Stormy Skies - Regulatory Reforms Under the Clean Air Act Generate Controversy
July 15, 2004
On June 29, 2004, the public comment period closed on the U.S. Environmental Protection Agency’s (EPA) Proposed Utility Mercury Reductions Rule. This rule was signed by EPA Administrator Mike Leavitt on December 15, 2003, and published in the Federal Register on January 30, 2004. The agency has extended the deadline for public comments twice since publishing the rule.
The rule proposes two alternatives for controlling mercury emissions from coal-fired power plants. Each of the two alternatives have been proposed pursuant to different sections of the Clean Air Act (CAA). The first alternative would regulate mercury as a hazardous air pollutant under Section 112 of the CAA. Accordingly, this alternative would require the affected utilities to install emissions controls on their facilities know as Maximum Achievable Control Technologies (MACT). Under this regulatory scheme, affected utilities would have three years to comply with the MACT requirements, which EPA predicts will reduce mercury emissions nationwide by 29 percent from 48 tons per year (tpy) to 34 tpy by 2007.
The second alternative proposed in the rule would establish “standards of performance” under Section 111 of the CAA. Unlike Section 112, this section does not prescribe specific emissions controls and, as such, permits the Agency more flexibility in establishing a regulatory scheme for controlling mercury emissions. Under this alternative, the Agency would create a market-based cap-and-trade program. The program would be implemented in two phases.
The first phase would set a nationwide mercury emissions cap of 34 tpy, a 29 percent reduction from current levels, to be achieved by 2010. The second phase would set the nationwide cap at 15 tpy, a 70 percent reduction, to be achieved by 2018. The Agency would then allocate to each state specified amounts of emission allowances based on these nationwide caps. The states would in turn allocate their allowances to the affected utilities. Each affected utility must have sufficient allowances to cover its emissions each year and any excess allowances could then be traded to other affected utilities.
The proposed rule would also revise a December 2000 Agency finding that it is “appropriate and necessary” to regulate mercury emissions from coal-fired power plants as a hazardous air pollutant under Section 112. That finding, unless revised, would require compliance with the MACT standard and limit the Agency’s proposed flexibility to establish the cap-and-trade program under Section 111.
The proposed mercury rule has been controversial since the beginning. The environmental community has urged the Agency to set the most stringent emission controls possible arguing that such standards will force the development of new control technologies. Concurrently, the Agency and the utility industry have favored a more flexible approach with longer compliance deadlines to allow sufficient time for the development of reliable and effective control technologies.
There is broad disagreement among the environmental and research and development communities and the utility industry about whether such control technologies are actually available for installation on coal-fired power plants at the present time. Such technologies are under development and have been installed on some facilities. However, there is concern that the existing technology will not be as effective on large facilities operating over long periods of time, especially those using Western subbituminous coal, from which mercury is the most difficult to remove.
In general the environmental community, a number of states (mostly in the Northeast), and 45 Senators have opposed the proposed rule. They favor an approach under Section 112 of the CAA, which would require compliance with the MACT standard, over the cap-and-trade program. However, they believe the Agency has not gone far enough, even with the proposed MACT standard. The environmental community in particular believes that an appropriate MACT standard could reduce mercury emissions by 90 percent within 10 years, if not sooner. On the other side, however, the utility industry and the Agency clearly favor the cap-and-trade program over a MACT standard. They argue that the flexible cap-and-trade program will bring about greater reductions in mercury emissions by creating market-based incentives for new control technologies and lowering of emissions.
While the Agency has been clear about its preference for the cap-and-trade alternative, there are still a number of events that could affect the final outcome of this rule. The Agency received nearly 540,000 comments, an Agency record, on the rule from utilities, environmental groups and state, tribal and local governments. There have been written requests from Congress for the Agency to withdrawal the current proposal and to conduct additional analysis on the alternatives. Similarly, a number of Senators have considered legislative efforts to thwart the implementation of the cap-and-trade program. In April, a number of environmental groups filed a complaint in federal district court asking the court to order EPA to eliminate the cap-and-trade program as being contrary to the CAA. Lastly, with the final rule not due until March 15, 2005, the outcome of this year’s Presidential election would likely affect the approach chosen by the Agency, as Senator John Kerry, the presumptive Democratic presidential nominee, was one of the 45 Senators that joined the letter to EPA requesting withdrawal of the proposed rule.
In addition to the mercury rule, the Agency has also issued a number of other rules related to air quality. These include: the Supplemental Mercury Proposal, published on March 16, 2004; the Interstate Air Quality Rule, published on January 30, 2004, and its Supplemental Proposal, published on June 10, 2004; the New Source Review (NSR) Routine Equipment Replacement Rule, published on October 27, 2003; and the NSR Improvement Rule, published on December 31, 2002.
In the Supplemental Mercury Proposal, the Agency is proposing a model cap-and-trade program that states can adopt to achieve and maintain a mercury emissions budget consistent with the proposed mercury rule. The Interstate Air Quality Rule is designed to reduce and permanently cap sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions from electric utilities in 28 Eastern states and the District of Columbia. Like the Mercury Rule, this proposed rule would also create an interstate cap-and-trade program for SO2 and NOx. The supplemental proposal to this rule provides additional details for implementing the rule, including specifics on the Agency’s model cap-and-trade program and proposed integration of the rule with existing CAA requirements.
Like the proposed Mercury Rule, the two NSR rules have been the subject of much controversy and litigation. The first rule, the NSR Improvement Rule, was designed to create more flexibility for facilities to modify operations or undertake environmentally beneficial activities without triggering the NSR process. The rule also permits flexibility for facilities that attain “clean unit” status using state-of-the-art control technologies. Finally, the rule modifies the methodology for calculating a facility’s baseline and future emissions. This rule is being challenged in the federal Court of Appeals for the District of Columbia by 14 states, various environmental groups and the Utility Air Regulatory Group representing nearly 60 utilities.
The second rule, the NSR Routine Equipment Replacement (RER) Rule, creates a category of activities that automatically will be considered routine maintenance, repair and replacement under the NSR program. As such, these activities will be automatically excluded from the NSR requirements. This rule has also been challenged in the same court by essentially the same litigants that sued the Agency over the NSR Improvement Rule. However, in this case the court has stayed the implementation of the RER Rule.
Finally, on June 30, 2004, the Agency gave notice that it will be reconsidering two aspects of the RER Rule: whether the legal basis for the rule is flawed and whether the 20 percent replacement cost threshold is arbitrary and capricious. The notice provides for a 60-day comment period on the issues raised for reconsideration. A final decision on the reconsideration is expected in about six months. The Agency also submitted a rule to the Federal Register that codifies the old NSR regulations, at least until the litigation over the RER Rule, which has been stayed, is completed.
For more information, contact Elizabeth Bell via e-mail at elizabeth.bell@hklaw.com or call toll free, 1-888-688-8500.