Clear Skies and the Clean Air Act: Whats the Difference?

CRS Report for Congress
Clear Skies and the Clean Air Act:
What’s the Difference?
February 25, 2005
Larry Parker
Specialist in Energy Policy
Resources, Science, and Industry Division
James E. McCarthy
Specialist in Environmental Policy
Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Clear Skies and the Clean Air Act:
What’s the Difference?
Summary
The 109^th Congress, like the two before it, is expected to consider proposals to
control emissions of multiple pollutants from electric power plants. The bills include
an Administration-based proposal, the Clear Skies Act (S. 131), which would control
emissions of sulfur dioxide (SO²), nitrogen oxides (NOx), and mercury, and other
bills that would control the three pollutants plus the greenhouse gas carbon dioxide.
Much of the debate surrounding the Administration’s Clear Skies proposal has
focused on its cap-and-trade implementation scheme. But in some ways, the
proposal’s cap-and-trade provisions are its least significant aspects in terms of the
proposal’s interaction with the structure of the Clean Air Act. EPA has already
promulgated regulations using a regional cap-and-trade program to control NOx
emissions over the eastern United States (the “NOx SIP Call”) under existing Clean
Air Act authority, and has proposed other cap-and-trade regulations to achieve Clear
Skies’ level of reductions over 28 eastern states and the District of Columbia for both
SO² and NOx (in the Clean Air Interstate Rule). In addition, EPA has proposed cap-
and-trade regulations to achieve mercury reductions similar to those in Clear Skies,
although the legality of these regulations is more questionable.
Critical to the fabric of the Clean Air Act are the various provisions in Clear
Skies to alter or to delete existing sections of the Act with respect to both electric
generating units (EGUs) and industrial sources that choose to opt into the program.
The Administration has made it clear that with Clear Skies’ comprehensive approach
to EGUs and opt-ins, it believes certain CAA provisions need no longer apply to
them, in some cases permanently, in others for as long as 20 years or under certain
conditions. These include most statutory requirements for Prevention of Significant
Deterioration and attainment of National Ambient Air Quality Standards under Title
I of the Act, as well as most controls on hazardous air pollutants as they apply to
EGUs and opt-ins. These changes would diminish the suite of options states currently
have to achieve compliance with air quality standards.
In July 2001 testimony, then-EPA Administrator Whitman identified the central
issue in Clear Skies’ interaction with current law: Are the emission reduction targets
stringent enough to permit the relaxing or removal of current provisions of the Clean
Air Act designed to achieve the same thing with respect to electric utilities? EPA’s
analysis indicates that Clear Skies will not achieve either the 8-hour ozone or the fine
particulate ambient air quality standards that the agency recently implemented within
current CAA compliance deadlines. Some nonattainment areas will need additional
controls and time to reach attainment. Clear Skies addresses these issues in part by
providing 5 to 15 years of additional time, while effectively removing additional
electric utility control from the suite of options available to states to achieve the
standards. Similarly, with mercury, Clear Skies proposes relatively modest controls
on electric utilities, and, as currently drafted, would effectively remove additional
electric utility controls from the suite of options available to the states. The ability
of industrial sources to opt into Clear Skies could further reduce state control options
for both mercury and criteria pollutants. This report will not be updated.

Contents
In troduction ......................................................1
Title I of the Clean Air Act..........................................2
Background: Regulating Criteria Air Pollutants Under Title I...........3
National Ambient Air Quality Standards / New Source Performance
Standards / Lowest Achievable Emissions Rate..............3
Prevention of Significant Deterioration / New Source Review /
Best Available Control Technology........................4
Background: Regulating Mercury Under Title I......................5
Changes Proposed by Clear Skies.....................................7
New Authorities...............................................8
1. Cap and Trade Program for SO², NOx, and Mercury............8
2. National Emission Standards for SO², NOx, and Hg Emissions
from New and Reconstructed EGUs.......................9
3. Authority for Non-Utility Sources to Opt into the
Cap-and-Trade Program.................................9
4. Establishment of an Optional “Transitional Area” Category
in Place of Nonattainment Designations...................10
Authorities Removed or Limited.................................10
1. Exemption from Major Source Requirements Under
Parts C and D........................................10
2. Changes to the Hazardous Air Pollutant Provisions of
Section 112.........................................11
3. Changes to Section 126 Petitions...........................11
4. Change in Noncompliance Penalties Under Title IV............12
5. Preemption of State Requirements..........................12
6. Elimination of New Source Review for Modifications of EGUs..12

7. Elimination of Best Available Retrofit Technology (BART)

Requirements ........................................13
8. Class I PSD Areas......................................13
9. Class II PSD Areas.....................................13
10. Extension of Deadlines for the Ozone and PM^2.5 NAAQS......13
11. Elimination of the Provisions of Subpart 2 for
Ozone Nonattainment.................................14
12. Elimination of the Conformity Requirements................14
Impact of Clear Skies .............................................14
Impact on Regulating Criteria Air Pollutants.......................14
Impact of Clear Skies on Mercury Regulation.......................17
Conclusion ......................................................18

Table 1. Implementing Title I: Simplified Structure for
Electric Generating Units........................................6
Table 2. Implementing Section 112 for Mercury and Other HAPs from
Electric Generating Units and Other Sources........................7
Table 3. Summary of EGU Requirements under Title I
If Clear Skies Is Enacted.......................................15
Table 4. Control of Mercury and Other HAPs from Electric Generating Units
(and Opt-Ins) If Clear Skies Is Enacted............................17

Clear Skies and the Clean Air Act:
What’s the Difference?
Introduction
In February 2002, the Bush Administration announced two air quality proposals
to address the control of emissions of sulfur dioxide (SO²), nitrogen oxides (NOx),¹
mercury (Hg), and carbon dioxide (CO²). The first proposal, called “Clear Skies,”
would amend the Clean Air Act (CAA) to place emission caps on electric utility
emissions of SO², NOx, and Hg. Implemented through a tradeable allowance
program, the emissions caps would be imposed in two phases: 2010 (2008 in the case
of NOx) and 2018. As part of a complete rewrite of Title IV of the Clean Air Act,
Clear Skies was introduced in the 108^th Congress on February 27, 2003, as H.R. 999²^th
and S. 485. In the 109 Congress, a modified version of Clear Skies (S. 131) has
been introduced by Senator Inhofe and has become the focus of congressional³
hearings and potential markup.
Much of the debate surrounding the Administration’s Clear Skies proposal has
focused on its cap-and-trade implementation scheme. For example, EPA states: “The
Clear Skies approach would deliver guaranteed emissions reductions of SO², NOx,
and mercury at a fraction of command and control costs, increasing certainty for

¹ Papers outlining the Administration’s proposals are available from the White House
website: [http://www.whitehouse.gov/news/releases/2002/02/clearskies.html] for the three-
pollutant proposal, and [http://www.whitehouse.gov/news/releases/2002/02/climatechange.
html] for the climate change initiative.
² The second proposal (for which no legislation has been introduced) initiates a new
voluntary greenhouse gas reduction program, similar to ones introduced by the earlier
George H. W. Bush and Clinton Administrations. Developed in response to the U.S.
ratification of the 1992 UNFCCC, these previous plans projected U.S. compliance, or near
compliance, with the UNFCCC goal of stabilizing greenhouse gas emissions at their 1990
levels by the year 2000 through voluntary measures. The new proposal introduced by the
Bush Administration does not make that claim, only projecting a 100 million metric ton
reduction in emissions from what would occur otherwise in the year 2012. Instead, the plan
focuses on improving the carbon efficiency of the economy, reducing current emissions of
183 metric tons per million dollars of GDP to 151 metric tons per million dollars of GDP
in 2012. It proposes several voluntary initiatives, along with increased spending and tax
incentives, to achieve this goal. The Administration notes that the new initiatives would
achieve about one-quarter of the objective, while three-quarters of the projected reduction
would occur through already existing efforts underway.
³ For more specifics, see CRS Report RL32755, Air Quality: Multi-Pollutant Legislation
in the 109^th Congress, by Larry Parker.

industry, regulators, consumers and citizens.”⁴ In some ways, the proposal’s cap-
and-trade provisions are its least significant aspects in terms of the proposal’s
interaction with the structure of the Clean Air Act. EPA has already promulgated
regulations using a regional cap-and-trade program to control NOx emissions over
the eastern United States (called the NOx SIP Call) under existing Clean Air Act
authority, and has proposed other cap-and-trade regulations to achieve Clear Skies’
level of reductions over 28 eastern states and the District of Columbia for both SO²
and NOx.⁵ In addition, EPA has proposed other cap-and-trade regulations to achieve
similar Clear Skies mercury reductions, although their legality has been subject to
some question.⁶
Far more important to the fabric of the Clean Air Act are the various provisions
in Clear Skies to alter, delete, or hold in abeyance for some time existing sections of
the Clean Air Act with respect to affected electric generating units and industrial
sources that choose to opt into the program. The Administration has made it clear
that with Clear Skies, it believes certain CAA provisions are no longer necessary.
As stated by then-EPA Administrator Whitman before the Senate Environment and
Public Works Committee, as EPA was developing Clear Skies legislation:
Well, it is our feeling that right now that depending on where you set the targets,
that New Source Review is certainly one of those regulatory aspects that would
no longer be necessary — the regional haze, the BART, as I mentioned before,
the MACT standards, the NOx SIP Call, the 126 Rule, acid rain — all of those
could be eliminated and combined into one regulatory process under a new piece
of legislation that would be vastly simplified. It depends where they go on those
for utilities — we are talking for utilities now — as far as most of those are
concerned. But where you go depends on what level is set in the final
legislation, how far you can go to eliminate the additional regulations that we⁷
have in place now.
This report examines the potential impact Clear Skies legislation would have
on the structure of the Clean Air Act with respect to electric generating units and
other industrial sources that choose to opt into the program.
Title I of the Clean Air Act
Many of the changes in the Clean Air Act proposed by Clear Skies would occur
with respect to Title I. Within its general regulatory structure, several distinctions
arise that affect utility planning and operations — for example, whether the facility

⁴ From EPA’s Clear Skies website: [http://epa.gov/air/clearskies/basic.html].
⁵ See CRS Report RL32273, Air Quality: EPA’s Proposed Interstate Air Quality Rule, by
Larry Parker and John Blodgett.
⁶ For a discussion, see CRS Report RL32203, Legal Analysis and Background on the EPA’s
Proposed Rules for Regulating Mercury Emissions from Electric Utilities.
⁷ Administrator Whitman in response to question from Senator Voinovich, in U.S. Senate,
Committee on Environment and Public Works, Subcommittee on Clean Air, Wetlands, and
Climate Change, Clean Power Act, hearings, July 26, 2001, S.Hrg. 107-570, p. 36.

is located in clean or dirty air areas, whether a facility is existing or new, and what
fuel it burns. And while the underlying regulatory structure generally applies to SO²,
NOx, and particulate matter (PM), the specific requirements for each differ. Despite
changes made in the 1990 Clean Air Act Amendments, specifically the addition of
a cap-and-trade program to control SO² emissions (Title IV), the basic structure
designed in 1970 and expanded in 1977 remains the backbone of the Act. The
addition of Title IV in 1990 did not change any of the basic requirements of the Act;
Title IV was a supplemental provision, not a substitute for existing provisions.
Background: Regulating Criteria Air Pollutants
Under Title I
National Ambient Air Quality Standards / New Source Performance
Standards / Lowest Achievable Emissions Rate. As enacted in 1970, the
CAA established a two-pronged approach to protect and enhance the quality of the
nation’s air. First, the Act established National Ambient Air Quality Standards
(NAAQS), which set limits on the level of specified air pollutants in ambient air.
Second, the Act required national emission limits to be set for major new polluting
facilities; these are called New Source Performance Standards (NSPS).
NAAQS have been established for six “criteria” pollutants, including SO², NOx,
and PM.⁸ Under the law, EPA sets primary NAAQS⁹ to protect the public health
with an “adequate margin of safety.”¹⁰ EPA periodically reviews NAAQS to take
into account the most recent health data. NAAQS are federally enforceable with
specific deadlines for compliance, but states are primarily responsible for actually
implementing the standards, through development and enforcement of State
Implementation Plans (SIPs). In general, these plans focus on reducing emissions
from existing facilities to the extent necessary to ensure that ambient levels of
pollution do not exceed the NAAQS.
For areas not in attainment with one or more of these NAAQS, the 1970 CAA
mandates states to require new sources to install Lowest Achievable Emissions Rate
(LAER) technology. Along with “offset” rules,¹¹ LAER ensures that overall
emissions do not increase as a result of a new plant’s operation. LAER is based on
the most stringent emission rate of any state implementation plan or achieved in

⁸ Criteria pollutants, defined in Section 108 of the Act, are pollutants in ambient air that
endanger public health or welfare and are emitted from numerous or diverse mobile or
stationary sources. The term “criteria” refers to the Section’s requirement that the EPA
Administrator issue criteria for such pollutants within 12 months of listing them.
⁹ “Secondary” NAAQS, also nationwide standards, protect “welfare” values, such as
visibility and agricultural productivity. There is no specific deadline for achieving
secondary NAAQS.
¹⁰ For a further discussion of NAAQS standard-setting, see CRS Report 97-722 ENR, Air
Quality Standards: The Decisionmaking Process, by John Blodgett, Larry Parker, and James
McCarthy.
¹¹ “Offset” rules require that new major sources of pollution reduce emissions from existing
facilities in a nonattainment area by more than the emissions they will generate.

practice without regard to cost or energy use.¹² Existing sources in a nonattainment
area are required to install less stringent Reasonably Available Control Technology
(RACT), a state determination based on federal guidelines.
The 1970 CAA also established New Source Performance Standards (NSPS),
which are emission limitations imposed on designated categories of major new (or
substantially modified) stationary sources of air pollution. For fossil fuel-fired
electric generating facilities, EPA has set NSPS for SO², NOx, and PM¹⁰ (particles
smaller than 10 microns), and is required by the Act to review the standards every
eight years. A new source is subject to NSPS regardless of its location or ambient
air conditions.
Recognizing that pollutants are no respecters of state boundaries, the CAA has
established several mechanisms for addressing interstate pollution that may
contribute to noncompliance with a NAAQS. These mechanisms include regional
commissions, such as the Ozone Transport Commission, state petitions under Section
126, and other provisions for regional groups. The largest of these interstate
regulatory regimes is the NOx SIP Call, which controls NOx emissions from 20
states and the District of Columbia. Under the NOx SIP Call, the affected states are
given emission budgets that they can achieve in whatever manner they choose.
Noting the regional nature of the ozone problem in the eastern United States, EPA
successfully encouraged states to implement the rule through an EPA-coordinated
cap-and-trade program.
In summary, under this overall regulatory regimen, existing sources in
nonattainment areas are subject to controls determined by the state as necessary to
meet NAAQS; existing sources in attainment areas are essentially free from controls.
And major new sources, including fossil fuel-fired electric generating facilities, are
subject to NSPS as the minimum requirement, anywhere.¹³
Prevention of Significant Deterioration / New Source Review / Best
Available Control Technology. The 1977 CAA broadened the air quality
control regimen with the addition of the Prevention of Significant Deterioration
(PSD) and visibility impairment provisions. The PSD program (Part C of Title I of
the CAA) focuses on ambient concentrations of SO², NOx, and PM in “clean” air
areas of the country (i.e., areas where air quality is better than the NAAQS). The
provision allows some increase in clean areas’ pollution concentrations depending
on their classification. In general, historic or recreation areas (e.g., national parks)
are classified Class I with very little degradation allowed, while most other areas are
classified Class II with moderate degradation allowed. States are allowed to

¹² LAER may not be less stringent than NSPS, described below.
¹³ The federal focus on new facilities arose from several factors. First, it is generally less
expensive to design into new construction necessary control features than to retrofit those
features on existing facilities not designed to incorporate them. Second, uniform standards
for new construction ensures that individual states will not be tempted to slacken
environmental control requirements to compete for new industry.

reclassify Class II areas to Class III areas, which would be permitted to degrade up
to the NAAQS.¹⁴
New sources in PSD areas must undergo preconstruction review (called New
Source Review or NSR) and must install Best Available Control Technology (BACT)
as the minimum level of control. State permitting agencies determine BACT on a
case-by-case basis, taking into account energy, environmental, and economic
impacts. BACT cannot be less stringent than the federal NSPS, but it can be more
so. More stringent controls can be required if modeling indicates that BACT is
insufficient to avoid violating PSD emission limitations, or the NAAQS itself.
A complement to the PSD program for existing sources is the regional haze
program (Section 169A of the Act), which focuses on “prevention of any future, and
the remedying of any existing, impairment of visibility” resulting from manmade air
pollution in national parks and wilderness areas.¹⁵ Among the pollutants that impair
visibility are sulfates, organic matter, and nitrates. Sources built between 1962 and

1977 are required to install Best Available Retrofit Technology (BART). In 1999,

the EPA promulgated a regional haze program, which would entail more stringent
controls on NOx and SO².
Table 1 summarizes the current air quality control requirements imposed on
fossil fuel-fired electric generating facilities by Title I.
Background: Regulating Mercury Under Title I
Separate from the Title I requirements for criteria pollutants, Section 112 of the
Act establishes a two-phase federal regulatory program for 188 hazardous air
pollutants (HAPs) listed in the Act. Among the HAPs is mercury.
In the first phase, Maximum Achievable Control Technology (MACT) standards
are to be promulgated for all major sources of the pollutants. MACT is determined
by the EPA Administrator, but it must be at least as stringent as the best controlled
similar source for new sources or (with some exceptions) the average of the best
performing 12% for existing sources. In the second phase, eight years after
promulgation of MACT, additional regulations may be promulgated to address any
“residual risks” from HAPs after the implementation of MACT.
Electric utilities were given special treatment under Section 112. In Section
112(n), the Act required that EPA report to Congress on the hazards to public health
from electric generating units’ emissions of HAPs and make an affirmative finding
that regulation under Section 112 is “appropriate and necessary” for such units before
proceeding to issue MACT standards. EPA made this finding in December 2000; but
in January 2004, it proposed to rescind its conclusion that the MACT standard was
necessary, instead proposing a cap-and-trade program under Section 111 as its
preferred approach.

¹⁴ None have been reclassified to Class III, however.
¹⁵ See CRS Report RL32483, Visibility, Regional Haze, and the Clean Air Act: Status of
Implementation, by Larry Parker and John Blodgett.

CRS-6
Table 1. Implementing Title I: Simplified Structure for Electric Generating Units
imum Level ofEverywhereNonattainment AreaAttainment Area
or all
New SourceExisting SourceNew SourceExisting SourceNew Source Existing Source
NSPS as set by EPAnone, unless modifiedLAER asRACT asBACT asBART required
under Section 111or covered bydetermined bydetermined bydetermined byin areas affected
(also coversvisibility rules (i.e.,individual states;individual statesindividual states;by visibility
modified existingbuilt between 1962can not be lessunder federalcan not be lessprovisions
sources)and 1977)stringent than theguidelinesstringent than
federal NSPSfederal NSPS
NAAQS for SO², NO², O³, PM¹⁰, and PM^2.5Offset Requirements (OSR)PSD for SO², NO², and PM
ⁱ^{ki/CRS-RL32782} — Increments
^g/w — Visibility
^s^.orcal/State SIP SIP SIP
^le^aksponsibilityNSPS-NSRNonattainment NSRPSD-NSR
^://wikiSection 126 Petitions (for transboundarySection 126 Petitions (for affectingSection 126 Petitions (for affecting PSD
^h^ttppollution)nonattainment)and visibility)
^Source:^{CRS, m}^o^dⁱ^fⁱ^ed^f^r^o^m^Electrⁱ^{c P}^o^w^e^r^Resear^ch^Iⁿ^stitu^te,^N^O^{x Regulator}^{y C}^hanges^{and the Electr}ⁱ^{c Utility}^(S^ept^e^m^b^{er 1981), pp. 2-}^3.

Table 2. Implementing Section 112 for Mercury and Other HAPs
from Electric Generating Units and Other Sources
Everywhere
Maximum AchievableNew SourcesExisting Sources
Control TechnologyApplicable at each sourceApplicable at each source
(MACT)
Not less stringent than theNot less stringent than the
best controlled similaraverage of the best
sourceperforming 12% (best 5
sources, if fewer than 30
sources)
Residual RiskIf required to provide an ample margin of safety to
protect public health
8 years after promulgation of MACT
Applicable at each source
10^-6 standard (1 in 1 million risk) for carcinogens
Could be used to address hot spots
State/Local AuthorityAllows more stringent state and local standards
^Source:^CRS.
Under current law, states are allowed to implement standards for HAPs that are
more stringent than the federal ones, and several (including Massachusetts,
Connecticut, New Jersey, and Wisconsin) have already done so.
Table 2 summarizes the current requirements imposed on fossil fuel-fired
electric generating facilities by Section 112.
Changes Proposed by Clear Skies¹⁶
Clear Skies would change numerous provisions of current law. Some of these
changes add new authorities or programs — for example, the establishment of
national cap-and-trade programs for utility emissions of NOx and mercury, and the
extension and revision of the Title IV cap-and-trade program for SO². Other changes
remove existing authority (e.g., the hazardous air pollutant provisions of Section 112,
as they relate to mercury emissions from utilities and from opt-in facilities in other
industries). And other changes modify and/or hold in abeyance certain provisions for
several years (e.g., BART, Section 126, conformity).

¹⁶ The reader should note that modifications to specific Clear Skies proposals, such as S.
131, are likely as the bill moves through the legislative process. This report focuses on
provisions that were in S. 131 as introduced.

A list of the additional authorities would include (1) the cap-and-trade programs
for SO², NOx, and Hg; (2) statutory national emission standards for new and
reconstructed electric generating units (EGUs); (3) authority for sources in other
industries to opt into the cap-and-trade program; and (4) establishment of an optional
“transitional area” category in place of the traditional nonattainment area
designations under Sections 107 and 110.
A list of the authorities removed (or limited in new ways) would include (1)
provisions for major sources (i.e., affected EGUs and opt-in units would no longer
be considered major sources); (2) changes to the hazardous air pollutant provisions
of Section 112, removing utilities and opt-in units from the sources whose mercury
emissions can be controlled under Maximum Achievable Control Technology
(MACT) and residual risk provisions; (3) changes to Section 126, establishing a
moratorium on the use of petitions to control interstate air pollution, and establishing
substantially more stringent requirements for acceptance of such petitions after the
moratorium; (4) reduction of the noncompliance penalties under the new SO² cap-
and-trade program; (5) effective preemption of more stringent state requirements for
NOx and mercury; (6) elimination of New Source Review (NSR) for modifications
of major sources; (7) elimination of Best Available Retrofit Technology (BART)
requirements under Section 169A (which concerns visibility protection); (8)
establishment of a statutory 50 km zone around Class I areas for imposition of the
Prevention of Significant Deterioration (PSD) requirements (replacing a current
regulatory 100 km zone); (9) exempting affected units located in PSD Class II areas
from Class II limitations on pollution increments; (10) extension of deadlines for
meeting the ozone and PM^2.5 NAAQS; (11) a de facto moratorium on the provisions
of Subpart 2 dealing with ozone nonattainment in most areas; and (12) a de facto
moratorium on the conformity requirements (for highways and other projects) under
Section 176 in most ozone and PM^2.5 nonattainment areas.
New Authorities
1. Cap and Trade Program for SO², NOx, and Mercury. Much of Clear
Skies consists of detailed provisions that would replace Title IV of the Clean Air Act,
the acid precipitation title, with a revised and expanded version establishing a multi-
pollutant cap-and-trade program. The proposal would place caps on emissions of
SO², NOx, and Hg in two phases, and would set up trading programs to provide
flexibility in meeting the three caps.
For the version introduced as S. 131, Phase 1 would establish caps for EGUs
of:
^!2.19 million tons of NOx in 2008;
^!4.5 million tons of SO² in 2010; and
^!34 tons of mercury in 2010.
The S. 131 Phase 2 caps, which would take effect in 2018, are set at:
^!1.79 million tons of NOx;
^!3.0 million tons of SO²; and

^!15 tons of mercury.¹⁷
The allowance trading program provisions are generally similar to those of the
existing Title IV program. As specified under S. 131, allowances would be allocated
free to EGUs based on historic fuel usage. For the new NOx and Hg programs, the
allocation would be adjusted by factors specified in the bill (e.g., EGUs fueled by
lignite would receive three times as many Hg allowances as would comparable EGUs
fueled by bituminous coal). Unlike the existing program, a small pool (7% of the
SO² and 5% of the NOx and Hg allowances) would be set aside for new units.
2. National Emission Standards for SO², NOx, and Hg Emissions
from New and Reconstructed EGUs. Clear Skies would establish statutory
standards for emissions of SO², NOx, and Hg from new and reconstructed EGUs.
The standards are generally more stringent than current NSPS (e.g., for NOx, the
standard would be 1.0 lb/MWh for coal-fired EGUs versus the current NSPS of 1.6
lb/Mwh¹⁸; for particulate matter, the standard would be 0.20 lb/MWh, about one-
third less than the current NSPS). The Hg standard (0.015 lb/GWh) is more stringent
than the proposed MACT for subbituminous, lignite, and IGCC units — especially
the lignite units — but it would allow two and a half times as much emissions as the
proposed MACT for bituminous-fired EGUs.
Compared to the current NSPS, the National Emission Standards would apply
to fewer units (as discussed further in item 6 under “Authorities Removed or
Limited,” below). The National Emission Standards would be reviewed and, if
appropriate, revised at least every eight years following their promulgation, the same
as the requirement for existing NSPS.
3. Authority for Non-Utility Sources to Opt into the Cap-and-Trade
Program. S. 131 would allow units that are not affected EGUs and whose
emissions of SO², NOx, and Hg are vented only through a stack or duct to opt into
the cap-and-trade program. The proposal establishes alternative methods of
determining allowances for these units based on a unit’s heat input or product output
and its emissions during one of several optional base periods. In the case of S. 131,

¹⁷ The extent to which these caps would reduce emissions is difficult to estimate. Some
estimates compare the caps to actual emission levels, generally using as a baseline 2000 data
for SO² and NOx and 1999 (latest data available) for mercury. Emissions of all three
pollutants are likely to be lower at present than they were in 1999 or 2000, particularly NOx,
for which a major new regulatory program (the NOx SIP call) took effect in 2004. With
SO², there is the further question of whether the bill’s caps should be compared to actual
emissions (11.4 million tons in 2000) or the existing SO² cap under the current Title IV
(8.95 million tons in 2000). Emissions in 2000 and subsequent years have exceeded the cap
as utilities used up prior year (banked) allowances. Mercury reduction estimates are
complicated by the fact that units emitting 50 pounds or less annually would be exempt from
the cap in S. 131, as introduced. While detailed monitoring data are unavailable, about half
the EGUs would be exempt from the cap under this provision. Thus, a comparison of S.
131’s caps to 1999 emissions from all EGUs overstates the percentage reduction that would
be achieved.
¹⁸ EPA proposed a 1.0 lb/Mwh standard (the same as that in Clear Skies) under current
authority on February 22, 2005.

a unit would receive allocations equal to 70% of its baseline SO² and NOx emissions
beginning in 2010, and 50% beginning in 2018. Mercury allocations, beginning in
2010, would be equal to the emissions allowed under federal or state hazardous air
pollutant standards (generally, the standards for industrial boilers and process heaters
promulgated by EPA in September 2004).
In return for opting into the cap-and-trade program, units would be exempt from
compliance deadlines for all hazardous air pollutants under four broad categories of
regulations (industrial boilers, process heaters, combustion engines and turbines, and
plywood) as soon as they apply for acceptance,¹⁹ and would be permanently exempt
from the regulations if EPA accepts their application to opt in.
In addition, units that opt in would no longer be considered a major source or
a major emitting facility or major stationary source for purposes of Part C (PSD) and
Part D (nonattainment) of the Act for 20 years. As discussed later (see item 1 under
“Authorities Removed or Limited,” below), this would exempt opt-in units from
several requirements provided the owner/operator properly operated, maintained, and
repaired the unit’s pollution control equipment to limit particulate emissions and
used good combustion practices to minimize carbon monoxide emissions.
4. Establishment of an Optional “Transitional Area” Category in
Place of Nonattainment Designations. Clear Skies would amend Section 107
of the Clean Air Act to allow areas to be designated “transitional” rather than
“nonattainment” for the new 8-hour ozone and PM^2.5 standards, if EPA or state
modeling demonstrate that the area will attain the new standards by December 31,

2015. EPA modeling demonstrates that 88% of the ozone and about two-thirds of²⁰

the PM^2.5 nonattainment counties would qualify for this transitional status; other
areas could qualify by adopting additional local controls. The effects of this change
(as discussed in more detail in items 10, 11, and 12 under “Authorities Removed or
Limited”) are to extend the deadlines for reaching attainment and remove numerous
statutory requirements for nonattainment areas under Part D until after 2017.
Authorities Removed or Limited
1. Exemption from Major Source Requirements Under Parts C and
D. Clear Skies would provide that affected units (including both EGUs and facilities
in other industries that opt into the cap-and-trade program) would not be considered
major emitting facilities or major stationary sources of air pollution for purposes of
Parts C (PSD provisions) and D (nonattainment provisions) of Title I of the Clean
Air Act for a period of 20 years after the date of enactment. For the PSD program,
this would exempt them from the requirements of NSR and BART, as well as BACT.
Unless an affected unit was located within 50 km of Class I areas (158 designated
national parks and wilderness areas), it would not be subject to the ambient air
protections (i.e., increments) of the PSD program. If the unit is located within 50 km

¹⁹ The deadline for compliance would otherwise generally be 2007 - 2010.
²⁰ See CRS Report RL32345, Implementation of EPA’s 8-Hour Ozone Standard, p. 6, and
CRS Report RL32431, Particulate Matter (PM2.5): National Ambient Air Quality
Standards (NAAQS) Implementation, pp. 10-11.

of a Class I area , however, it would remain subject to the PSD requirements in Part
C of Title I.²¹ (See further discussion under items 7, 8, and 9, below.)
For nonattainment areas, Clear Skies would exempt affected units from
nonattainment NSR, LAER, and offset requirements. This would limit the ability of
nonattainment areas to impose additional controls on existing EGUs and opt-in
facilities under their State Implementation Plans.
To qualify for the exemptions, an existing affected unit (or opt-in unit as noted
above) must show that it “operates, maintains and repairs pollution control
equipment to limit emissions of particulate matter” and “uses good combustion
practices to minimize emissions of carbon monoxide” within three years of the date
of enactment.
2. Changes to the Hazardous Air Pollutant Provisions of Section
112. Clear Skies would revise Section 112 of the Clean Air Act to preclude
regulation of any hazardous air pollutants emitted by electric utility steam generating
units through either MACT or residual risk standards, with the following exception.
The Administrator would retain the authority to address any non-mercury hazardous
air pollutants from EGUs provided that any determination to do so is based on public
health concerns and, on an individual source basis, considers the effects of emission
controls installed or anticipated in order to meet 2018 emission requirements under
the cap-and-trade program. A determination to impose such controls would also
need to be based on a peer-reviewed study with notice and opportunity to comment,
to be completed not before January 2015. Any such standards could not take effect
before January 1, 2018.
As noted earlier, S. 131 as introduced also exempts units that opt into the cap-
and-trade program from compliance deadlines under four sets of hazardous air
pollutant regulations already promulgated under Section 112 once the units apply to
opt in; it would permanently exempt them from compliance with the four MACT
standards if EPA accepts their application.
3. Changes to Section 126 Petitions. Clear Skies would add a new
Section 110(q) to the Clean Air Act, establishing a moratorium on the use of petitions
to control interstate air pollution from affected units (under Section 126 of the Act)
and establishing more stringent requirements for acceptance of such petitions after
the moratorium. Under current law, Section 126 authorizes downwind states or
political subdivisions to petition the Administrator to find that certain upwind

²¹ In addition, Clear Skies would require State Implementation Plans (SIPs) to include
requirements that prior to the commencement of construction of an affected unit in an
attainment or unclassifiable area (e.g., a PSD Class II area), the owner or operator must
demonstrate that the emissions increase from construction or operation will not cause or
contribute to air pollution in excess of any national ambient air quality standard (NAAQS),
a less stringent requirement than current law. In areas designated nonattainment, the state
must determine that construction or operation will not interfere with any program to assure
that the NAAQS are achieved. Interference will be deemed not to occur if, for three years
prior to the date a complete permit application is submitted, the area was in full compliance
with all requirements of the Clean Air Act, including the requirements for SIPs.

sources emit air pollutants in amounts that contribute significantly to the petitioner’s
nonattainment. If the Administrator grants the finding, the upwind sources must
either shut down or implement controls that the Administrator may mandate, within
a specified period, but no later than three years from the date of the finding. The
amendment would provide that the Administrator may not require submission of SIPs
subjecting affected units to Section 126 requirements with an effective date prior to
December 31, 2014.
In reviewing a petition under Section 126, the Administrator would have to
consider, among other factors, any emissions reductions required to occur by the
applicable attainment dates of any relevant nonattainment areas. In addition, as
conditions for making a finding concerning affected units, the Administrator would
have to determine that the required emission reductions from the affected units (1)
are at least as cost-effective as emission reductions from each other principal
category of sources in areas upwind of the petitioner (including on-road and off-road
mobile sources), and (2) will improve air quality in the petitioner’s nonattainment
areas at least as cost-effectively as other emission reductions, if a methodology is
reasonably available to make such determinations.
4. Change in Noncompliance Penalties Under Title IV. Clear Skies
would replace the Clean Air Act’s existing Section 411 beginning in 2008,
effectively reducing the penalties for noncompliance with the sulfur dioxide cap-and-
trade program provided in current law. Under current law, noncompliance penalties
were set at $2,000 per ton of excess emissions in 1990. The amount is adjusted for
inflation: in 2004, the adjusted amount would have been $2,890.59, according to the
Bureau of Labor Statistics. Section 406 of the bill would set the penalties at $2,000,
with no further inflation adjustments, thus cutting the penalty by about one-third
initially, and more in subsequent years.
5. Preemption of State Requirements. Like current law, Clear Skies
states that it does not preempt the right of any state or political subdivision thereof
to adopt or enforce limits more stringent than those provided in the bill. Under the
cap-and-trade programs, however, “notwithstanding any other provision of this Act,”
states and their political subdivisions would be prohibited from interfering with the
transfer, sale, or purchase of allowances. The net effect of these provisions would
be to allow increased emissions in another jurisdiction by an amount equal to any
reduction achieved in a more stringent state for each of the three covered pollutants.
Since the bill also limits the ability to file Section 126 petitions to control out-of-state
pollution, a more stringent standard enacted by a state might have no effect on
national levels of a pollutant, but would burden a state’s economy with additional
control costs.
6. Elimination of New Source Review for Modifications of EGUs. As
noted earlier, Clear Skies would exempt EGUs and opt-in facilities from NSR for a
period of 20 years. The bill does, however, establish National Emission Standards
for new EGUs (also described above). These new standards would not apply to
“modified” units, but would apply to “reconstructed” units. Reconstruction is
defined as the replacement of components to such an extent that the fixed capital cost
of the new components exceeds 50% of the fixed capital cost to construct a
comparable new unit. Also, the standards would not apply to reconstructed units
unless it is technologically and economically feasible to meet the standards.

Under current law and subsequent regulation, there is no specific cost criterion
for what qualifies as a modification requiring an affected source to undergo NSR, but
it is considered to be well below a 50% threshold. EPA’s October 2003 attempt to
establish a 20% threshold was criticized as exempting virtually every plant
modification from the existing requirement, and was stayed by the U.S. Court of
Appeals for the D.C. Circuit on December 24, 2003.²²

7. Elimination of Best Available Retrofit Technology (BART)

Requirements. Under Section 169A of Part C of the Clean Air Act, major sources
that were in operation between 1962 and 1977 are subject to BART. BART is
intended to assure reasonable progress toward the goal of visibility protection in
Class I national park and wilderness areas. Clear Skies would exempt EGUs and opt-
in facilities from BART for a period of 20 years after enactment.
8. Class I PSD Areas. As noted above, S. 131 as introduced provides that
an affected unit to be located within 50 km of a Class I area on which construction
or reconstruction begins after the date of enactment would remain subject to PSD
requirements. PSD currently requires that all major new and modified sources with
the potential to affect air quality in a Class I area obtain a new source permit that
assures no adverse impact on the area’s visibility. The statute does not specify a
specific distance limit, but the regulations require permit applicants to identify Class
I areas within 100 km of the unit’s location.²³
9. Class II PSD Areas. Under the PSD program, areas classified as Class II
are permitted to increase moderately ambient concentrations of SO², NOx, and PM
by a statutorily determined increment (regulatorily determined in the case of NOx).
Clear Skies would exempt affected units located in Class II areas from having to
offset or otherwise further control their emissions in order to maintain ambient air
quality within the Class II increments.
10. Extension of Deadlines for the Ozone and PM^2.⁵ NAAQS. Under
current law, nonattainment areas must generally demonstrate that they will attain the
new standards for ozone and fine particles (PM^2.5) by 2007, 2009, or 2010 (depending
on EPA’s classification scheme).²⁴ As noted earlier, Clear Skies would create a new
“transitional” area classification in place of nonattainment, for areas that can
demonstrate through modeling that they will attain the standards by December 2015.
Until that date, transitional areas would not incur penalties or face additional
requirements beyond those identified in the EPA or state modeling (generally the
Clear Skies controls and already promulgated federal standards for mobile sources).
After 2015, if an area failed to achieve the standard, it would be designated
nonattainment by June 2017, and would then have to impose controls to reach

²² For additional discussion, see CRS Report RS21608, Clean Air and New Source Review:
Defining Routine Maintenance.
²³ For additional information, see the National Park Service website at [http://www2.nature.
nps.gov/air/Regs/psd.htm] .
²⁴ For ozone deadlines, see [http://www.epa.gov/oar/oaqps/greenbk/gnc.html]. All PM^2.5
areas have an initial deadline of 2010.

attainment by 2022. Meanwhile, until 2017, the ozone transitional areas would be
exempt from statutory requirements spelled out in Subpart 2 of Part D of the Act
(described below).
11. Elimination of the Provisions of Subpart 2 for Ozone
Nonattainment. Subpart 2 (Sections 181 and 182) of the Clean Air Act spells out
numerous specific requirements for areas that are classified in Marginal, Moderate,
Serious, Severe, or Extreme ozone nonattainment. These can include LAER
standards and offset requirements for new stationary sources, imposition of RACT
on existing stationary sources, inspection and maintenance programs for motor
vehicles, vapor recovery at gas stations, use of reformulated gasoline, and $5,000 per
ton penalties on some emissions if an area ultimately fails to meet the standard. EPA
has proposed to keep these requirements in place for areas that have failed to meet
the 1-hour ozone standard, but it would appear that such areas might be able to²⁵
qualify as “transitional” under Clear Skies. Transitional areas would not be
considered in nonattainment. If the areas do qualify as transitional, they would
appear to be able to roll back statutory requirements to which they are now subject,
provided that they can demonstrate attainment by 2015.
12. Elimination of the Conformity Requirements. Under Section 176 of
the Clean Air Act, ozone and PM^2.5 nonattainment areas are required to demonstrate
that new federally funded projects (e.g., for highways, transit, or airports) conform
to the area’s SIP for clean air. Failure to demonstrate transportation conformity can
lead to a suspension of federal transportation funds until conformity is demonstrated.
By reclassifying most ozone and PM^2.5 nonattainment areas “transitional,” Clear
Skies would eliminate the application of conformity in those areas until 2018.
Impact of Clear Skies
Impact on Regulating Criteria Air Pollutants
Proposed Clear Skies legislation would make numerous changes to the structure
of Title I with respect to electric generating units (EGUs) covered by the proposed
legislation and those industrial sources that choose to opt into the proposed program.
Table 3 attempts to provide an overview of what Title I would look like under Clear
Skies with respect to EGUs and industrial sources that chose to opt in. The most
significant structural change would be the elimination of location as a variable for
controlling EGUs (unless within 50 km of a PSD Class I area). The emission
limitations envisioned under Clear Skies are not based on whether an EGU is in an
attainment or nonattainment area. This situation extends to the allowance system,
which is allowed to operate regardless of an EGU’s location or a state or local
government’s desires to restrict trading in order to help the area come into
compliance with NAAQS. Because EGUs would no longer be major sources under
the meaning of Part C and Part D, states’ ability to set stringent LAER or offset rules
on EGUs in nonattainment areas would be eliminated.

²⁵ Personal communication, Office of Air Quality Planning and Standards, February 10,

2005.

CRS-15
Table 3. Summary of EGU Requirements under Title I If Clear Skies Is Enacted
imum LevelEverywhereNonattainment AreaAttainment Area
Control for all
New SourceExisting SourceNew SourceExisting SourceNew Source Existing Source
StatutoryStatutorySame asSame as everywhereSame as everywhereSame as everywhere
Standards,requirements,everywhereunless 50 Km fromunless 50 Km from
compliancecompliance withPSD Class I areaPSD Class I area
with ClearClear Skies
Skies
mits onNAAQS for SO², NO², PM¹⁰, O³, andTransitional NAAQS for O³, and PM^2.5NAAQS
bient ImpactPM^2.5PSD increments do not apply to EGUs unless
ⁱ^{ki/CRS-RL32782}within 50 Km from PSD Class I area
^g/wVisibility requirements replaced with compliance
^s^.orwith Clear Skies
^le^akcal/StateSIP SIP SIP
^://wikisponsibility — NSR eliminated for EGUs — Sec. 126 petitions limited by Clear Skies — NSR eliminated for EGUs complying with
^h^ttpcomplying with Clear Skies — NSR eliminated for EGUs complyingClear Skies
— States and localities not allowedwith Clear Skies — States and localities not allowed to interfere
to interfere with the free operation of — States and localities not allowed towith the free operation of allowance system
allowance systeminterfere with the free operation of
allowance system
— Transitional designation eliminates
conformity requirements and Subpart 2
mandating controls
^Source:^CRS.

Likewise, the inability to restrict trading by EGUs within nonattainment areas
would prevent state and local governments from influencing the actual emissions of
such EGUs. Finally, the state’s enforcement mechanism, NSR, is eliminated for
EGUs covered by Clear Skies.
If states chose to set stringent state standards under their own Clean Air Act or
equivalent statute, those standards would not be completely controlling. By
preventing states from restricting allowance trading, any extra reductions achieved
by state legislation designed to help achieve attainment (or protect local habitat or
scenic areas under Part C) would create additional allowances that the utility could
sell to upwind utilities not covered by the state’s legislation. The state could neither
prevent the sale nor obtain relief under a Section 126 petition forcing the neighboring
utilities to reduce emissions (until after 2014 under strict conditions).
For the 8-hour ozone and PM^2.5 NAAQS, Clear Skies attempts to eliminate the
need for stronger state and local standards (at least the “need” in a regulatory sense)
in most cases by establishing a new “transitional” designation for areas that do not
currently meet ambient air quality standards. Areas would be designated transitional
if EPA or state modeling showed that Clear Skies and other measures such as the
recently promulgated controls on mobile sources would bring an area into attainment
by December 2015. Transitional areas would not be considered nonattainment in a
regulatory or legal sense, obviating the need and the statutory pretext for additional
controls.
With respect to PSD, Clear Skies attempts to protect Class I areas by providing
for Part C requirements for facilities within 50 km of an Class I area. Whether this
is sufficient is debatable. In terms of protecting areas that states deem worthy of
protection but that do not meet Clear Skies’ Class I requirement, states and localities
are basically in the same situation as with respect to nonattainment — that is, they
are severely constrained in being able to meet requirements by the inability to impose
additional controls on EGUs and opt-ins.
The distinction that has been the source of the most substantial controversy over
the years, EGU age, is not fully resolved by Clear Skies. Both Title I and Title IV of
the CAA place the most stringent requirements on new sources, allowing existing
sources to operate with fewer controls. Clear Skies would reduce this disparity by
setting up allowance reserves for new sources. However, although all allowances
would be allocated free, the allocation formulas for existing sources would be more
generous than for new sources. In addition, the allowances for new sources are on
a first-come, first-serve basis. Once the reserve is exhausted, no further allowances
are available, and no existing allocations may be reassigned by EPA to future new
sources commencing operation. Thus, existing units would continue to have an
advantage over new facilities, which would receive either fewer allowances than
existing sources, or none at all.

Table 4. Control of Mercury and Other HAPs from Electric
Generating Units (and Opt-Ins) If Clear Skies Is Enacted
Everywhere
New SourcesExisting Sources
No longer applicableNo longer applicable
Maximum Achievable
Control TechnologyReplaced by cap onReplaced by cap on
(MACT)emissions from all unitsemissions from all units
Individual sources mayIndividual sources may
reduce emissions or mayreduce emissions or may
purchase allowances frompurchase allowances from
overcomplying sourcesovercomplying sources
Residual RiskNo longer applicable
Administrator would retain authority to address
non-mercury HAPs from EGUs and opt-in facilities
Determination to impose such controls would need to be
based on a peer-reviewed study of public health
concerns on an individual unit basis and could not take
effect before January 1, 2018
State/Local AuthorityAllows more stringent state and local standards, but
standards would not be controlling because states and
localities would not be allowed to interfere with the free
operation of the allowance system
Source: CRS.
Impact of Clear Skies on Mercury Regulation
Table 4 provides an overview of the regulation of mercury and other hazardous
air pollutants under Clear Skies. Maximum Achievable Control Technology
standards and residual risk standards would no longer be applicable to new or
existing EGUs; nor would they apply to other industrial sources that opt into the cap-
and-trade program. The absence of such unit-specific standards would make it more
difficult to address “hot spots,” areas where concentrations of mercury are greater
than elsewhere.
As with the PSD and nonattainment provisions, if states chose to set more
stringent state standards under their own Clean Air Act or equivalent statute, those
standards would not be completely controlling. By preventing states from restricting
allowance trading, any extra reductions achieved by state legislation designed to
regulate mercury would create additional allowances the utility could sell to upwind
utilities not covered by the state’s legislation. The state could not prevent the sale.
The Administrator would retain the authority to address non-mercury HAPs
from EGUs under stringent conditions, including a requirement for a peer-reviewed
study of public health concerns on an individual unit basis with notice and
opportunity to comment. Any such standards could not be implemented before 2018.

Conclusion
In some ways, former Administrator Whitman has identified the central issue
in Clear Skies’ interaction with the Clean Air Act: Are the targets stringent enough
to permit the relaxing or removal of some provisions of the Clean Air Act designed
to achieve the same thing with respect to electric utilities?
In terms of utility controls designed to achieve the NAAQS, it must be stated
that Clear Skies will not achieve either the 8-hour ozone NAAQS or the fine
particulate NAAQS within the current CAA compliance deadlines, neither in terms
of the reductions necessary to achieve those standards nor the timing of the
reductions Clear Skies would achieve. EPA’s analysis indicates that some
nonattainment areas will need additional controls and time to reach attainment.²⁶
Clear Skies, as currently drafted, would effectively remove additional electric utility
control from the suite of options available to states to achieve that additional level
of control. In addition, the opt-in provision means that the reach of Clear Skies is
unclear. In some areas, the removal of an industrial source from Part C or Part D
could greatly reduce the options state and local authorities would have to achieve
NAAQS attainment or to maintain PSD increments.
Similar problems are anticipated for Clear Skies’ mercury controls. At present,

45 states have issued fish consumption advisories because of mercury contamination.

In about half the cases, the advisories affect every water body in the state. Clear²⁷
Skies proposes relatively modest controls on mercury from electric utilities, and
most other sources of mercury are already subject to more stringent controls.²⁸ As
currently drafted, Clear Skies would effectively remove additional electric utility
controls from the suite of options available to the states to further reduce mercury
emissions. The ability of industrial sources to opt into the Clear Skies program
would further reduce state mercury control options.
The response of the Administration is to argue that reductions will be achieved²⁹
sooner and less expensively under Clear Skies than under the Clean Air Act, even
though Clear Skies would extend compliance deadlines 5 to 15 years for states to
achieve air quality standards. The record of Title IV suggests that substantial
overcontrol may be achieved in the early years of a market-based cap-and-trade
program. However, as the program also illustrates over the past couple of years,
those early reductions can be used later to increase emissions in a given year over the

²⁶ See EPA’s technical analysis, Section B: Human Health and Environmental Benefits,
available at [http://epa.gov/air/clearskies/03technical_package_sectionb.pdf].
²⁷ Administration analyses indicate that because of credits for early reductions, the 29%
reduction in mercury envisioned for Clear Skies first phase will not be achieved until 2013,
and the 70% reduction for phase 2 not until after 2026.
²⁸ For a list of the major sources of mercury and the degree of control required, see CRS
Report RL31881, Mercury Emissions to the Air: Regulatory and Legislative Proposals,
Table 1.
²⁹ See EPA’s Clear Skies website at [http://epa.gov/air/clearskies/basic.html].

mandated cap.³⁰ Thus, achieving reductions early under a cap-and-trade program
does not mean achieving more reductions over the longer term. For state and local
authorities, this additional flexibility allowing sources to use banked allowances can
further complicate compliance strategies.

³⁰ For a history of emission reductions under Title IV, see:
[ ht t p: / / www.epa.gov/ ai r mar ke t s / c mpr pt / a r p03/ summa r y.ht ml ]