ELECTRICITY GENERATION AND AIR QUALITY: MULTI-POLLUTANT STRATEGIES

CRS Report for Congress
Electricity Generation and Air Quality:
Multi-Pollutant Strategies
March13,2001
Larry Pa rker and John Blodgett
Specialists in Energy and En vironmental Po licy
Resources, Sc ience, and Industry Division


Congressional Research Service ˜ The Library of Congress

Electricity Generation and Air Quality:
Multi-Pollutant Strategies
Summary
Fossil fuel fired el ect ric generating facilities are major s ources of ai r pollutants,
including particulate m atter (PM), sulfur diox ide (SO2), ni t rogen ox i d es (NOx ), and
mercury (Hg), and o f t he greenhouse gas carbon diox ide (CO2). A p at chwork of
regulations to limit PM, S O2, and NOx emissions ex ists, with further requirements
on t h e hori z on. The p i ecem eal nat u re of t h e regul at i ons and t he uncert ai n t y of fut u re
requirements impose not only direct costs on utilities, but also make planning
difficult in an environment already charact erized by industry restructuring, volatile
energy prices, and technological changes.
To bring some consistency and stability to the regul ations affecting utility
emissions, l egislative i nitiatives have pr oposed a “multi-pollutant” s trategy. Key
el em ent s of t h e s t rat egy i ncl ude:
! aligning pollution control p rocesses and procedures for P M, SO2, and NOx so
that b o t h regulat ors and utility managers could anticipat e requirements and
integrate t heir decisions about how to control emissions;
! adopt i n g effi ci ent econom i c m echani s m s – m ost not abl y “cap and t r a d e ”
strategi es – for the control o f t he pollutants;
! stabilizing requirements over time; and
! incorporating potential future control requirements for other emitted gas es
(e.g., Hg, C O2) i nto t his m ore s table s cheme.
This approach to controlling powerplant emissions would have several tradeoffs.
Overal l , i t ex changes regul at ory and econom i c uncert ai n t y for s h o r t t o m i d -t erm
certainty. For the environment, the current controversy t hat accompanies t he setting
of standards and the implementing of regulatory redu c t i o n r equirements would b e
ex changed for a s pecific r eduction t arget t hat would not change for 10-15 years.
From an economic standpoint, implementing emission caps through emission trading
would reduce costs, and the s traigh tforwa rd enforcem ent m echani s m w oul d al s o
provide industry with certain t y w ith respect to their responsibilities and potential
penalties, and allow i ndustry t o p lan f o r t he future i n t he contex t o f a consistent
regu latory regime. Finally, t he program might open t he door for s implifyi ng or
repl aci ng el em ent s of t h e current pi ecem eal requi rem ent s. H o w e v e r , cap and t rade
systems could conflict with health standards t o p rot ect l o cal areas from “hot spot ”
emissions.
Although t he Clean Air Act’s evolution h as resulted i n a structure t hat s ome
charact erize as unwieldy, the number of persons living i n areas where air pollution
ex ceeds s tandard s h a s d iminished. Argu ab ly, t he Act’s s uccess puts t he burden o f
proof co n c e r n i ng amendment o n t hose favoring change. Amending the Act has
always proved contentious; but for m any, the opportunities for greater predictability
of requirements, fix ed emission reducti ons, and cost effi ci ency are ent i ci n g.



Contents
In troduction ..................................................1
The R egulat ory Framework: Utility Air Quality Regulation .............5
National Ambient Air Quality Standards – New Source Performance
Standards–Lowest AchievableEmissions Rate ..............5
P revent i o n o f S i gni fi cant D e t e r i o rat i o n – N ew S ource R evi ew – Best
Available C ontrol Technology ............................6
Acid Rain – S tatutory SO2 Capand AllowanceTradingSystem ......7
Pending and P rospective Utility Air Quality Controls ..................7
Health and Environmental C oncerns Driving New Air Quality Initiatives
....................................................8
Economic and R egulat ory Drivers Affecting P erspectives on Air Quality
Controls ............................................10
Alternative: TheFourPollutant Strategies ..........................11
SpecificPollutant Issues .......................................12
SulfurDioxide ...........................................13
NitrogenOxides ..........................................14
Mercury ................................................15
CarbonDioxide ..........................................16
Integrative Effect s of M ulti-Pollutant Strategy ......................17
Environmental ...........................................17
EconomicEffects .........................................17
EconomicBenefits ........................................21
RegulatoryEffects ........................................22
LegislativeOptions ...........................................23
Dimensions ofaCap andTradeProgram ......................24
RegulatoryChanges .......................................25
Conclusion ..................................................27
ListofTables
Table 1: National Estimated Emissions from Fossil-Fuel , S team -Elect ric Utilities —
1998 ........................................................3
Table 2: S implified S ummary o f Air Quality Control R equirements for Elect ric
Generating Facilities ...........................................8
Table3:PendingandPotentialControls onExistingSources ..............10
................................................................18
Table 4 : Estimated 2010 Cost and Benefits of S. 172/H.R. 25 and H.R. 2569 . 18
Table 5: 2010 Annual C osts of Emission Reduction P rovisions of H.R. 2569
...........................................................20
Table 6: Illustrative Estimates of 2010 Coal Production Impacts from C arbon
Reductions ..................................................21
Table7:Current Status ofFourPollutants .............................25
Table 8 : R egulatory Issues Raised by Cap and Trade P roposals .............26
Table 1 A: Timeline o f M ajor Federal S O2 Regulations ....................29
Table2A: TimelineofMajorFederalNOx Regulations ...................32
Table3A: TimelineofMajorFederalPMRegulations ....................36



Electricity G eneration and Air Q uality:
Multi-Pollutant Strategies
Introduction
Begi nning with the C lean Air Act of 1970, and with substantive additional
measures enacted in amendments of 1977 and 1990, electric u tilities h ave b een
subject ed to a m ultilayered pat chwork of ai r pollution emission requirements. Fossil
fuel fired elect ric generating facilities are major emitters of gases (see t able 1), with
cl ean ai r cont rol s current l y di rect ed at t h ree pol l u t ant s: sul fur di ox i d e (S O2), nitrogen
ox i d es (NOx ), and p art i cul at es (P M). S ul fur o x i des h ave h eal t h effect s and are a
major contributor to aci d rai n and visibility impai rment. Nitrogen ox ides have direct
health effect s, contribute t o aci d rai n and visibility impai rment, and are a precursor
to ozone, a primary constituent of s mog. Particulat es hav e h eal t h effect s, with the
smallest particles now thought to be the m ost s erious causative agent s ; c u r r e n t
regulations focus on particles 10 microns in size or smaller (PM10) an d new
regu lations would control p ar t i c l e s l ess t han 2.5 microns in diameter (PM 2.5).
Emissions of SO2 and o f NOx contribute t o t he forma tion o f t hese very fine particles.
In 1998, electric u tilities accounted for approx imately 67% of U.S. emissions of SO2,

25% of NOx , and 11% of PM10.


The evolution of air pollution controls over time and as a result of developing
scientific understanding of heal t h a nd environmental impacts h as led t o t he
multilayered and interlocking patchwork of controls, wh i ch are outlined in more
detail below. Moreover, additional controls are i n t he process o f d e v e l o p m e n t , in
particular with respect to NOx as a p recursor to oz one, and to both NOx and S O2 as
contributors t o P M 2.5.
In additi on, fossil fuel fired electric gen erating facilities p roduce t wo other gases
of environmental and health concern : m e r c u r y ( H g) a n d c a r bon diox id e ( C O 2). While
some sources of mercury are currently regulated, emissions from elect ric utilities are
not. However the C lean Air Act Amendm ents of 1990 design ated Hg as a h az ardous
air pollutant subject to a regulatory re gime spelled out in §112. EPA was also
required t o s tudy haz ards t o public health from h az ardous air pollutant emissions of
el ect ric utility steam generating unit s i n general; and, separately, t o report t o
Congress on mercury emissions from m aj or sources , i ncluding el ect ric utility steam
generating units. This s tudy, completed in 1997, concluded m ercury is a h az ard t o
public health; and it found that el ect ri c utility steam generating uni t s acco unt for1
about one-thir d o f the n ation’s m ercury emissions. On December 14, 2000, EP A


1 U.S. Envi ronmental Protection Agency, Mercury Study Rep o r t , EPA-452/R-97-003,
December1997.

announced its inten t i o n t o regulate u tility Hg emissions in 2004, with an effective
date of 2007 or 2008.2
Carbon diox ide i s a major greenhouse gas, and foss i l fuel fired electric
generating facilities account for about 36% of U.S. emissions. W hile CO2 emissions
are not currently regulat e d , t h e United S tates i s a signat ory of t he United Nation
Framework C onvention o n C limate Change, which involves a v o l u n t a r y c o mmitment
to hold greenhouse gas emissions to 1990 levels. At present, U.S. emissions of CO2
are running some 10% over t h a t g o a l .3 Further, the U.S. has signed the Kyoto
Protocol, under which the U.S. would b e l egally committed t o reduce emissions in
the 2008-2012 period by 7% from a baseline t hat i ncludes 1990 CO2 levels; however,
that Protocol has not yet been submitted t o t he Senate for advice and consent and is
not in force. Bu t i t remains possible t hat, beyond the already ex i sting voluntary goal,
utilities will be subject ed to emissions limits on CO2 at some time in the future.4
As described b elow, t his p atchwork of ex isting and p o t e n tial emissions
requirements applicable to fossil fuel fired el ect ric generating facilities has a direct
impact on strategic decisions concerning investment in new facilities as well as
operational deci sions with respect to the timing of m ai n t enance and s cheduling of
operation. At t h e s am e t ime, t he electric utility industry i s undergoing major
restructuring changes. P roponents o f change argue that the air quality requirements
add confusion and uncertai n t y t o a utility deci sionmaking environment already
challenged by new generating t echnology and new policies concerning competition
and economic regulation.
A rest ruct u red el ect ri ci t y generat i n g s ect or m ay h ave c o n s e q uences for
emissions: current electricity generating economics favor the continued operation o f
older, more polluting coal-fired facilities, at the ex pense of building newer, cleaner,
natural gas -fired facilities. Previous CRS anal ys is suggests t hat t he environmental
effects o f restructuring depend on how well the ex i sting regulat ory regimen will work
as the i ndustry s tructure changes. 5 It appears t hat pollutants controlled under
em i ssi ons caps, such as S O2 under t he acid rain title of the 1990 CAA Amendments,
would retain t heir efficacy regardless of the i ndustry’s s tructure. The robustness o f
emissions caps and the possible cost s avings that tradeable emissions credits provide
are s een by some as a b etter fit for a restruct ured industry t han t he current regu latory
system.


2 EPA, “Regulatory Finding on the Emi ssions of Ha za rdous Air P ollutants From Electric
Utility St eam Generating Units,” Federal Register, V ol. 65, no. 245 (December 20, 2000),

79825-79831.


3 J ohn E. Blodgett a nd Larry Parker, Global Climate Changes : R e d u c ing Greenhouse
Gases–How M uch f rom What Baseline? CRS Report 98-235 ENR. Updated J an. 29, 2001.
4 For a revi ew of U.S. gl obal c limate c h a n ge policy, see: Larry Parker and J ohn Blodgett,
Global Climate Change Policy: From “No Regrets” t o S. Res. 98, CRS Report RL30024,
January12.1999.
5 L a r r y Parker and J ohn Bl o d ge t t , El ectricity Restructuring: The I mplications for Air Quality,
CRS Report 98-615, updated J anuary 4, 2001.

Table 1: N ational Estimated Emissions from Fossil-Fuel, Steam-Electric U tilities — 1998
CO 2 NOx P M 10 SO 2 Hg
1000 %all 1000 %all 1000 %all 1000 %all to ns % a ll
sho r t so ur ces sho r t so ur ces sho r t so ur ces sho r t so ur ces so ur ces
to ns to ns to ns to ns
Elect ric U t ilit ies 2,209,287 36 6,103 25 302 11 13,217 67 43 ~33
Co al 1,911,627 5,395 273 12,426
Oil 100,895 208 9 730
Gas 195,868 344 1 2
Other/Internal 897 156 19 60
Co mb ustio n
iki/CRS-RL30878Sources: CO — DOE, Energy Information Administration, Electric Power Annual 1998, Vol. II, p. 42; NOx, PM ,
g/w2 10SO —EPA,National Air Quality and Emissions Trends Report, 1998 EPA 454/R-00-003 (March 2000), T ables A-4, A-6, a nd
s.or2
leakA-8 [ ht t p: / / www.epa.gov/ oar / aqt r nd98/ f r _t a bl e.ht ml ] ; Hg —“EPA Det er mi nat i on on M er cur y Emi ssi ons f r om El ect r i c-St eam
Generating Units,” text in Environment Reporter , V ol. 31, no. 50 (December 15, 2000), 2677-83.


://wiki
http

For m any years t he complex ity of the air quality control regime has caused some
observers to call for a s implified approach. Now, with the poten t i a l both for
additional control p rograms o n S O2 and NOx and for new cont rol s di rect ed at Hg and
CO2 intersecting with the t echnological and policy changes affecting t he electric
utility industry, such observers have become more numerous and are pushing more
strongly for a simplified approach.
Several s implifyi ng approaches have b e e n p r o posed, rangi ng from repeal of
various compo n e n t s of t he ai r pollution regulat ory s ys tem, to comprehensive
replacement o f t he “command and control” regu latory approach with some economic
m echani s m , whi ch i s o ft en t out ed as m o re effi ci ent and t ransparent . In t h e m i d -
1990s, EPA began i nvestigating t h e merits of a comprehensive approach to utility
emissions control. Called t he “C lean Air P ower Initiative,” t h e p u r p o s e was “t o
develop, in consultation with st akehol ders, an i nt egrat ed r e g u l at ory s t rat egy for
pollutants emitted from elect ric powerplants: s ulfur diox i de, nitrogen ox ides , and,
potentially, m ercury.” It was “a collaborative effort to seek new approaches to future
pollution control t hat cost l ess, rely on market mechanisms, and reduce t he number
and complex ity of requirements ....”6
As the effort evolved, a “multi-pollutant”or “four pollutants” approach has come
to the fore. This approach involves a mix of regu latory and economic mechanisms
that would apply t o u tility emissions of up to four pollutants – SO2, NOx , Hg, and
CO2 . The objective would b e t o b alance the environmental goal o f effective controls
a c r o s s t h e se pollutants with the i ndustry goal o f a stable regu latory regime for a
periodofyears.
During the 106th Congress, ten b ills were introduced to increase polluti o n
controls on el ect ric gener at i n g facilities.7 The pollutants t argeted under t hese bills
included S O2,NOx,Hg,andCO2. All of these bills involved s ome form of emissions
caps, and m ost i ncluded a tradeable cred it program t o implement that cap. W ith
President Bush endorsing a four pollutant emissions cap w i t h tradeable permits
program during t he campaign, attempts to address t he issue are possible i n t he 107th
Congress.8
Thi s report p roceeds b y (1) l ayi ng out t h e ex i st i n g regul at ory fram ework, wi t h
em phasis o n h o w it can affect strategi c and operational deci sions in the utility
industry; (2) i dentifyi ng the “drivers” for rethinking the way air pollution controls are
imposed on the i ndustry; (3) d escribing t he elements of a “four pollutants” approach;
and (4) discussing the ways t hat t his appr oach would affect the control o f emissions
and the i ndust r y’s decisonmaking. It concludes with a bri ef outline of l egislative
options for achieving the goal o f b alancing environmental and industry objectives.


6 “EPA’s Cl ean Ai r Power Initiative ( CAPI), Oc tober 22, 1996, at
[ h t t p : / / www.epa.go v/ capi / capi f s3.ht m]
7 Larry Parker, Electricity Restruct u r i n g a nd Air Quality: Comparison of Proposed
Legislation, CRS Report RS20326, updated J uly 26, 2000.
8 George W. Bush for President, Energy: Propose Legislation t hat Will Require Utilities t o
Reduce Emi ssions and Significantly Improve Air Quality, George W. Bu s h f o r President
Official Site: Issues, 2000.

The Regul ator y Framew ork: Utility Air Quality Regul ation
To understand the i nterest i n an i ntegrated approach to controll i n g u tilities
emissions of ai r pollutants, it is necessary to recogn iz e t he dive r s e r e q u i rements
imposed by the C AA. Within the general regu l a t o ry struct ure, several distinctions
arise t hat affect utility planning and operations – e.g., whet her t he facility is locat ed
in cl ean or dirty air areas , whether a facility is ex isting or new, and what fuel it burns.
A n d w hile the underlyi ng regu latory structure generally applies t o S O2, NOx , and
P M , t he speci fi c requi rem ent s for each di ffer.
National Ambient Ai r Q uality S ta ndards – New Source Performance
Standards – Low est Ac hievable Emissions Ra te . As enacted in 1970, the
CAA established a two-pronged approach to protect and enhance t he quality of the
nation’s air. First, t he Act establi s h ed National Ambient Air Quality Standards
(NAAQS), which s et limits on the l evel of speci fied air pollutants i n ambien t air.
Second, the Act required n ational emissi on limits to be set for major new polluting
facilities; these are called New Source Perform ance Standards (NSPS).
NAAQS have been established for six pollutants, including S O 2, NOx , and P M .9
U n d e r t he law, EP A s ets p rimary NAAQS to protect the public health with an
“adequate margin of safety.”10 EP A p e r iodically reviews NAAQS to take into
account the m ost recent h ealth data. NAAQS are federally enforceable with specific
deadlines for compliance, but state s a re p rimarily responsible for actually
implementing t he s t an d a rds, through devel opment and enforcem ent of S tate
Im pl em ent at i o n P l ans (S IP s ) . In general , t hese plans focus on reducing emissions
from ex i sting facilities t o t he ex tent necessary to en s u r e t h a t ambient l evels o f
pollution d o not ex ceed the NAAQS .
For areas not in attainment with one or more of these NAAQS, t he 1970 CAA
mandates s tates t o require new s ources to install Lowest Achievable Emissions Rate
(LAER) technology. Along with offset rules, LAER ensures t hat overall emissions
d o n o t i n c r ease as a result of a n ew plant's operation. LAER is based o n t he most
stringent emiss i on rate of any state implementation plan or achieved i n practice11
without regard to cost or energy use. Ex isting s ources in a non-attainment area are
required t o i nstall Reasonably Avai l a b l e C ontrol Technology (RACT), a s tate
determination bas ed on federal guidelines .
The 1970 CAA also established New Source Performance Standards (NSPS),
which are emission limitations imposed on designat ed cat egories of m aj or new (or
substantially modified) s tationary sources of air pollution. Fo r fossil fuel fired


9 “Secondar y” NAAQ S , a l s o nat i onwi de s t a ndar ds, pr ot ect “wel f a r e ” val ues, such as
vi sibility and agr icultural productivity. There is no specific deadline f o r a c h i e ving
secondaryNAAQS.
10For a further discussi on of NAAQS standa rd-s etting, see: J ohn Blodgett, Larry Parker, and
J ames McCarthy, Air Quality Standards: The Decisionmaking Process , CRS Report 97-722
ENR.
11 LAER ma y not be l e ss st r i ngent t han NSPS, descr i bed bel ow.

el ect ric generating facilities, EPA has set NSPS for S O2, NOx , and P M 10,andis
required b y t he Act t o review t he standards e v e ry eigh t years. A n ew source is
subject to NSPS regardless of its location or ambient ai r conditions.
In summary, u n d er this overall regu latory regimen, ex isting s ources in non-
attainment areas are s ubject to controls determined by the s tate as necessary to meet
NAAQS ; ex i sting s ources are essentially free from controls in attainment areas. And
major new sources , i ncluding fossil fuel fired el ectric generating facilities, are s ubject
to NSPS as the minimum requirement, anywhere.12
Prevention of Significant Deterioration – New Source Re view – Best
Available Control Technology. The 1977 CAA b roadened the air quality
control regimen with the addition of t he Prevention of S ignifican t Det erioration
(PSD) and visibility impai rment provisions. The PSD program (Part C of t he CAA)
focuses o n ambient concentrations of SO2, NOx , and P M i n “cl ean” ai r areas of t h e
country (i.e., areas where air quality is better t han t he NAAQS). The p rovision
allows some increas e i n clean areas ’ p o llution concentrations depending on thei r
classification. In general, historic or recreat i o n areas (e.g., na t i o n a l p a rks) are
cl assified cl as s 1 with very little degradation allowed while most other areas are
cl assi fi ed cl ass 2 wi t h m oderat e degradat i o n al l o wed. S t at es are al l o wed t o recl assi fy
Class 2 areas to Class 3 areas, which would be permitted t o degrade u p t o t he
NAAQS . 13 New s ources in PSD areas must undergo preconstruction review (called
New S ource Review or NSR) and m ust i ns t a l l Best Available C ontrol Technology
(BACT) as the minimum l evel of control. Stat e permitting agencies det ermi n e
BACT on a case- b y-case b asis, t aking i nto account energy, environmental and
economic impact s. BACT cannot be less stringent t han t he federal NSPS, but it can
be more so. M ore s tringent controls ca n b e required i f m odeling i ndicates that
BACT is insufficient t o avoi d v i o lating PSD emission limitations, or t he NAAQS
itself.
A c o m p l e m e n t t o t he PSD program for ex isting s ources is the regional h az e
program (section 169A) t hat focuses on “prevention o f any future, and the remedyi ng
of any ex i sting, impai rment of v i s i b i l ity” res ulting from m anmade ai r pollution i n
nat i onal p arks and wi l d erness areas.14 Among the pollutants t hat impai r visibility are
sulfat es , organic matter, and nitrat es . Ex i sting s ources are required t o i nstall Best
Available R etrofit Technology (BART). In 1999, the EPA promulgated a regi onal
haz e program, which would entail m ore s tringent controls on NOx and S O2 .
With a compreh ensively regulated electric utility industry, the above regime
resulted i n s ignificant reductions in pollutant emissions, par t i cularly from new


12 The federal focus on new facilities arose from several factors. First, it is generally less
expensive t o design i nto new construction necessary control f eatures than to retrofit those
features on existing f acilities not designed to in corporate t hem. Second, uniform standards
for new construction ensures that indivi dual s tates will not be t e mp ted t o s lacken
envi ronmental control r equirements t o compete for new industry.
13None have been reclassified to Cl ass 3, however.
14See J ames McCarthy, et al., Regional Haze: EPA's Proposal to Impro ve Visibility in
National Parks and Wilderness Areas , CRS Report 97-1010, updated J uly 9, 1998.

sources. However, environmental and ec onomic factors h ave evolved over t he past
thirty years t hat ex pose cracks and discontinuities i n t he regime. Environmentally,
i t becam e i ncreasi n gl y cl ear t h at ecol o gi cal effect s w ere o ccurri ng at pol l u t ant l evel s
bel o w t hose n ecessary t o prot ect hum an heal t h . T he cl assi c ex am p l e i s aci d rai n, i n
which t otal p o l lutant loadings are m ore important that am bient concentrations.
Economically, t he requirements o n n ew sources were proving to be a s trong incentive
for t h e “l i fe ex t ension” of older, ex isting facilities t hat could operate more
inex pensivel y but which were emitting pollutants at higher rat es than new facilities. 15
Ac id Ra in – S ta tutory S O2 Cap a nd Allow a nce Trading System. To
address acid rain, tit le IV of the 1990 CAAA established a new control regime
essentially independent of the NAAQS -NS P S processes. In s t ead of the NAAQS -
based focus on accept abl e am b i ent concent rat i ons of a pol l u t ant enforced on a p l ant -
by-plant basis, title IV establishes a cap and t rade scheme that limits SO2 (the primary
precursor of acid rain) emissions more st ringently than NAAQS levels. (Although
total emis s i o n s , not am bient concentrations, b ecome the focus of reductions,
concentrations are s till limited b y NAAQS, so “hot spots” are p revented). Such an
approach is appropriate where regional, national, or gl obal l oadings o f a pollutant
reaches critical levels despite acceptable l ocaliz ed e f fects. The ability to trade
em i ssi on ri gh t s i n creases t h e eco nom i c effi ci ency of t h e s ys t em and, assum i n g
rigorous monitoring, s implifies enforcem ent.
Title IV al so required reductions in N O x emissions. However, i n contrast the
SO2 cap and t rade pro g r am , t h e NOx program s et perform ance st andards b ased on
low-NOx burner t echnology o n a boiler-speci fic basis for faciliti es af fected by the
SO2 requirements.
Stat utorily, t hen, the air quality control requirements imposed on fossil fuel fired
el ect ric generating facilities can be summarized as shown i n t able 2.
Pendi ng and Prospective Utility Air Quality Controls
The p receding s ection outlined the air quality controls that have directly affected
fossil fuel fired el ect ric generating facilities. Continuing developments in
understanding of the effects o f d ifferent pollutants, especially of SO2 and NOx , both
individually and i n c o m b i n a tion, are h ei gh tening concerns about the adequacy of
ex isting controls. Issues incl ude continuing di fficulties i n m eeting t he ozone
NAAQS, h ealth effects o f fine p articulates , impaired visibility, and gl obal warming.
Thes e concerns are driving new i nitiatives to increas e controls at ex isting s ources of
thes e pollutants. As a res ult, more ai r quality controls o n u tilities are pending or
prospective. At the s am e time, t he increas ingl y complex and i nteractive s tructure of
the air quality control regime is raising questions about the ef f ect i v en ess and
economic effici ency of the i ndividual i nitiatives .


15See Larry Pa r ke r and J ohn Blodgett, El ectricity Restructuring: The I mplications for Air
Quality, CRS Report 98-615 ENR, updated J anuary 4, 2001.

Table 2: Simplified Summary of Air Quality C ontrol
Requirements f or Electric Generating F acilities
Attain men t Area Non a ttain men t Area
New S ou rce NSPS (PM10,SO2, NOx ). NAAQS -LAER as d etermined
by individual s tates; can not be
PSD-BACT, as determined less stringent t han t he federal
by individual s tates; can NSPS. Offset rules also apply.
not be less stringent t han
federal NSPS. Increment
rulesalsoapply.
Aci d R ai n – o ffset s for al l S O 2 emissions must be obtained
through t he allowance t rading system.
Existing No general federal NAAQS -RACT as d etermined
Source requirements, ex cept: by individual s tates under
BAR T required i n areas federal guidelines.
affect ed by visibility
provisions.
Acid Rain – S O2 emission limits speci fied for facilities over
25 Mw; allowable emissions mayb e t raded o r b anked
through an allowance t rading system . Title IV provisions
incl ude NOx emissions limits.
Health and E nvi r onmenta l Concerns Driving New Ai r Q uality
Initiatives. Achieving t he NAAQS for certain pollutants (particularly oz one), has
called for new control regimes. EPA’s NOx SIP C all i s an ex ample of one such
approach. 16 Under t he SIP C all, the affected states are given emission budgets t hat
they can achieve in whatever manner t hey choose. Noting t he regi onal n ature o f t he
ozone problem in the eas tern U.S., EPA is strongly encouraging s tates t o implement
the rule t hrough a cap and t r a de program. As the o z one problem is seasonal, the
controls are only for the s ummer m ont hs. This s easonal requirement may b e
adequate for m eeting t he oz one NAAQS , but may not fall short i n addressing other
environmental concerns (fine particulat es and visibility, for ex am ple). M oreover, this
oz one control regime is based o n EPA regu lation, whereas the ac i d r a i n control
regime is statutor y. A s a result, the o z one requirements are subject to some
uncertainty, i n particular the potential cap and t rade provisions for NOx which would
be implemented by states individually.


16For f urther information on t he NOx SIP C all, see: Larry Parker and J ohn Bl odgett, Ai r
Quality: EPA’s Ozone Transport Rule, OTAG, and Secti o n 126 Petitions – A Hazy
Situation? CRS Re port 98-236 ENR. For r ecent acti v ities, see: Larry Parker and John
Blodgett , Air Quality and El ectricity: I nitiatives to Increase Pollution Control , CRS Re por t
RS20553.

Along with the pending NOx controls resulting from t he continuing difficulties
in meeting t he oz one NAAQS, c oncern h as been growing about the h ealth and/or
environmental impacts o f m er cury and greenhouse gases.
Under t he 1990 CAAA, mercury was listed as a tox i c air pollutant under S ection
112. This requires EPA to set s tandards for sources of Hg that achieve “the
max imum d egree o f reduction i n emissions” t aking i nto account cost and o ther non-
air-quality factors. These M ax imum Achievable C ontrol Technology (M A C T)
requirements for new s ources “shall not be less stringent t han t h e m o s t s t ringent
emiss i o n s l evel t hat i s achieved i n practice by t he best controlled s imilar s ource.”
The s tandards for ex isting s ources may b e l ess s tringent than those for new s ources,
but must be no less stringent t h an t he emission limitations achieved by t he best
performing 12% of ex isting s o u r ces (if there are more than 30 such sources in the
cat egory o r s ubcat egory).
As previously noted, EP A s t ated on December 14, 2000 that it would b e
regulating utility emissions of Hg. However, t he ex act form those regulations will
take remains t o be s een.
The possibility of carbon diox ide emission controls is less cl ear. No federal
policy currently imposes a control p rogram on CO2 em issions, but gl obal climate
change concerns seem to be growing. If such a policy were t o b e adopted, u tilities
would b e among the m ost affected sectors. The p rospect of controls is underlined by
a p rovision o f the C AAA of 1990 (§ 821), which requires t he monitoring of
greenhouse gases, and a p rovision of the 1992 Energy Policy Act (§ 1605(b)), which
provides a mechanism for reporting vol untary reductions in greenhouse g a s es.
Electricity projects account for h alf t he voluntary reductions that have been reported
under § 1605(b). 17
These s everal concerns – em i ssi ons of S O2 and NOx , o z one nonattainment and
fine particulates, and mercu r y and gl obal warming – introduce uncertainty and t he
prospect of new l aye r s o f a i r p o llution controls. As m ajor sources of emissions of
thes e pollutants, fossil fuel fired el ect ric generating facilities t hus have a particular
interest in the outcome of these i nitiatives, which are summarized i n t able 3.


17The Greenhouse Gas Volunteer , V ol. 6, no. 3 ( Dec. 2000).

Table 3: Pending and Potential Controls on Existing Sources
Pollutant Potential C ontrols on Ex isting S ources
Nitrogen Ox ides Title IV, s ec. 407
Oz one Transport C ommission (OTC) R ules
Oz one Transport R ule
Section 126 Petitions
Revised Oz one NAAQS
Fine P articulate NAAQS
New S ource R evi ew Enforcem ent
Regi onal Haz e R ule a
More stringent Legislation
Sulfur Ox ides Title IV
Fine P articulate NAAQS
New S ource R evi ew Enforcem ent
Regi onal Haz e R ule a
More stringent Legislation
Mercury EPA regu lation as a HAP
NEActionPlanonMercurya
Potential Legislation
Carbon Diox ide U.N. Framewo rk Convention on C limate Change
Potential ratification of Kyoto Agreem ent
Potential Legislationa
a For i nformation on l egisla t i ve proposals r elating r estructuring to envi ronmental
controls, s ee Larry Parker and Amy Abel, Electricity: The Road Toward Restructuring ,CRSth
Issue Brief IB10006; for i nformation on l egislation t hat was proposed in the 106 Congress,
see Larry Parker, El ectricity Restructuring: Comparison of Comprehensive Bills, CRS
Report RL30087 and Larry Parker, El ectricity Restructuring and Ai r Quality: Comparison
of Proposed Legislation, CRS Report RS20326, updated J uly 26, 2000.
Economic and Regulatory Drive rs Affecting P erspectives on Ai r
Quality Controls. The control m easures n eeded to address t hese environmental
concerns h ave emphasiz ed t he basic economic decisions made in 1970. Fi rst, the
1970 CAAA created an economic bias i n t h e s ys tem b ecause ex isting s ources can
often achieve compliance with i t s provisions at l ess cost t h an new s ources. It was
percei ved t o b e m ore econom i cal l y effi ci en t t o require the m ost s tringent control o n
new s ources while gi ving states discretion t hrough t he SIP p rocess t o require ex isting
sources to retrofit controls only when, and t o t he ex ten t , n eces s ary. This situation
was not changed b y t he addition o f m arket m echanisms in the 1990 CAAA. Under
t h e aci d rai n p rovi si ons, ex i st i n g s ources were al l o cat ed credi t s based o n a reduct i o n
requirement less stri ngent t han t he current NSPS, while new sources were allocat ed
no credits at all. This disadvantage m ay not have been particularly sign ificant during
a time when el ect ric utilities were comprehensively regulated and new s ources were
needed to meet increas ed el ect ric dem and. However, in the emerging competitive
electric s upply m arket, the b ias arguabl y d iscriminates against n ew entrants as



ex isting s uppliers have the advantage o f l es s s tringent control requirements and a
pool of free emission credits.
Economic bias has also b ee n created on a regional b asis. For ex ample, under
the 1990 CAAA, an Oz one Transport R egio n was created among 12 northeastern
stat es (and the District of C olumbia). In t his region, it is virtually impossible for an
individual s tate to achieve the o z one NAAQS because of interstate movement of air
masses. Among the control m echanisms t o reduce t he regi on’s o z one load, t hese
states have instituted s ignificant NOx cont rols not required i n n eighboring s tates, and
11 of the s tates (and t he District of Columbia) have j oined i n a regi onal NOx trading
system. These regi onal o z one controls impose costs not borne by other s tates.
Second, the m ix ture of control requirements, standards, and m arket m echanisms
has complicated corporate p lanning with respect to renovating ex i sting capacity and
building new capaci t y. Uncertainty with respect to planning is increasing with the
possibility of new pollutants bei ng added ( e.g., carbon diox ide and mercury), and
with potentially conflicting control regimes for ex isting pollutants. For e x ample,
EPA’s NOx SIP C al l requiring pollution controls in the eas tern U.S. is based on
oz one concerns. T herefore, t he controls are onl y i n p l ace for t he season of t h e year
that oz one is a p roblem (i.e., May-Septem ber). However, potential fine p articulate
NAAQS implementation s trategies would i nvolve year-r ound NOx controls.
Compliance s trat egies t hat might be optimal for a s eas onal program might not be the
strategi es of choice under a year-round cont rol regime. Thus, a utility may find itself
having to make an ex pensive mid-course correction, or living with a s ub -o p t i m al
com p l i ance s chem e, because of changi ng regu l at o ry requi rem ent s.
Third, the m arket forces unleashed b y el ectricity r e structuring are providing
impet us t o companies’ desires for flex ibility in complying with environmental
standards, and for what they see as a level playi ng fiel d bet w e en competitors.
Producers of newer “cl ean el ect ricity” wants thei r competitors to meet the s am e or
equivalent standards t hat t hey h ave h ad t o m eet . A l l producers w ant m ore cert ai n t y
in terms of t he standards t hey are likel y t o s ee imposed in the near to mid term.
Al ter nati ve: The Four Pol l utant Str a tegi es
With the prospect of new l ayers of complex ity being added t o air pollution
controls and with electricity restructuring putting a premium o n economic efficiency,
it is not surprising that interest in finding mechanisms to achieve thes e new health
and environmental goals in simpler, more cost-effective ways has been on the rise.
Taking t h e a cid rain p rogram – widely v iewed as h ighly s uccessful both i n
controlling emissions and i n economic efficiency – as a model, the p roposed “multi-
pollutant” approach would establish a c onsistent framework of e m i s sions caps,
implemented through emissions trading. J u st how the p roposed approach would fit
with the current (and proposed) d iverse regulatory regimes remains to be worked out;
t h ey m i ght be repl aced t o t h e great est ex t ent feasi b l e, o r t hey m i ght be overl ai d b y t he
framework of emissions caps. The key assumption o f t h i s approach is that the
current process o f addressing pollution problems o n a sequential, pollut a n t - b y-
pollutant basis can be superceded with a coordinated and integrated national p rogram
that would s tabilize requirements for a number of years.



S u ch an approach t o powerpl ant em i ssi ons wo u l d h ave s everal t radeoffs.
Overall, the primary tradeoff is ex changi ng regulatory and economic uncertainty for
short t o mid-term certainty.
The environmental advantage of t his approach is the probability that emission
reductions would o ccur ea r l i e r t h a n under t he current regu latory process. If the
current aci d rai n p rogram i s any i ndi cat i on, a l egi s l at ed cap and t rade program coul d
result in earlier emission reduct i o n s than the current, o ften adversarial regulatory
process. Challenges to the s ys tem, a n d r e s u l t i ng delays , might be reduced under a
cap and t rade system. The potential envir onmental d isadvantage would b e t hat any
reduction t arget agreed to might be frozen for a s peci fic period of time. Arguably,
however, i t could be eas ier (administrativel y or s tatutorily) t o reduce an emissions
cap in the future a f t er the agreed upon time has ex p ired than to develop a new,
potentially o verlapping regulatory scheme as would be currently the cas e. For
ex ample, many proposals t o further reduce S O 2 emissions simply cal l for a reduction
in the current title IV cap, rat her t han t he development of new control s tructures.
Economic anal ys is project s t hat implementing emission caps t hrough emission
trading would reduce costs by a s ignificant amount, although t he actual s avings that
might be realiz ed is debatable. Fo r i ndustry, a cap and t rade system could not only
save costs directly, but would likel y reduce uncertainties with respect t o utility
responsibilities and potential penalties, thus allowing the i ndustry t o plan for the
future in the contex t of a more coherent regulatory regime. Finally, a flex ible cap and
trade p rogram might open t he door for reforming o r replacing the current, s ometimes
burdensome, NSR/PSD permitting process. Speci fically, t he cap and t rade programs
might be coupled with a s treamlined permittin g process along the line of t he Title V
permitprogram.
A d i s a d v antage o f emissions caps would b e t he possibility that unnecessary
emission reductions could b e requir e d . E mission caps could overshoot the m ark,
resulting i n unnecessary costs. 18 Also, t he certainty of reductions cou l d a l s o result
in costs b eing incurred earlier t han wou l d b e the case under t he current system.
Fi nally, m ost p roposals for a cap and t rade system do not eliminate t he requirement
to protect local air quality, s o m echanisms to ensure NAAQS would not be ex ceeded
locally – s uch as s ome s ort o f t rading restrictions – might be imposed.19
Specific Pollutant Issues
Although t he four pollutant approach calls for a coordinated cap and t rade
system to supplement, and, in some cases, replace the ex i sting s tructure, t he resulting
caps would not necessarily be the s ame. Each pollutant presents unique issues with


18Howeve r, the CAA assume s t hat a c h ievi ng levels of air qua lity cleaner than NAAQS is
intrinsically good, as it p r o vi d e s a greater margin of safety, l eaves more room for f uture
development, and discourages sources from “shopping” f or clean air areas to pollute.
19Such constraints exist in existing t rading situations: see Barry D. Solomon and Russell
Lee, “Emi ssions T r ading Sys tems and Environmental J ustice,” Environment , V ol 42, no. 8
(October 2000), p. 41.

respect t o basel i n es, al l o cat i o n s chem es, reduct i o n t arget s , and compliance measures.
Sulfur Dioxide. Utility emissions of sulfur diox ide are the only pollutant of
the four identified here t hat i s currently contro l l ed with a cap-and-trade s ys tem.
S p eci fi cal l y t arget i n g aci d rai n concerns, t hi s cap and t rade syst em i s l ai d on t o p o f
a number of regulat ory s chem es (as illustrated i n Table 1A in the appendix ). W hen
enacting t he title IV aci d rai n provisions, C ongress did not remove any ex i sting
provisions with respect to utility SO2 emissions, ex cept for an ambiguous repeal of
the p ercent reduction requir e m e n t (ambiguous in that the repeal prohibits any
backsli d i n g). T h u s, i n one sense, title IV is little more than another pat ch in the
cu rrent patchwork t hat constitutes current ai r policy.
However, in terms of m echanics, the S O2 program p rovides a working ex ample
of how a s ys tem employi ng emission caps and t rades can operat e successful l y. By
just about any criterion – economic, environmental, implement ation – t he program
has m et or ex ceeded its go als. Economically, t he S O2 program i s costing about $1
billion annually. This i s s ubstantially below EPA’s costs estimates i n 1990 of $2-$4
billion annually, and an order o f m agnitude lower t han t he $10 billion annual cost
estimate provided by t he utility industry. Environmentally, reductions achieved from

1995-1999 have ex ceeded the m andated t arget b y b etween 23% (1997) and 40%20


(1995). In terms of implementation, compliance with the p rogram has b een 100%,
with no delays in implementation of t he SO2 program.
Thus the current SO2 program might be seen as a good model for developing a
coordinated pol i cy for more stringent control of utility ai r emissions – both of S O2
and potentially of other pollutants. The model i ncludes an established b aseline (1990
emissions) with a credible i nventory and continuous monitoring system. The trading
mechanics, incl uding the automatic tracking s ys tem, outside brokers, and banking,
are wel l established and functioning effici ently. The permitting, monito ri n g, a nd
enforcement p rovisions are well-understood. In theory, t o m ore s tringently control
SO2 the overall cap and i ndividual allowance v alues would s imply need to be reduced
by an agreed upon percentage.
It is possible t hat m ore s tringent control could ex pose difficulties w i t h t he
current system that have no t s h o w n u p . Fo r ex ample, a more stringent p rogram
would i ncrease t he value o f allowances and m ake i ssues o f e conomic bias more
transparent, both regionally and bet ween competitors. The allocation s ys tem for the
1990 CAAA title IV program was a h ard-fought compromise. It was also arrived at
during a time when non-utility emissions were minor. S chemes design ed to protect
new competitors have proven unnecessary, a s allowance p rices have remained low.
High er valued a l l o w a n ces could change all that. Under t he current system, n ewly
const ruct ed power pl ant s recei ve no al l o cat i o n o f al l o wances; i nst ead, n ew sources
must obtai n any necessary allowances from owners of ex i sting facilities on t he open
market or through t he EPA-sponsored auction. In either case, a m ore s tringent cap
would m ake t his p rocess m ore ex p ensive.


20U.S. Envi ronmental Protection Agency, Acid Rain Program: 1999 Comp l i a n c e Report ,
EPA-430-R-00-007, J u ly, 2000. p. 22.

Opening t he allowance allocation s cheme t o revision could i nvolve a p rotracted
debate between the d ifferent interest groups. Both b aseline i ssues and d istribution
issues would b e i nvolved. The current syst em provides free allocation o f allowances
to ex isting facilities b as ed on a 1985-87 database and a legi slated emissions rate.
Alternatives range from a new s ource pool of free allowances to wholesale auctions
to allocat e all allowances . Any deci sion made with respect to SO2 al l o wances coul d
spill over i nto any NOx , Hg, or CO2 al l o cat i o n s chem e.
Nitrogen Oxides. NOx illustrates m an y o f t he concerns driving t he cu rrent
interes t in a four pollutant strategy. As i ndicated in Table 2 A i n t he appendix , the
multiple effects resulting from NOx emissi ons have led t o t heir control under s everal
di fferent part s o f t h e C AA. Ni t rogen ox i d es, bot h d i rect l y and b ecause t h ey
contribute to formation of ozone, raise hum an heal t h and envi ronm ent al concerns t h at
bring t hem under t he purview of the C AA. In addition, nitrogen ox ides are
precursors of fine p art i c u l at es , which are s uspect ed of significant human mortality
and m orbidity effects. Environmental concerns about NOx emissions include its
transformation i nt o nitric aci d, a component of acid precipitation; visibility
impairment; and known effects o f o z one on plant life.21 In addition, EPA estimates
that up to 40% of the nitrogen “l oading” i n t h e C h esapeake Bay, res ulting i n
ex ces s i v e n u t ri en t e n r i c h m en t , i s t h e r es u l t of depositio n o f a i r-b o r n e n i t r o gen o x i d es .
For proponents of a four pollutant strategy, this discovery of one effect after
another for NOx , res ulting i n one regulation after another, illustrates t he need for a
more stable and coherent regime. However, each component of the ex i sting s tructure
has emerged from a set of negotiations and compromises; imposing a new s tructure
could likely d i s r u p t a greed-upon outcomes, and k eeping all stakeholders whole
woul d b e v ery d i ffi cul t .
Under title IV of the 1990 CAAA, a continuous monitoring network h as been
set u p t o m easure NOx emissions at the s tack. Thus, i nventories and monitoring of
NOx emissions are not problems i n d evelopi ng a NOx cap and t rade program. There
i s al so som e ex peri ence i n t radi n g NOx credi t s , t hanks t o t h e Oz one Transp o r t
C o m m i ssi on’s t r a d i n g r egi m e for t he el even nort h east ern st at es (pl u s D.C .).
Ex perience there s uggest a m o r e volatile market than for t he larger 48 stat e S O2
market . Interes t i n t he market has s pawned outside brokers to facilitate trades in the
Northeast.
However, the regional n ature o f curre nt NOx m arket s m ay present p robl em s
for a national cap and t rade program. This situation will not necessarily be improved
by implementation of EPA’s Ozone Trans port R ule (NOx SIP C all). Under t he SIP
process, EPA does not have the authority to require that individual s tates employ
com p at i b l e cap and t rade syst em s t o i m p l em ent t h e r u l e; or even t o use a cap and
t r a d e p r o gr am at all. EPA h as provided guidance t hrough a model cap and t rade


21 For a discussion of ozone and acid precipitatio n effects on vegetation, see Shriner, David
S., e t . al . Res pons e o f Vegetation to Atmospheric Deposition and Air Pollution: State of
S c i e nce and Technology Report 18. Washington, D.C.: National Acid Precipita t i o n
Assessment Progr am, December 1990.

program. And i t h as proposed Federal Implementation P lan (FIP)22 requirements as
to what kind of cap and t r a d e program i t would feel appropriate to implement the
rule. However, s tates are free t o i gnore E PA’s model rule, and comply with the NOx
SIP C al l i n any fashion t hey believe appropriate to thei r s tate’s conditions.
Besides t his l ack of uniformity, ex i sting and potential future NOx regulat o ry
regimes creat e other difficulties . Some of thes e difficulties res em ble t hose
surrounding SO2 regu l at i on. Devel opi ng an accept abl e al l o cat i o n s chem e woul d b e
at l east as d i ffi cul t as i t was f o r t h e S O 2 Title IV program. Indeed , i t m ay be more
cont ent i ous because NOx al l o wances woul d pot ent i al l y be m o re e x p e n s i v e t o buy
than SO2 allowances. Over t he past year, S O2 per t on allowances have run i n t he
range o f $150 or less. In contrast, NOx allowances und e r t h e O T C program h as
fl uctuat ed between $500 and $1000 each. A l arger m arket m i ght reduce t he pri ce
instability in the current OTC m arket, but the clearing price is still likel y t o be higher
than the current SO2 price. This situation might be of particular concern t o new
competitors in the generation m arket who would object to any allocation s chem e t hat
grandfat hered ex i sting facilities at t heir ex pense – i.e., t hat allocat ed free allowances
to ex isting facilities but not to future ones.
However, other d ifficu lties are unique to the d ev el opmen t o f NOx regu lation.
A m a j o r p r o b l em is the current focus o n NOx as precursor to oz one, which results
in it being t reat ed as a regional, not national p roblem. Efforts t o control NOx have
concent rat ed on t h e nort h east and C al i fornia, where t he oz one problem is most acute.
EP A’s NOx S IP C al l covers onl y t he east ern 21 st at es and D.C . Li k ewi s e, because
oz one is a s ummer pollutant, a second major p roblem is t h a t controls are only
required during t he summer s eason ( M a y-S eptember), not year-round. W ith other
environmental concerns, s uch as fine p ar ticulates and v isibility calling for year-round
controls, confusion with respect to appropriate control s trategies i s common. W ould
a new regime have any obligation t o provi de a t ransitional p eriod t o p o l l u t e r s w h o
in good faith installed s eas onal controls, only t o h ave t he rules change d b y f u rther
regulation?
Layi ng a n ati o n a l f o u r-pollutant strategy over t hese individual p rograms i s
problematic . The Northeast h as a working cap and t rade program for the s ummer
months. M uch o f t he rest of the East would b e i ncorporated into a s ummer p rogram
under t he NOx SIP C all, which m ay or may not include cap and t rade. C alifornia h as
its own control p rogram with NOx credits. M uch o f t he rest of the country only h as
speci al NOx controls as required b y t he low-NOx burner requirement of title IV.
How could t h ese diverse elements b e i nt egrated i nto a national cap and t rade
program ? The d evel opm ent o f an al l o cat i o n s chem e t hat d eal s equi t abl y wi t h t h ese
elements within acceptable time frames would b e a t remendous challenge.
Me rc ury. While not currently regulated, utility em i s s i ons of Hg are
prospective. While SO2, P M, and NOx are regulated under t he NAAQS process, Hg


22The CAA provides that EPA ultimately i mpose a FIP i n any state which fails to implement
an adequate SIP. For details on the proposed NOx FIP, see Larry Parker and J ohn Blodgett,
A i r Quality: EPA’s Ozone Transport Rule, OTAG, and Section 126 Petition – A H a z y
Situation? CRS Report 98-236 ENR, pp. 14-16.

would b e regulated as a t ox ic air pollutant under t he haz ardous air pollutants s ection
of the C AA (§ 112), which would require max imum achievable control t echnology
(MACT). M oreover, Hg regu lation wou l d b e s t arting from a more rudimentary
position t han regulation of S O2,PM,andNOx.
Despite thes e challenges , EPA has s tated i t will be regulating Hg i n t he nex t
few years; thus its inclusion i n a four-pol l u t ant st rat egy seem s reasonabl e. The l ack
of e x p e r i e n ce in regu lating Hg i s reflected in proposed four-pollutant strategi es.
Some proposals s imply defer t he decision and implementation s trategy t o EPA; s ome
require MACT on a unit-by-unit b asis; and others would allow a trading s ys tem
under an emissions cap ranging from 70% to 90% reduction.23 At a 90% reduction
cap, Hg allowances are likel y t o be very ex pensive, s o t he initial allocation of
al l o wances woul d b e a cri t i cal st ep i n fi ndi ng any accept abl e s t rat egy. Besi des
starting from n ear z e ro , a ny Hg trading system would also have t o devel op market
institutio n s , i n c l uding tracking, trading and other m echanisms to ensure a s mooth
workingmarket.
Carbon Dioxide. Ex cept for requiring utility monitoring of emissions, C O 2
is not controlled under t he CAA, and controversy ex i sts as t o whether CO2 should be
considered a pollutant at all. The s lim chance that the regulatory regime adopted at
Kyoto would be ratified by t he Senate co n t ributed to the C linton Administration’s
refusal t o even submit the t reat y t o t hat body. At t he same time, the count ry i s
obligated under t he 1992 United Nations Framework C onvention o n C limate Change
(FCCC) to pursue strat egies with the goal of m ai ntai ning CO2 emissions at their 199024
levels. Current CO2 emissions are about 10% above their 1990 levels.
In the face of scientific uncertainty, t he focus o f U . S . d eb at e on a climate
change po l i c y c a n b e cat egori z ed by t h e t hree-C s : (1) cost (t he i m p act on t h e
economy); (2) competitiveness (impact of U.S. gl obal competitiv en ess); and (3)
comprehensiveness (desire for a level p layi ng field for all countries). Consensus i s
difficult because of the wide range of cost estimates p resented. A CRS survey of 17
costs estimates for the Kyoto Protocol resulted i n a range o f b etween $23 and $34825
ametricton of CO2 removed. Such an order o f m agnitude difference m akes
consensus d i ffi cul t .
Several fact ors can both l ower the cost and reduce t he range of cost estimates
presented above. One major factor in producing t he $23 - $348 range i s assumptions
made about the viability of emissions trading under Kyo to. C O 2 reduction cost
estimates for gl obal emissions trading scenarios are in the ran ge of $23-$50 a ton.
However, serious questions have been rais ed as t o whet her t he t radi n g m echani s m s
embodied in the Kyo to Protocol could p roduce t he cost savings s uggested by some


23For proposals i ntroduced in the 106th Congress, see: Larry Parker, Electricity
Restructuring and Air Quality: Comparison of Proposed Legislation , CRS Report RS20326.
24See J ohn Blodgett a nd Larry Parker, Global Climate Change: Reducing Greenhouse Gas e s
– How Much from What Baseline? CRS Report 98-235 ENR.
25Larry Parker, Global Climate Change: Lowering Cos t Estimates through Emiss i o n s
Tr ading – Some Dynamics and Pitfalls , CRS Report RL30285.

studies.26 Some of the t hese objections could b e s w e p t away under a properly
designed four-pollutant strategy as its purpose would not necessari ly be to comply
with, or be compatible with, Kyoto. Indeed, s everal of the four-pollutant strategi es
proposed in the 106 th Congress chose t he FCCC 1990 stabilization t ar get f o r t heir
CO2 cap, not the Kyo to reduction requirement.
Setting a CO2 reduction t arget under a four pollutant strategy would b e a very
contentious issue. CO2 emissions from electric generation have risen about 23% from
1990 to 2000. A d d t o t his an additional 19% for i ncreased emissions anticipated
between 2000 and 2010, and a reduction requi rement back to the FCCC target would
be a s ubstantial undertaking. However, the cost would b e l ess t han i f t he additional

7% required b y Kyo to was added to t he reduction requirement.


Several o f t he building b locks for a C O2 cap and t rade program are i n pl ace.
There i s an established b aseline (1990), and a c r e d i b l e i nventory for powerplant
emission s . Continuous monitoring is required for powerplants under t he 1990
CAAA. There i s s ome ex p erience with intern ational emission credits thanks to the
J o int Implementation p rogram pioneered by the U.S. i n t he mid-1990s. The issues
of baselines for i nternational p rojects and domestic allocations would be contentious,
but there i s not the b aggage included i n t hose i ssues that there i s with NOx control.
The advantage o f C O 2 not having been controlled i s t hat policym akers can begi n with
a p ret t y cl ean sheet . 27
Integrative Effects of M ulti-Pollutant Strategy
The i ntegrative effect s o f a multi-pollutant strategy are environmental,
economic, and regulatory.
Envi ronmental. Multi-pollutant con t rols would i ntegrate efforts t o addres s
several environmental problem s, incl uding aquatic loadings (Hg deposition and aci d
rain (S O2 and NOx )), heal t h effect s o f fi n e p art i cul at es (S O 2 and NOx ), and visibility
i m p ai rm ent (S O 2 and NOx ). Given t he numerous effects and i n t e ractions of
pollutants, a m ulti-pollutant strategy is likel y t o enjoy considerable benefits – along
with the costs. W hat i s hoped for is that the b enefits will accrue at a rate faster t han
t h e rat e at w hi ch cost s ri s e.
Economic Effects. Econom i c effect s – i n cl udi ng energy effect s – i n cl ude
both p lanning issues and compliance costs. EPA analyz ed the costs and b enefits of
two m ultipollutant initiatives introduced in the 106 th Congress: S. 172/H.R. 25 and28
H.R. 2569. S. 172/H.R. 25 was a three-pollutant bill mandating 50% reductions in


26ibid.
27 For a discussion of alternative market mechanisms for CO2 co n t r o l , see: Larry Parker,
Global Climate Change: M arket-Based St rategies to Reduce Greenhouse Gases, CRS Issue
Brief IB97057, updated r egularly.
28EPA, Analysis of the Acid Deposition and Ozone Control Act (S. 172), prepared f or the
Senate Subcommittee on Clean Ai r, Wetlands, Private Pr operty, and Nuclear Safety, U.S.
(continued...)

SO2 and NOx e m i ssions by 2005, plus requiring an Hg regu lation within one year,
but without specifying a reduction p ercentage or target. The effect of this mandate
woul d h ave b een t o cap S O 2 emissions f rom powerplants at 4.45 million t ons
annual l y (reduci n g em i ssi ons by approx i m at e l y 3.7 million tons ), and NOx em i ssi ons
at 2.36 million t ons (reducing emissions by a pprox imately 2.1 million t ons) annually.
H.R. 2569 was a four-poll u t a n t bill mandating annual emission caps on utilities of
4.0 million t ons for S O2 (reducing emissions by approx imately 5.7 million t ons), 1.66
million t o n s f or NOx (reducing emissions approx imately 2.4 million t ons), 1.914
billion t ons for C O2, and a 90% reduction o n a unit-by-unit b asis for Hg from 1990
levels.29
Table 4 is derived from EPA analys es of the S O2 and NOx reduction
requirements o f t hese two p r o p o sals. At fi rst gl ance, t h e cost s are not what one
would ex p ect. First, although t he tonnage reduced by H.R. 2569 is 40% greater than
Table 4 : Estimated 2010 Cost and B enefits o f S. 172/H.R. 25 and
H.R.2569
(1997$)
S. 172/H.R. 25 H.R. 2569
SO2 Reduced 3.7 million t ons 5.7 million t ons
NOx Reduced 2.1 million t ons 2.4 million t ons
SO2/NOx Cost Per t on $569 $580
Total Annual C ost i n
2010 $3.3 billion $4.7 billion
Total Annual Benefits in
2010 $33-$56 billion $76.2 billion
Source: EPA analys es. Calculations adj usted to same baselines; costs exclude costs
of Title IV compliance and the NOx SIP Call; benefits exclude the benefits of Title IV
compliance but include the NOx SIP Call, for which releva nt (PM) benefits would be
mi nor, on t he order of $0.5 to $2 billion per year; per ton costs derived by CRS from
EPAanalyses.
S. 172/H.R. 25, the costs only rise 42%, whereas one would ex p ect costs rising m ore
quickly as more reductions are achieved. Some of the reduction i n anticipat ed costs
can be ex pl ai ned b y t he com b i n at i o n o f NOx and S O2 included under each bill. Two


28(...continued)
Senate, J uly, 2000; and, EPA, Technical Assistance on H.R. 2569, The Fair Energy
Competition Act of 1999 , prepared f or Congressman Pallone, J anuary 5, 2001.
29See Larry Parker, Electricity Restructuring and Air Quality: Comparis o n o f Proposed
Legislation, CRS Report RS20326, J u ly 26, 2000.

million of t he 2.3 million t on difference between S. 17 2/H.R. 25 and H.R. 2569 is
SO2 reduction, the l ess ex p ensive of the t wo pollutants t o reduce.
EPA did not cal culate separate cost-per-ton es timates for NOx and S O2.As
i ndi cat ed i n Tabl e 4 , t he com b i n ed NOx / S O2 co s t p e r t o n estimates only differ by
about 2%. In its analys is of S. 172, EPA did calculate separate cost-per-ton estimates
for NOx and S O 2 assuming s eparat e implementation of t he bill’s provisions. Using
the ratio of per t on costs resulting from t hose estimates, CRS estimated t he per t on
costs for the full b ill at $482 for S O2 and $728 for NOx . If i t i s assumed t hat t he ratio
holds for H.R. 2569, the resulting p er ton costs are $508 and $762 – a 5% increase
from S . 172. This increase s ee m s l o w , gi ven a 15% difference i n NOx reductions
and a 54% difference i n S O2 reductions between the t wo bills. E P A ex p l ai ns the
relatively flat cost curves i n t he case o f S O2 emissions by argu ing t hat t he current 11
million t ons of surplus S O2 allowances under t he title IV program hold down t he
i n crease i n p er t o n cost s . 30 These s urpl uses are s een by EP A as s uffi ci ent t o d am pen
the effects o f t he controls mandated for 2005 even through t he 2010 time period
examinedhere.
However, this surplus does not ex plai n t he relativel y flat NOx reduction costs.
There are several possible ex p lanations. 31 If the 11 million t on SO2 allowance
surpl u s p roj ect ed by EP A i s s uffi ci ent t o p revent any per t on cost i n crease from t he
2 million additional t ons of SO2 reduced annually by H.R. 2569, the resulting NOx
cost per t on is $813 – about 12% abov e t h e N O x co s t s of S . 172. This estimate
would appear more in line with the NOx reduction i ncreas e of 15% between the t wo
bills. However, i f correct , t his res ult would s uggest that the S O2 allowance s urplus
is masking a sign ificant i ncrease i n H.R. 2569 SO2 compliance cost j ust b eyond the
year2010.
The EPA analys is for H.R. 2569 also included Hg and CO2 controls. For CO2,
the cost of reducing emissions to thei r 1990 levels is estimated by EPA at $3.82
billion.32 EPA m odeled t he H g p r o v i s i ons in a t wo-step p rocess b eginning with a
source specific reduction o f 73%, followed b y a 5 t on Hg cap ( e q u al to a 90%
reduction i n Hg) begi nning in 2005. According t o t he analys is, t he source specific
reduction would cost $1.5 6 b illion in 2010 and t he further reduction v ia the cap
would cost $1.43 billion. Thus, t otal Hg cost for a 90% reduction i s about $3 billion
annually in the year 2010. The t otal costs o f t he pollution control requi rements o f
H.R. 2569 is presented i n Table 5.
Utilities would m eet these reduction requi rements t hrough a mix of technology,
fuel choice decisions, and other m eans. EP A’s analysis of S . 172/H.R. 25 suggests


30T e lephone communication with the Office of Clean Air M arke ts, U.S. EPA, February 2,

2001.


31 For example, i t i s possible t hat achievi ng the r eduction r equirement involves technologies
whose c osts on a per ton basis are c o mp a r a b l e , and t he choice is dependent on the
percentage reduction necessary and site specific considerations.
32Assumi ng EPA i s using their base case a s published i n Analysis of Emissions Reduction
Opt i ons For t he El ect ri c Power I ndust r y (U.S. EPA, M a rch, 1999), t he per t on costs works
out to about $24 per metric t on of carbon reduced.

that NOx control would be primarily achieved t hrough i nstallation of c o n t rol
equipment. For coal-fired capacity, i t i s project ed that half would i nstall S elective
Catalytic Reduction (SCR) and a quarter woul d i nstall Selective Non-Catalytic
Reduction (SNCR). For SO2, i t i s p rojected that about a fifth of coal-fired capacity
would i nstall Fl ue Gas Desulfuri zation (FGD or s crubbers ), while an undi s c losed
amount of capacity would s witch t o l ower sulfur coal. Less t han 1 % o f coal-fired
capacity is projected to be repowered in order t o burn n atural gas.
Table 5: 2010 Annual C osts of Emission Reduction Provisions
ofH.R.2569
(Billions of 1997 dollars)
Costs (i n cremen tal to ti tl e IV an d
Pollutant NOx S IP Call comp liance costs)
SO2 and NOx (75% reduction from $4.72

1990levels)


CO2 (return to 1990 level) $3.82
Hg (90% reduction) $2.99
Total$11.53
Source: EPA analysis, J anuary 5, 2001.
Proposals t hat i nclude sign ificant reductions in CO2 em i ssi ons great l y i n crease
the likelihood that natural gas may d ispl ace coal in fueling electric g e n e r ating
facilities. As stated by EPA i n its H.R 2569 analys is: “The reduction i n C O2 to 1990
l evel s i s proj ect ed u nder t he current m odel t o b e accom p l i s hed t hrough a shi ft
towards l ower emitting generating t echnologies and fuels, primarily natural gas-fired33
electricity generation.” Unfortunately EPA’s H.R. 2569 analys is presents no data
on its fuel source effects. However, ot her analyses done by EPA i n 1999 do provide34
some idea as to the m agnitude of this effect . Using analyses i ncorporating a 50%
SO2 reduction from title IV levels, coal p roduction i n 2010 is projected at almost 1
billion t ons. To reduce U.S. C O2 emissions to their 1990 levels, as would h ave b een
required under H.R. 2569, these analyses i ndicate a 158 million m etric t on reduction
in carbon from EPA’s 2010 baseline. Using EPA analys es o f other reduction
requirements as a gu ide, CRS estimates t hat coal p roduction l osses from s uch a
requirement would be i n t he range of 300 million s ho rt t o n s (table 6). This
production wo u l d b e replaced mostly with natural gas, along with some additional
conservation.


33U.S. EPA, Technical Assistance on H.R. 2569, The Fair Energy Competition Act of 1999 ,
J a nuary 5, 2001, p. 6.
34U.S. EPA, Analysis of Emissions Reduction Options for t he Electric Power Industry ,
Office of Air a nd Radiation, March 1999.

Table 6: Illustrative Estimates o f 2010 Coal Production Impacts
from Carbon Reductions
Carbon Reduced (from 2010 baseline) Coal P roduction Loss (from 2010
baseline)
(million m etric t onnes) (million s hort t ons)
70137
106214
158~300
Source: 7 0 million and 106 million estimate from EPA, Analysis of Emissions
Reduction Options fo r t h e E l ectric Power Industry, M arch 1999, p. 3-46. 158 million
estimate derived by CRS from EPA report. Baseline i ncludes an assumed 50% reduction
in SO2 below title IV levels.
Such a s ubstantial change i n compliance s trat egies highlights t he arguments i n
favor of a comprehensive approach to controlling t hese four emissions in contrast to
addressing them individually. Upfront knowledge o f t he red u c t i o n requirements
could permit facilities t o opti m i ze compliance strat egies rat her t han m ake costly
investments t hat could b e rendered obsolet e b y future regulatory d ecisions. The cost
and other effect s of control s trat egies for thes e pollutants are highly interdependent.
As stat ed by EP A i n i t s 1 999 anal ys is of multi-pollutant options: “The analysis
shows t hat h aving advance knowledge of potential requirements for all four
pollutants could l ead firms t o follow s ignificantly different compliance s trat egies at
individual plants, compared with compliance choices made when the pollutants are
addressed one-by-one.”
These potentia l costs and fuel d isruptions do not occur i n i solation, however;
the benefits must also be taken int o account, as discussed below. Further, a
integrated, m ulti-pollutant air pol lution control regime may o ffer opportunities for
utilities t o reduce costs through comprehensive approaches to generation and control
technologies and fuel choices.
Economic Benefits. As shown i n t able 4, EPA estimates t hat t he benefits of
S . 172/H.R. 25 and o f H.R. 2569 greatly ex ceed costs. These figures are consistent
with other EPA anal ys es of pollution control t hat find very s ubstantial health benefits
in terms of annual a v o i d e d costs from reductions in SO2 and NOx . These benefits
accrue pri m ari l y from avoi ded adverse h eal t h effect s o f P M2.5 (S O 2 and, to a l esser
ex tent, NOx contribute t o P M 2.5). Fo r t he benefits shown i n t able 4, all but 1% or 2%
are accounted for b y t he health benefits o f PM2.5 reductions, with the bal ance
attributed to visibility improvements. EPA’s analyses i ndicat e t hat other benefits are
likely, but they are not quantified. (It s houl d b e noted that these l arge estimates o f35
benefits from P M2.5 reductions have thei r critics. )


35On the i ssue of assessing PM health effects, see, for example, EPA, Regulato r y I mpact
(continued...)

However, whet her t he costs of an i ntegrated, multi-pollutant ai r quality program
are j ustified can be eval uated not just in terms o f t he net b enefits, but also from t he
c o mparison of the costs of the i ntegrated approach to the costs of the current,
pollutant-by-pollutant approach. This i s d iscussed b elow.
Re gulatory E ffects. The r e gulatory effects o f a four-pollutant strategy are
probably t he most difficult to determine. Two k ey dimensions of these effects would
be (1) t heir impact on the other el em en t s of the air quality control regimen and (2)
t h eir impact on the s tate, l ocal , and privat e s ect or managers implementing t h e
program.
In terms of t he impact s o n air quality control program s, integrating t he four-
pollutant strategy with the Title V permit process would probably be the easiest.
In tegrating t h e s t r a tegy with the NAAQS /S IP process would p robably b e t he most
difficult, since t he cap and t rade framework central to most multi-pollutant
appr o aches focuses o n t otal loadings , while the NAAQS process focuses on local
am bient concentrations. The final disposition of other regulatory requirements, such
as NSPS, NSR, visibility, and PSD would be problem atic and surel y t he subject of
considerable discussion.
If the debat e on title IV is any i ndication, it might be argued that continuation
of NSPS w ould b e unnecessary under a comprehensive cap and t rade program.
Li kewise, m odification or streamlining of t he NSR/PSD siting processes might al so
make sense. The l ogic for a multi-pollutant strategy modifying or replaci ng NSPS
and NSR for t he affected pollutants would be t hat n either program focuses on local
am bi ent concent rat i ons. A cap and t rade approach coul d al l o w s om e n ew sources t o
emit more than allowed under NSPS or through NSR, i f counterbalancing reductions
occurred el s ewhere.
The disposition of PSD and visibility requirements could be quite controversial.
Unl i k e NS P S and NS R t h at focus o n t ot al em i ssi ons (l i k e a cap and t rade program
does), visibility and PSD are concerned with ambient concentrations as well as
loadings . If t he cap were set s t r i n ge n t enough, it is possible t hat t hese ambient
concentration concerns could be eliminat ed. Otherwise, s ome res triction on t rading
might be considered necessary.
From a political p o i n t o f view, t here would be t ensions between the mix of
potential s yn ergi es, certainties, and flex i bilities i ntroduced by a m ulti-pollutant
approach on the one hand, and t he fear that deleting any ex isting p rogram could
erode control capabilities on t he other. Each ex isting element of the air quali t y
control p rogram developed t hrough a legi slative p rocess i nvolving nego tiation and
t radeoffs; t hose wi t h st akes i n t hose effort s m i ght be ex pect ed t o resi st changes


35(...continued)
Analysis for Proposed Particulate M atter National Ambient Air Quality Standard
(Decemb e r 1 9 96); on t he debate on effects, see, for example, U.S. Congress, House,
Committee on Commerce, Subcommittee on Health and Environment and Subcommittee on
Oversight and Investigations, Revi ew of EPA’ s Proposed Ozone and Part i c ul at e M at t e rth st
NAAQS Revisions, Parts 1 & 2 [Serial No. 105-19 & 105-24] (105 Congress, 1 session)
(Washington, D.C.: U.S. Govt. Print. Off., 1997).

unless t he c o m p e n s a t i n g advantages were obvious and s ubstantial – and even t hen
percei ved s ym bol i c val u es associ at ed with a p rogram might be hard to overcome.
Even harder to assess pro s p ectivel y i s t he way i n which a m ulti-pollutant
approach m i ght affect t h e ai r pol l u t i o n cont rol m anagem ent t ask o f s t at e, l ocal , and
privat e s ect or managers . P as t ex perience with the C AA suggests estimates of
projected costs o f compliance t end t o b e t oo high , as t echnological and m anagerial
innovations bring down costs. A cap and t rade approach, i ncl u d e d i n m ost m ulti-
pollutant proposals, facilitates each manager’s flex ibility in seeking l east-cost
solutions to controlling emissions. At present, t he CAA (with some ex ceptions, m ost
obviously title IV) i s b ased on each source making pollution con t rol decisions
pollutant-by-pollutant, s mokestack by sm okestack. The underlyi ng presumption i s
t h at each m anager wi l l m ake t h e m ost cost -effi ci ent d eci si on, and t he sum o f t hose
deci si ons wi l l be an effi ci ent out com e. W here the C AA prov i d e s f o r t a k ing costs,
energy, o r o ther factors i nto account in setting s tandards, it is always in a pollutant-
by-pollutant contex t.
The m ulti-pollutant approach pursues a new direction: that individual deci sions
wi t h i n a col l ect i v e fram ework, s uch as cap and t rade, can be m o r e e ffi ci ent , by
shifting controls to those s ources where reductions can be least-cost. Thus it builds
on the ex perience of t he title IV program. Virtually al l s tudies of trading m echanisms
find that they lower costs, although b y how much varies, d epending on assumptions
about transactions costs, the number o f participants, and so on. But i t i s one thing
to conclude that cap and t rade will reduce costs of achieving reductions for any one
pollutant; i t i s another t o anticipat e t he implications of a m u lti-pollutant system
allowing caps and trades for each pollutant, and gi ving managers the opportunity to
a d d r e s s a suite of requirements across s everal pollutants. As noted abov e ,
compliance s trat egies for thes e pollutants are highly interdependent. EPA anal ys es
suggest that synergies ex i st when addressi ng t h ese pollutant comprehensively; for
ex am ple, EPA estimates t hat controlling S O2 and NOx separately would cost $300
million m ore t han t he integrated control p rogram proposed under S . 172. 36
Legi sl ati ve O pti ons
One t hing is cl ear: a multi-pollutant approach would require legi slation. As it
stands, t he CAA l eads EPA to identify and a s s e s s t h e e ffects o f pollutants one by
one; and it directs EPA and t he states to evaluate and m andate controls on most
sources individually or by subdivided categor y (ex isting o r n ew; l arge or small, etc.).
With only a few exceptions, mainl y i nvolving mobile sources, the Act does not
provide for i ntegrating regu l a t o ry d ecisi ons, even when pollutants i nteract or have
similar effect s or are emitted by s eparat e but similar s ources . EPA therefore has little
authority to develop and implement a regulat ory approach that w o u l d embrace the
collective emissi o n s o f a g r oup of sources, even i f i t would achieve more cost-
effect i v e reduct i ons and m ore effi ci ent com pl i ance b y s o u rces. A t b est , as i n t h e


36EPA, Analysis of the Acid Deposition and Oz one Control Act (S. 172), J uly 2000, p. 22.
For a further discussion of cost savi ngs from i ntegrated c ontrol s chemes, s ee EPA, Analysis
of Emissions Reduction Options for t he Electric Power Industry , Office o f Ai r and
Radiation, April, 1999.

NOx SIP C all, EPA can ask states t o cleave voluntarily t o such a system – in this
case a NOx cap and t rade one.
Dimensions of a Cap and Trade Program. Essentially al l m ulti-pollutant37
proposals h ave i ncluded cap and t rade programs for all o r m o s t o f the pollutants.
This common element underscores t he presumption t hat cap and t rade programs can
be mor e e f ficient t han command and cont rol requirements o n i ndividual s ources.
Each pollutant raises particular questi ons about a cap and t ra d e program. These
incl ude the following:
! Scope. Fo r which pollutants would cap and t rade pro g rams be created – all
or only s ome? (A nationa l o n e e x ists for S O 2, and some regi onal efforts for
N O x . ) W ould cap and t rade programs be restricted only t o power plants, o r
could other sources , s tationary or mobile, opt in? How large would facilities
have to be in order t o b e i ncluded?
! Reduction Requiremen ts. At what levels would emissions c a p s b e s et?
W h at baselines would b e u sed? W ould emission credits or allo w a n c e s be
allocat ed to sources free (as with aci d rai n), or would affect ed sources initially
have to bid o n pooled allowances? W oul d t he caps b e phased i n with interim
reductions? W ould s ome regions get t reated differently than others?
! Time Frame. Within what time frame shoul d compliance be expected?
Should t here be ex ceptions for facilities t hat choose i nno vative control
measures?
! Techniques Permitted. Should t here be any restrictions on the m ethods used
fo r c o m p l iance? Should i ncentives be included t o encourage s pecific
techniques o r t echnologies?
! E n f o r cemen t. How would t he cap and t rade program b e enforced? W hat
changes i n ex i sting emissi o n s monitoring requirements, or new m onitoring,
would b e required? What would b e t he penalties for non-compliance?
Table 7 summarize the current stat us of the four pollutants with respect to a cap
an d t r a d e p r o gram, which implies at l east p artial answers to some of the above
questions. As i ndicated, each pollutant is differently positioned t o i ncorporate a cap
and t rade program , and each rai s es several s peci fi c concerns t h at m u st be addressed.


37T hese cap and t rade programs would be pollutant by pollutant; at t he time of t he acid r ain
debate there were s ome discussions of SOx-NOx interpollutant trading, but this idea has not
been resurrected in the current debate.

Table 7: C urrent Status of Four Pollutants
Issue SO2 NOx H g CO 2
Baseline and Established Established No Established
Emissions national emissions established gl obal
Inventory baseline and inventory - baseline or baseline and
emissions regi onal, not emissions national
inventory national inventory emissions
baseline inventory
Allocation Ex isting Some Focus t ends Fo cu s o n
Scheme national regi onal to be on 1990
scheme schemes percent age emissions as
(OTC ) reduction and allocation
technology
Reduction Proposed Proposed Proposed Proposed
Targets 50%-70% 50%-70% 73% -90% 1990
below Title reductions reductions stabilization
IVlevels(FCCC);
Kyototarget
proposes7%
reduction
Trading Established Established No Some spotty
Schemes trading regi onal ex peri ence dom est i c and
system and trading and viability international
institutions systems and questioned ex peri ence –
institutions mostly
bilateral
transactions
Monitoring Ex isting Ex i sting Limited Ex i sting
Comment More Integrating Viability of Setting
stringent regi onal/ trading target s,
controls seasonal questioned; allocations,
could reopen programs baseline and and t he scope
debate on difficult inventory of accept abl e
allocations data, and credi t sources
monitoring are m aj or
inadequate issues
Regulatory Changes. Another aspect of establishing cap and t rade programs
for additional pollutants i s what p arts of the ex i sting regulatory s ys tem (if any) would
need to be modified – o r might become s uperfluous and h en c e c ould b e repealed.
Table 8 summarizes some of t he possibilities, al ong with potential concerns. As i s
evident, a concern i nherent to the cap and t rade approach is the possibility of creating



Table 8: R egulatory Issues Raised by Cap and Trade Proposals
Issu e Cu rren t Pu rp o se Issu es Raised b y Po t e n t i a l
Cap and Trade Con cern s
Proposal
NAAQS Protection of Emission caps are Protection against
(including PM10 human health potentially a m ore local “hot spots”
[potentially wi t h an adequat e effi ci ent approach that could violate
PM2.5], SO2, margin of safety to reduce NAAQS ;
NOx , and Oz one emissions – m ay modeling/
(NOx S IP C all, make certain restriction o f
Section 126 regu latory trades might be
petitions, OTC)) schemes s uch as necessary t o
the NOx S IP C all ensure
redundant and compliance
unnecessary
PSD/NSR P rot ect t h e Cap arguably Protection against
Permitting integrity of the makes plant local “hot spots”
P rocedures (New NAAQS and P S D speci fi c revi ew that could violate
Sources or Major i n crem ent s (S O 2 redundant; NAAQS or P S D
Modifications to and NOx ) possible i n crem ent s ;
Ex isting S ources ) overlapping modeling/
permitting restriction o f
requirements. trades might be
Streamlining necessary t o
efforts could ensure
focus on ex i sting compliance
TitleVprogram
NSPS/MACT Minimize t he Cap arguably Hg MACT for
environmental m akes s eparat e utilities i n future
effect s o f n ew control
facilities (SO2 requirements o n
and NOx ) new facilities
redundant
PSD -Visibility Protect currently Cap arguably Protection against
pristine areas , and m akes s eparat e l o cal
areas of part i cul ar control concent rat i ons
importance (PM, requirements – that compromise
SO2, and NOx ) PSD and BART – visibility;
redundant and modeling/
unnecessary. restriction o f
tradesmightbe
necessaryto
ensure
compliance



l o cal i z ed “hot spot s” because of unrest ri ct ed t radi ng. S uch hot spot s coul d
potentially hinder compliance with NAAQS , PSD, or visibility obje ctives. Very
stringent emissions caps would minimize t he risk; m odeling of m aj or trades to
determine t heir effect on local emission concentrations and res trictions on trades in
certain areas could hel p ensure compliance with am bient requirements. The title IV
SO2 program p rohibits any t rade that would v iolate NAAQS . Terms that would h ave
t o be fl eshed out woul d i ncl ude “st ri n gent ,” “m aj or t rades,” and “cert ai n areas.”
Conclusion
The C lean Air Act has e v o l ved over time in response t o a developing
understanding of the environment, new t ec hnol ogies, and changes in the nation’s
transpo r t a t i o n , energy, and industrial s ectors. The result h as been a p atchwork of
requirements t hat are not always consistent – and may even b e i ncompatible – at any
gi ven m oment. Moreover, thes e requirements change and are added t o over time.
Although t he resulting d evelopment o f t he Act h as resulted i n a structure t hat s ome
consider unwieldy, emissions of most ai r pollutants have s ubstantially declined, and
t h e num ber o f p ersons l i v i n g i n areas where pol l u t i o n ex ceeds s t andards h as
diminished. Argu ably, t he Act’s s uccess puts t he burden o f p r o o f f o r revising t he
ex isting s tructure on those favoring change.
The m ulti-pollutant proposals s eek to bring m ore consistency and stability to the
diverse elements of t he Act, with the focus being on pollutants emitted by utilities,
one of the l argest emitting s ect ors. In a way, “multi-pollutant” m ay be misleading,
as the p roposals would not combine regula tions or co n t r o l s on several pollutants;
rather, t he proposals t yp ically do several t hings:
! they would align pollution control p rocesses and procedures for s eve ral
currently regulated pollutants (SO2 and NOx , and, indirectly, P M and oz one)
so that both regulat ors and utility managers could anticipat e requirements and
integrate t heir decisions about how to control emissions;
! they would adopt the efficiency of ec onomic mechanisms – m ost notably “cap
and t rade” – into the control of m ost or all of the pollutants;
! they would s tabilize requirements over time; and
! they would anticipate i ncorporating pot ential future control requirements for
other emitted gas es (e.g., Hg, C O 2) i nto t his m ore s table s cheme.
Fo r regulators, the advantages of this a pproach could b e t o reduce complaints
about the costs and i nefficiencies of the current system, and possibly t o forestall
litigation. For utility managers, t he advantages of this approach could be t o provide
a certainty about environmental requirements over a several-year planning horiz on
(that m ust cope with restruct uring changes and volatile energy prices ), and t o ex pand
an ex i s t i n g m et hod desi gn ed t o achi eve m o re cost -effect i v e com pl i ance. For
environmental and health interests, the advantages of this approach could b e t o s peed
up reductions in emissions and, especially, t o advance t he controls on Hg and C O2.
There are pot ent i al d i s advant ages, as w ell, depending on how the old (ex i sting)
system is adapted when and if a new, m ulti-media approach is enact ed. R egulat ors
and utility managers could find t hat t he new a p p r o ach merely adds more



requirements, compounding the current co mplaints of regu l a t o ry overload. Utility
managers could face having to control emissions (Hg and CO2) not now regu lated.
Environmental and health interests might find that some ex isting protections would
be removed, with the risk o f l ocal “hot s pot s” em ergi ng where em i ssi ons t h reat en or
even ex ceed current health standards or visibility requirements.
For l egi s lators, t hen, the m ulti-pollutant approach repres ents an interlocking
seri es o f t radeoffs am ong num erous st ak eholders. Achieving balance m ay be
difficult, but the potential for al l parties t o find advantages could give impet us to the
proposals.



Table 1A: Timeline o f M ajor Federal SO2 Regulations
SO2 Emission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
1971 National Affect ed Uni t s Limitation SIP limitations
Ambient Air determined by cal cul at ed b y generally met
Quality Standard individual S tates State as t hat through i ncreased
(NAAQS ) for in thei r EPA- necessary t o use o f l ower
SO2 approved S tate achieve the S O2 sul fur coal
Im plem entation NAAQS
(40 C FR 50.4) Plan (S IP )
1971 New S ource Fossil-fuel-fired Coal: 1.2 on a 30- NSPS was met
P erformance steam generators day rolling through l ow-
Standard (NSPS) over 7 3 M W o n average sulfur fuels;
which natural gas emits
(40 C FR 60.43) construction Natural Gas: virtually no SO2
com m enced aft er none (0.0006

8/17/1971 lb./MMBtu)


Oil:0.8ona30-
dayrolling
average
1977 Prevention Stationary Al l n ew pl ant s Additional
of Significant sources i n areas and m odi fi ed controls or offset
Deterioration not covered b y ex isting plants may b e required
(PSD) P rovisions NAAQS non- must instal l Best unless t he
(1977 CAAA, attainment Available C ontrol remaining
Part C) provisions Technology emissions can be
(BAC T) accom m odat ed
underthe
incrementof
increasedSO2
concentrations
allowedunderthe
area’sPSD
cl assi fi cat i o n



SO2 Emission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
1979 NSPS Fossil-fuel-fired Lo w s ulfur coal: New coal NSPS
steam generators 70% reduction standard
(40 C FR 60.43a) over 7 3 M W o n when em i ssi ons generally called
which are l ess t han 0.6 the “scrubber
construction on a 30-day requirement”
com m enced aft er rolling average because i t l ed t o
9/18/78 installation of
Hi gh sul fur coal : flue-gas
1.2 and 90% desulfurization
reduction o f (FGD) units at
uncontrolled facilities. About
concentrations on 25% of U.S. coal-
a 30-day rolling fi red capaci t y has
averageFGDunits
installed
Naturalgasand
Oil:0.2withno
percentage
reductionor0.8
and90%
reductionof
uncontrolled
concentrations on
a30-dayrolling
average
1996 Title IV 265 existing coal- Emission tonnage Compliance
requirements fired utility limitation based generally
effective 1/1/96 generating units on a 2.5 lb. achieved t hrough
speci fi ed for emission rate use o f l ow-sulfur
(40 C FR 73.1- Phase 1 by Title times a historical coal on ex i s t i n g

73.90) IV of the 1990 fuel consumption non-NSPS units


C l ean Ai r A ct fact or m et o n an
Amendments annual average
(AcidRainbasis
Provisions)

SO2 Emission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
2000 Title IV 1,044 exi st i n g Emission tonnage Emission
Requirements coal-fired utility limitation on limitation based
effect i v e generating units ex isting facilities on compliance
1/1/2000 speci fi ed for based o n a 1.2 lb. through use of
Phase 2 by Title emission rate low-sulfur co al
(40 C FR 73.1- IV of the 1990 times a historical on ex isting non-

73.90) C l ean Ai r A ct fuel consumption NSPS units,


Amendments fact or m et o n an although t here are
(Aci d R ai n annual average no restrictions on
Provisions) basis control m ethods
Emissions from New units may
al l newly purchase S O2
constructed al l o wances from
fossil-fuel-fired ex isting facilities
el ect ri c to offset
generating units emissions
over25MWthat
commenced
operationafter
11/15/90mustbe
offset to maintain
a8.95millionton
emissionscapon
allfossil-fuel
units
1997 PM2.5 Nationwide Depends on P M 2.5 NAAQS
National Ambient standard, but lack individual S tate is in litigation
Air Quality of monitoring Im plem entation
Standard data makes Plans. A mix ture Lack of dat a and
(NAAQS ) NAAQS non- of control future
compliance methods at reassessments of
(62 FR 38652- determinations exi sting units standard make
38760) difficult. Actual would be a likely any compliance
uni t s affect ed possibility deadl i n e
[ NOTE: SO2 woul d d epend o n speculative at t he
emissions individual S tate cu rrent time


transform into Im plem entation
PM2.5 in the Plans (SIPs)
atmosphere]

Table 2A: Timeline o f M ajor Federal N Ox Regulations
NOxEmission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
1971 New S ource Fossil-fuel-fired Coal: 0.7 on a 30- NSPS was met
P erformance steam generators day rolling through rel ativel y
Standard (NSPS) over 7 3 M W t hat average simple boiler
construction i s design and
(40 C FR 60.44) com m enced aft er NaturalGas:0.2 combustion
8/17/1971 on a 30-day modifications
rollingaverage
Oil:0.3ona30-
dayrolling
average
1979 NSPS Fossil-fuel-fired Subbituminous New coal NSPS
steam generators coal: 0.6 on a 30- standards
(40 C FR 60.44a) over 7 3 M W t hat day rolling generally met
construction i s average through m ore
com m enced aft er combustion
9/18/78 Bituminous coal: modifications or
0.5 on a 30-day installation of
rolling average Lo w NOx burners
Naturalgas:same
as1971NSPS
Oil:sameas1971
NSPS
1977 Prevention Stationary Al l n ew pl ant s Additional
of Significant sources i n areas and m odi fi ed controls or offset
Deterioration not covered b y ex isting plants may b e required
(PSD) P rovisions NAAQS non- must instal l Best unless t he
(1977 CAAA, attainment Available C ontrol remaining
P art C). NOx provisions Technology emissions can be
added i n 1988 (BAC T) accom m odat ed
underthe
(40 C FR 51.166) i n crem ent o f
increasedNOx
concentrations
allowedunderthe
area’sPSD
cl assi fi cat i o n



NOxEmission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
1996 Title IV 265 existing coal- Tangentially-fired Compliance
requirements fired utility boilers: 0.45 on achieved t hrough
effective 1/1/96 generating units an annual average installation of
affect ed by P h ase Lo w-NOx
(40 C FR 76.5) 1 of Title IV of Dry bottom wall- burners on
the 1990 Clean fired boilers: 0.50 ex isting non-
Air Act on an annual NSPS units.
Amendments average Affect ed uni t s
(Aci d R ai n emitted 1.33
Provisions) million t ons in
1990;reducedto
0.94milliontons
in1998.
1997 NSPS Fossil-fuel-fired Standard of 1.6 Not a major
steam generators lb. per megawatt- change for n ew
(40 C FR over 7 3 M W t hat hour gross energy natural gas /oil
60.44a(d)) construction i s output for n ew units which
com m enced aft er construction employ
7/9/1997 (equivalent to combined-cycle
about 0.15 technology.
lb.\MMbtu heat Compliance by
input) on a 30- coal-fired units
day rolling could i nvolve a
average i s t he post-combustion
same for all fossil devi ce, such as
fuels;Selective
standard of 0.15 Catalytic
lb.\MMbtu for Reduction (SCR)
modified or or Selective Non-
reconstructed cat al yt i c
facilities, on a 30- Reduction (SNR)


dayrolling
average

NOxEmission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
2000 Title IV 1,044 exi st i n g Tangentially-fired Tangentially-fired
Requirements coal-fired utility boilers: 0.4 on an and wall-fired
effect i v e generating units annual average boiler s tandard

1/1/2000 affect ed by P h ase based o n Low-


2 of Title IV of Dry bottom wall- NOx burner
(40 C FR 76.6- the 1990 Clean fired boilers: 0.46 technology
76.7) Air Act on an annual
Amendments average C-burner s tandard
(Aci d R ai n based o n non-
Provisions) Cell burner plug-in
boilers: 0.68 on combustion
an annual average controls
Cyclone boilers: C ycl one and w et
0.86 on an annual bottom boiler
average standard based o n
SCRornatural
Wet bottom gas reburning
boilers: 0.84 on technology
annualaverage
Verticallyfired
Vertically fired boiler s tandard
boilers: 0.80 on based o n
annual average combustion
controls
IncrementalNOx
reductions:0.9
milliontons
annually



NOxEmission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
2003 NOx SIP Affect s 2 1 east ern Depends on NOx S IP C all and
Call (and possible S t at es and D .C . individual S tate Section 126
Section 126 Actual units Im plem entation determinations
determinations) affected depends Plans. EPA are i n litigation
on individual budgets b ased on
(63 FR 57356- State ex isting coal- Estimated NOx
57538) Im plem entation fired boilers reductions from
Plans (SIPs). meeting a 0.15 lb. projected 2007
EPA budgets per MMBtu baseline: 0.96
basedonexisting standard on an million t ons
coal-fired boilers annual b asis
meeting a 0.15 lb. Fl ex i b l e cap and
perMMBtutrade
standard on an implementation
annual b asis possibilities
suggestavariety
ofpotential
cont rol s cenari o s
NOTE:TheCourt
hasextendedthe
deadlinetoMay
31,2004and
droppedonestate
from the r ule’s
provision
(Michiganv.
EPA,No.98-

1497(D.C.Cir.,


August 30, 2000))



Table 3A: Timeline o f M ajor Federal PM R egulations
PMEmission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
1971 New S ource Fossil-fuel-fired All fossil-fuel- NSPS was
P erformance steam generators fi red generat ors: generally met
Standard (NSPS) over 7 3 M W o n 0.10 on a 30-day through
which rolling average installation of
(40 C FR 60.42) construction el ect rost at i c
com m enced aft er preci pitators
[ Note: PM 8/17/1971 (ES P ); n at ural
defined as total gas emits
suspended virtually no PM
particulate matter (0.01 lb./MMBtu)
45micronsin
diameterorless]
1977 Prevention Stationary Al l n ew pl ant s Additional
of Significant sources i n areas and m odi fi ed controls or offset
Deterioration not covered b y ex isting plants may b e required
(PSD) P rovisions NAAQS non- must instal l Best unless t he
(1977 CAAA, attainment Available C ontrol remaining
Part C) provisions Technology emissions can be
(BAC T) accom m odat ed
underthe
incrementof
increasedTSP
concentrations
allowedunderthe
area’sPSD
classification
1979 NSPS Fossil-fuel-fired Coal: 0.03 and New coal NSPS
steam generators 99% reduction o f standard
(40 C FR 60.42a) over 7 3 M W o n uncontrolled generally met
which concentrations on through l arger
construction a 30-day rolling ESPs, or with
com m enced aft er average baghouses in the
9/18/78 case o f l ow-sulfur
Oil: 0.03 and coal facilities


70%reductionof
uncontrolled
concentrations on
a30-dayrolling
average
Naturalgas:none

PMEmission
Limitation
Date Af f ected Un i ts (lb . \MMB tu ) Commen t
1987 PM10 Nationwide Dependant on Compliance was
National Ambient standard with individual S tate generally
Air Quality most of the Im plem entation achieved t hrough
Standard country currently P l ans. However, use o f m ore
(NAAQS ) in compliance. i n creased P M sophisticated or
Actual controls at larger ESPs
(40 C FR 50.6) compliance exi st i n g
strategi es were generating units
[ Note: PM10 determined by was a major
defined as individual S tate component in
particulate matter Im plem entation m o st S t at es’ S IP s

10 microns in Plans (SIPs)


diameterorless]
1997 PM10 Only a s light Depends on 1997 PM10
National Ambient refinement to individual S tate NAAQS is in
Air Quality P M 10 NAAQS . Im plem entation litigation
Standard Actual units Plans
(NAAQS ) affect ed woul d The 1997
depend on NAAQS is not a
(62 FR 38652- individual S tate major change
38760) Im plem entation from t he 1987
Plans (SIPs) NAAQS , and
maynothavea
greateffecton
generatingunits
1997 PM2.5 See discussion in See discussion in Primary PM2.5
NAAQS SO2 table SO2 table precursors
include SO2 and
(62 FR 38652- NOx . S ee

38760) discussion in SO2


table


[Note:PM2.5
definedas
particulate matter
2.5micronsin
diameterorless]