted to develop SIPs to achieve the required reductions. The FIPs would obviate the need for states to develop (and EPA to approve) SIPs that comply with the rule.

To meet the emission reductions required by the Transport Rule, EPA estimates that regulated power plants will: (1) operate already installed control equipment more frequently; (2) use lower sulfur coal; or (3) install pollution control equipment such as low NOx burners, selective catalytic reduction, or scrubbers (flue gas desulfurization).

EPA is accepting public comment on the Transport Rule until October 1, 2010 (60 days after it is published in the Federal Register). In addition to seeking public comment on its preferred intrastate / limited interstate trading proposal, EPA is also seeking public comment on two alternative approaches. The first alternative would eliminate all interstate trading. The second alternative would establish emission limits for each regulated power plant and permit limited emission averaging among those facilities.

Upcoming Regulations

EPA also summarized a number of upcoming Clean Air Act regulatory initiatives:

• SO2 NAAQS – Final June 2010
• Ozone NAAQS Reconsideration – Final August 2010
• Utility Boiler New Source Performance Standards (NSPS) and Maximum Achievable Control Technology (MACT) – Proposed March 2011 / Final November 2011
• Transport Rule II (NOx) – Proposed Summer 2011 / Final Summer 2012
• PM NAAQS – Proposed February 2011 / Final October 2011.

For more information on the proposed Transport Rule or other Clean Air Act issues, please contact Dustin T. Till or any member of Marten Law’s Air Quality practice group.