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EPA Finalizes New Interstate Air Pollution Rule for Power Plants

August 9, 2011

The Environmental Protection Agency (EPA) has published a new rule addressing the interstate transport of sulfur dioxide (SO2) and nitrogen oxides (NOx) from fossil fuel-fired power plants in 27 Eastern states.[1] The Cross-State Air Pollution Rule (CSAPR) is EPA’s latest attempt to address air pollution from power plants in “upwind” states that contributes to air quality violations in “downwind” states. Such emissions 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.

CSAPR replaces EPA’s 2005 Clean Air Interstate Rule (CAIR), which the U.S. Court of Appeals for the District of Columbia struck down in 2008.[2] The court kept CAIR in place temporarily while EPA developed a new rule addressing the interstate transport of air pollution. CSAPR, however, is already facing opposition in Congress. Earlier this month, the House introduced – but later withdrew – an appropriation bill (H.R. 2584) that would have stripped funding for the implementation of a number of existing EPA air rules, and the CSAPR – though not yet finalized while H.R. 2584 was under consideration – would likely be on the same list eventually.

Industry reactions to EPA’s new rule are mixed. Generally, utilities in regions dependent on older coal-fired plants have been the loudest opponents of EPA’s rules, while many utilities that obtain little of their power from coal have supported the rules. [3] For example, American Electric Power Co. Inc. is lobbying lawmakers to extend the deadlines and eliminate some of the requirements of the rules,[4] while Duke Energy Corp., the nation’s sixth-largest utility, has praised EPA for its use of market-based emission trading in the new rule.[5] Indeed, industry opinion on the new rule is so divided that the Edison Electric Institute – the primary industry trade group for the utility industry – has declined to give an opinion on CSAPR.[6]

The CSAPR rule, if implemented as written, would require significant reductions in SO2 and NOx emissions almost immediately – beginning on January 1, 2012. The new rule allows for intrastate (and limited interstate) trading between regulated entities. EPA’s position is that the program will reduce power plant SOx emissions by 73 percent and NOx emissions by 54 percent.

EPA also published a supplemental notice of proposed rulemaking (SNPR) under which six states (Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin) would be required to reduce NOx emissions during the summertime ozone season.[7]

I. 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.[8] 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.[9] 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.[10] 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].”[11]

II. 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.[12] 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.”[13] 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).[14]

III. EPA’s New Interstate Transport Rule

CSAPR generally tracks the draft rules EPA published last year. See EPA Proposes New Rules for Power Plant Emissions, Marten Law Environmental News (Aug. 5, 2010). Twenty-three states[15] are required to reduce both annual SO2 and NOx emissions, while 20 states[16] are required to reduce NOx emissions during the ozone season (May through September). Emission reductions will take effect quickly, starting January 1, 2012 for SO2 and annual NOx reductions and May 1, 2012 for ozone season (summertime) NOX reductions. Beginning in 2014, a number of states, referred to as Group 1 states, will be required to achieve additional reductions in SO2 emissions.

To facilitate the required reductions, EPA developed emission budgets for each state and emission allowances will be allocated to regulated facilities. CSAPR allows covered sources to achieve emission reductions via unlimited intrastate and limited interstate allowance trading. EPA expects that additional emission reductions will be achieved by the continued operation of already-installed emission control equipment, the use of low-sulfur coal, increased generation from relatively cleaner units, and installing existing, commercially-available emission control technologies such as low NOx burners, scrubbers, and dry sorbent injection.

To speed implementation, EPA is finalizing FIPs for each of the states covered by this rule. As early as 2013, states may adjust specific aspects of the FIP, including provisions for crediting sources for NOx allowances banked under earlier programs. States may also develop SIPs to achieve the required reductions, subject to EPA approval. SIPs may choose which types of sources to control and how to administer the programs.

The final CSAPR deviated from EPA’s proposed rules in a number of respects. Texas was added to the annual SO2 and NOX programs, while Connecticut, Delaware, District of Columbia, Florida, Louisiana, and Massachusetts were removed. Connecticut, Delaware and District of Columbia were similarly removed from the NOX ozone season program. Other changes include a new allowance allocation approach based on historic heat input and a unit’s maximum historic emissions, changes to the interstate allowance trading provisions, and increased penalties for noncompliance.

IV. Supplemental Notice of Proposed Rulemaking

EPA also published a proposed rule that would require Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin to reduce summertime NOx emissions under the ozone season control program. Except for Oklahoma, all of these states are already included in the CSAPR NOx program for PM2.5. EPA will accept public comment on the SNPR until August 25, 2011, and anticipates finalizing the rule by late fall.

V. Other Upcoming Clean Air Act Rulemakings

In addition to CSAPR, EPA is working on a number of other Clean Air Act rulemakings. EPA’s final reconsideration of ozone NAAQS is expected later this summer. EPA expects to finalize mercury and air toxics standards (MATS) for power plants by November 2011. EPA also expects to propose particulate matter NAAQS later this summer.

For more information on CSAPR or EPA’s Clean Air Act rulemakings, please contact any member of Marten Law’s Air Quality practice group.

[1] The states that are, or will be, impacted by EPA’s new rule are Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.

[2] North Carolina v. U.S.E.P.A., 531 F.3d 896, 929 (D.C. Cir. 2008).

[3] Gabriel Nelson, Wrapped Up in Politics, Granddaddy of Cap-and-Trade Plans Has an Uncertain Future, E&E Greenwire (July 19, 2011).

[4] Gabriel Nelson, Power Plant Rules Won’t Hurt Grid Reliability, Environment & Energy Daily (July 27, 2011) (subscription required).

[5] See Nelson, supra, n.3.

[6] Id.

[7] Federal Implementation Plans for Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin To Reduce Interstate Transport of Ozone, 76 Fed. Reg. 40,662 (July 11, 2011).

[8] 42 U.S.C. § 7409. States may establish there own air quality standards so long as they are at least as stringent as the federal standards.

[9] Id. at § 7407(c).

[10] Id. at § 7410(a)(1).

[11] Id. at § 7410(a)(2)(D)(i)(I).

[12] Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule); Revisions to Acid Rain Program; Revisions to NOx SIP Call, 70 Fed. Reg. 25, 162 (May 12, 2005).

[13] 531 F.3d at 907, citing 42 U.S.C. § 110(a)(2)(D)(i)(I).

[14] 531 F.3d 896, 929.

[15] Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.

[16] Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa (proposed), Kansas (proposed), Kentucky, Louisiana, Maryland, Michigan (proposed), Mississippi, Missouri (proposed), New Jersey, New York, North Carolina, Ohio, Oklahoma (proposed), Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin (proposed).

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