Air Quality and Electricity: Initiatives to Increase Pollution Controls

CRS Report for Congress
Received through the CRS W eb
Air Quality and Electricity:
Initiatives t o Increase Pollution Controls
Larry B. Parker and John E. Blodgett
Specialists in Energy and Envi ronmental Policy
Resources, Science, and Industry Division
Since t he mid-1990s, EPA has i nitiated actions resulting i n regulatory m andates
and enforcem ent actions direct ed primarily at coal -fired elect ric generating utilities .
Thes e actions would, if implemented, s ubstantially reduce air pollut a n t s , particularly
nitrogen ox ides (NOx ). Thes e i nitiatives incl ude the Ozone Transport R ule (al so called
the NOx S IP C all); a set of “Section 126 petitions” i n which 12 states allege under
Section 126 of the C lean Air Act (CA A ) t h at pollutants origi nating i n upwind s tates
prevent t hei r at t ai n m ent of cl ean ai r s t andards; and a set o f enforcem ent act i ons based
on New S ource Review (NSR) requirements o f t he C AA t hat h ave resul t ed i n l awsui t s
agai nst sever al utilities and an administrative order agai nst t he Tennessee Valley
Authority. Although t hese are s eparate ini tiatives, t hey are related i n t hat each
ultimately focuses on emissions from utilities i n t he Midwes t and South. As of J anuary
22, 2001, the EPA has d eclared 11 states and t h e D i s t rict of Columbia as failing t o
submit revised S IP s required u n d e r t he Oz one Transport R ule; the EPA has approved
four section 126 petitions; and two of t he NSR l awsuits have resulted i n consent decrees
(Tam pa Elect ric C o. and PSEG), and two others have been settled i n principle (Virgi nia
Power and Cinergy). In J une 2002, the Bush Admi n i s t r a tion recommended n ew
rulemaking b e c o m m enced on the d efinition o f “routine m aintenance”: a k ey point of
contention i n t he lawsuits. Legislative activity focuses on m ulti-pollutant strategi es as
an alternative t o t hese piecemeal initiatives. In J une 2002, the S enate Environment and
Public Works C ommittee reported out S. 556 – a comprehens i v e, m ulti-pollutant
reduction bill. This report will be updated as events warrant.
Since t he mid-1990s, t he U.S. Environmental P rotection Agency (EPA) has i nitiated
actions that have resulted i n regulatory m andat es and enforcem ent act i ons t h at woul d, i f
implemented, s ubstantially reduce air pollu t a n t s (particularly nitrogen ox ides – NOx )
emitted by s ome elect ric generating facilities. An Ozone Transpo r t A s s essment Group
(OTAG), formed b y EPA in May 1995, laid the groundwork for the regulatory i nitiatives;
it directly led t o t he Oz one Transport Rule (al so called t he NOx SIP C all). In a

Congressional Research Service ˜ The Library of Congress

supplementary action, 12 states petitioned EPA under S ect ion 126 of the C AA,
concerning interstate pollution, allegi ng that NOx originating i n upwind s tates prevented
their attainment of oz one standards. An EP A O ffi ce of Enforcem ent & C o m p l i ance
Assurance audit o f New Source Review (NSR ) applications required under p rovisions of
the C lean Air Act (CAA) t h a t b egan i n l ate 1996 was t he precursor to the enforcement
initiative; it led i n November 1999 to lawsuits against s even utilities i n t he Midwest and
S out h and an adm i n i s t rat i v e o rder agai ns t t he Tennessee Valley Authority a l l e gi n g
violations of NSR requirements o f t he CAA. 1
The first two i nitiatives , t he Ozone Transport R ule and the S ection 126 petitions, are
rel at ed t o each ot her s ubst ant i v el y. 2 Thes e i nitiatives would further control NOx to assist
states in the Northeast i n m eeting t he ex istin g, statutory 1 -hour oz one National Ambient
Air Quality Standard (NAAQS). The Oz one Transport R ule i ncludes al l o r p art of 19
eas tern stat es and t he District of Columbia. Bas ed on the eight petitions EPA has ruled
on, EPA’s S ection 126 determinations would i nvolve a s ubset of the NOx SIP C all’s 19
stat es – 12 states and the District of C olumbia.
The enforcement i nitiative i s not legally or procedurally r e l a t e d t o t he above
init i a t i v e s ; however, t he NSR enforcement action by EPA has substantive associ ations
with them in that NOx is a primary (but not sole) focus, and many of the utilities nam ed
as defendants i n t hese cases would also h av e t o reduce emissions under t he NOx SIP C all
and S ection 126 determinations. Unlike t he other actions, t h e N S R action does not
involve new regulatory action, but enforcement o f ex i sting l aw and regulations. As s uch,
it is handled by the EPA’s Offic e o f Enforcement & Compliance Assurance, not a
regu latory office, and i nvolves o ther polluta nts electric generators emit besides NOx
(specifically sulfur diox ide (SO2) and particulates).
The prim a ry focus of t he regulatory initiatives and a primary effect of EPA’s
enforcem ent action i s t o reduce NOx emissions in the eas tern part of the United S tates.
The environmental purpose for doing so is to reduce t he interstate transportation of t his
ozone precursor, t hus assisting l ocalities along the eas tern seaboard in attaining t he ozone
NAAQS. T h e a c t ions would also mitigate acid rain. The i nitiatives and enforcement
action b y EPA focus o n coal-fired electric generating facilities both b ecause they are
major s ources of emissions – i n 1997 they emitted 24% of the country’s NOx (and also

62% of its SO2, 3 1 % of its carbon diox ide (CO2), and approx imately one-third of the

1 For more details on the Ozone Transport Rule and Section 126 petitions, s ee CRS Report 98-
2 36, Air Quality: EPA’s Ozone Transport Rule, OTAG, and Section 126 Petitio n s – A H a z y
Situation? , updated M arch 9, 2001. Fo r more details on EPA’s NSR action, see CRS Report
RL30432, Air Quality and Electricity: Enforcing New Source Review.
2 Until recently they were also linked administratively and procedurally through ties t o another
regulatory action by EPA – t he 1997 promulgation of a new 8-hour National Ambient Ai r Quality
Standard (NAAQS) f or ozone. T hat linkage was bro ke n b y E P A when litigation t emporarily
halted i mplementation of t he 8-hour standard. Some observers include the 8-hour standard as a
related f ourth initiative, but this report i ncludes i t only t o t he extent it is related t o t he NOx SIP
Call, the Section 126 petitions, and the enforcement action.

country’s mercury (Hg)) – and because they re present t he most cost-effective s ources of
large emission reductions for NOx and S O 2.
In the cas e of t he Section 126 determinati ons and t he NS R enforcem ent act i on, coal -
fired powerplants are ex plicitly target ed for emissions reductions. In t he cas e of t he NOx
SIP C all, EPA cannot ex plicitly target sources (that i s t he responsibility of each affected
stat e), but the allocation schem e used by EPA to determine t he allowable emissions
budget for i ndividual s tates i s b ased primarily on substantial reductions from coal-fired
powerplants. In general, the initiatives identified here would require affect ed powerplants
to reduce t heir NOx emissions by about 75%-85%. Although t he Section 126
determinations and t he NSR enforcement action t arget i ndividual s ources, EPA provides
flex ibility for utilities t o achieve the m andated reduction by m eans other than s i m p l y
installing NOx control equipment on affect ed u n i t s . As i ndicat ed by EPA’s NSR
settlement with Tampa Electri c d iscussed l ater, t he consent d ecr ee i nvolves s everal
different NOx control s trategies t o re d u c e N O x emissions by over 85%, as well as
controls to reduce S O2 emissions by almost 80%, b y t he year 2010.
Fi gure 1 i ndicat es the s tates affect ed by the i nitiatives identified here. In line with
the i nitiatives ’ focus on coal-fired elect ric generating facilities, the M idwest is the primary
location of affect ed powerplants. Five s tates – Indiana, Kentucky, North Carolina, Ohio,
and W es t Virgi nia – would be affect ed by al l t hree initiatives . In contrast, M ississippi and
Fl orida h ave u tilities t argeted only under t h e NSR enforcement i nitiatives; M issouri,
C onnecticut, R hode Is land, and M assachusetts are t argeted onl y under t he Ozone
Transport R ule. The o ther states have utilitie s t argeted under t he Ozone Transport R ule
and either a S ection 126 determination or NSR enforcem ent.
The costs and benefits of these i nitiatives could be substantial, as indicat ed by Table

1. The NOx SIP C al l i s t he most wide ranging of t he initiatives , with es timated costs of

$1.7 billion annual l y and estimated quantifiable benefits of $1.1-$4.2 billion annually.
Because EP A’s m ethodology u ses cost-effectiveness for determining emission budgets,
the lion’s s hare of the costs would be borne by the utility industry. The s maller s cope of
the S ection 126 determinations reduces emissi ons abatement and benefits, but also costs.
Of cours e, t hi s s cope coul d i ncreas e i f additional p etitions submitted to EPA result in
m o re st at es bei n g i m p l i cat ed as sources of t ran sported o z one. Finally, t he evolving scope
of EPA’s NSR action m akes estimates of its costs and benefits difficult, if not impossible,
Table 1. Estimated Costs and Benefits of Initiatives
Estimated Estimated Estimated Costs to
Emission Estimated Costs Q uantifiable Utilities (1990$)
Reductions (2007) (1990$) B enefits (1990$)
NOx S IP Call NOx –1.14 million $1.7 b illion $1.1-$4.2 b illion $1.4 b illion
tons (o zone season)
S ecti on 1 2 6 NOx 0 .66 million $1.0 b illion $1.2 b illion $1.0 b illion
F i ndi ng s tons (o zone season)
NS R A ction NOx n /a n/a n /a n/a
P art i cu l at es
n/a = not available
S ource: CRS Report 98-236.
Since J anuary 2000 sign ificant actions have occurred with all t hree of the i nitiatives.
The s tatus o f t hese initiatives as of J anuary 22, 2002, is summarized i n Table 2. Perhaps
t h e m ost s i gni fi cant act i o n h as been t h e d e c i s i o n o f a 3 -j udge p anel of t h e D.C . C i rcui t
Court o f Appeals t o uphold EPA’s Oz one Transport R ule with respect to the 1 -hour oz one
NAAQS (Mi chi gan v. EPA , No. 98-1497 (D.C. C ir. M arch 3, 2000)), and t o lift t he stay
on implementation. In upho l d ing EPA’s authority and m ethodology i n d eveloping the
NOx SIP C all, the court did make some modifications; i n particul ar, t hat EPA’s
methodology did not support t he inclusion of W isconsin or all o f M issouri and Georgi a
i n t h e R ul e (a d eci si on refl ect ed i n Fi gu re 1). In l i ft i n g t he st ay, t he court o rdered affect ed
stat es to submit revised S tate Im plem entation P lans (SIP s) within 4 m onths of its J une 22,
2000, order. In a s ubsequent ruling i ssued Augu st 30, 2000, the court o r d e r e d EPA t o
move its original May 2003, compliance deadline t o M ay 31, 2004. In March 2001, the
Supreme C ourt d enied a hearing t o opponents o f t he SIP C all, ef fectively affirming t he
appeals court d ecision. In December 2000, EP A declared that 11 stat es and t he District
of Columbia failed t o s ubmit revised S IPs b y t he ex tended October 30, 2000 deadlin e.
By November 2002, all t he affected states had s ubmitted revised SIPs ex cept M ichigan,
which has submitted a draft S IP revision.
None of t h ese p roceedi n gs , however, affect t h e i ndefi ni t e st ay of EP A fi ndi ngs wi t h
respect to the 8 -hour oz one standard. In February 2001, the S upr e m e C ourt ruled that
although EPA has t he authority to set a new 8-hour oz one standard, its interpretation o f
the relationship b etween the 1 -hour standard ’s statutory implementation s trategy and its
new 8 -hour standard implement ation s trategy was unreasonable and unlawful. The C ourt
left it to EPA t o “develop a reasonable i nterpretation” of the s tatutory provisions as they

relate to the implementing t he new 8 -hour standard (Wh itman v. A m e r i can Trucking
Associations , 531 U.S. 457 (2001) decided February 27, 2001).
Table 2. Status o f Initiatives
Ozone T rans port Rul e S ecti on 1 2 6 P eti ti ons N S R Enforcement
1-hour Ozone Standard Supreme Court d en ies EPAgranted4of In February 2000, EP A
hearing o n S IP Call original petitions, an d Tamp a E l ect ri c
3/5/01. Stay lifted b y 1/18/00. D.C. Circuit announced agreement on
appeals court 6 /22/00. Court of Appeals a co n s en t d ecree t h at
E P A fi n d s 1 1 st at es an d upholds EP A authority, would settle EP As NSR
D.C. failed to submit 5/15/01. suit with that utility. In
SIP s 11/19/00. Dead line No vemb er an d D ecemb er
fo r compliance moved to On 1/15/02, EP A 2000, EP A announced
March 31, 2004. announces it will delay agreemen t s i n p r i n ci p l e
co mp liance d ead line with V irginia P o wer and
until March 31, 2004. Cin ergy.
8-hour Ozone Standard Appeals court granted EP A h as indefinitely
In January 2002, EP AEP A motion to stay 8 - stayed finding on
an d P SEG announced thehour findings. Supreme original petitions,
filing and settlement of aCourt rules EP A h as 1/18/00.
E P A/ S t at e o f N ewau thority to promulgate
Jersey NSR suit.8-hour standard , but that
its implemen tation
strategy is unlawfu l.
E P A l eft t o d evel o p a
“reaso n ab l e” al t ern at i ve.
With respect to the S ection 126 petitions, EPA announced its 1-hour ozone findings3
on the 8 original petitions on J anuary 18, 2000. EPA granted four of the eight petitions
for t he 1-hour oz one standard: C onnecticut, Massachusetts, New York, and Pennsyl vania.
Petitions from four other s tates were denied as t hese stat es no longer had areas that were
not in at t a i n m ent with the 1 -hour standard. The rule specifies NOx allocations for 392
facilities i n 12 s tates and the District of C olumbia, and implemented through a cap-and-
trade program. The D.C. Circuit C ourt of Appeals upheld E P A ’ s authority to issue t he
ru l e o n May 15, 2001, but ordered EPA to reconsider factors u sed i n s etting emission
limits (Appalachian Power C o. v. EPA ). EPA responded t o t he court’s o rder on Augu st
3, 2001. On J anuary 15, 2002, the E P A announced it would del ay the compliance
deadline for the S ection 1 2 6 r u l e f r o m M ay 1, 2003, to May 31, 2004, in line with the
deadline for the NOx SIP C all. EPA argues t hat a cou r t o r d e r i s s u ed Augu st 24, 2001,
had already s uspended t he compliance d eadline for powerplants, and it would b e unfair
t o m ake ot her em i ssi on sources m eet an earl i er d eadl i n e.
In J anuary 2000, EPA d ecided t o i ndefinitely sta y i t s original final d eterminations
with respect to the 8 -hour standard, given litigation r egarding that standard. It also
announced that findings with respect to petitions by the District o f C olumbia, Delaware,
Maryl and, and N ew J ersey woul d b e d et erm i n ed i n t h e fut ure.

3 Envi ronmental Protection Agency, Findings of S i g n i f i cant Cont ribution and Rulemaking on
Section 126 Petitions for Purposes of Reducing I nterstate Ozone Tr ansport: Fi nal Rule ,65
Federal Register 2675-2767, J a nuary 18, 2000.

Since t he filing of t h e N S R l awsuits in November 1999 (and subsequent lawsuits
filed i n 2000), s everal sign ificant act i o n s h ave occurred. Fi rst, in February 2000, EPA
announced that it had come t o an agreement w ith Tampa Electric C ompany on a consent
d ecree that will settle the NSR lawsuit against that utility. The agreem ent will reduce
NOx emissions by over 85% (and SO2 emissions by almost 80%) t hrough a combination
of fuel switching to natural gas , p o l l ution control equipment optimization, and other
techniques. The estimated $1 billion program is ex pect ed b y T a m p a E lect ric t o have a
“small” impact on its customers’ bills.4
Second, on November 16, 2000, EP A and Vi rginia Power announced t hat an
“agreement i n p rinciple” h ad been reach to settle EPA’s NSR suit against Virgi nia P ower.
Over 12 years, Vi rginia will spend $1.2 billion t o reduce NOx and S O2 emissions by
about 70% through a combination o f pollution control equipment and fuel switching. This
announcement was followed o n December 21, 2000 by a s imilar agreement i n p rinciple
between EPA and Cinergy i nvolving a $1.4 b illion i nvestment in control t echnology.
Third, on J anuary 24, 2002, EPA and the S tate of New J ersey announced the filing
and settlement of an NSR suit against PSEG Fossil LLC . PSEG agreed to reduce its SO2
emissions by 90% and its NOx e m i s sions by 83% from 2000 levels by 2012 at an
estimated cost o f $337 million. In addition, PSEG agreed to reduce C O2 emi s s i o n s by

15% from 1990 levels.

Litigation on t hese cases has slowed as part i c i p an t s assess the impact of the Bush
Administration’s J un e 2002 recommendations to revise the New Source Review process.
Of particular interest is an EPA recommendation t hat a new rulem aking be commenced
on the d efinition o f “routine m aintenance,” a k ey poi n t o f contention i n t he above
la w s u i t s . A s o f October 2002, no formal rulemaking has b een proposed by EPA as t he
draft i n g p rocess h as not been com p l et ed. 5
Congr essi onal Acti ons
The continuing difficulties i n t he Northeast both i n m eeting t he oz one NAAQS and
in reducing aci d preci pitation have focused attention on emissions from fossil fuel-fired
utilities, particularly of NOx – and on the potenti al costs of reducing t hose emissions.
Concerned about the p iecemeal nature of thes e i nitiatives, s ome i n C ongress have been
working on comprehensive, m ulti-pollutant alternative s trat egies t o reduce emissions. In
J une 2002, the S enate Environment and Public Works C ommittee reported out S. 556 –
a comprehensive, m ulti-pollutant bill that would incorporate market-orient ed mechanisms
to control NOx , S O2, and CO2, and t onnage limitations on Hg. 6 No fl oor act i o n h as been

4 T a mp a E lectric, “T ampa Electric Reaches Agreement with EPA, Department of J ustice on
Envi r onment a l Issues” [ ht t p: / / www.t a mpael ect r i T ENWRel ml ] .
5 T he s even recomme ndations fa l l i n t o two categories: (1) f our recomme ndations that would
complete a r ulemaking process begun under t h e C l i n t on Administration i n 1996 and would be
issued as a direct final r ule; and ( 2) three r ecomme ndations that would be put out as a proposed
rulemaki ng a n d s u b j e c t to normal administrative procedures. Revisions to the definition of
routine maintenance would f all under t he second category.
6 For a revi ew of proposed legi slation, see CRS Report RL31326, Ai r Quality: M ulti-pollutant
Legislation, by Larry Parker, October 22, 2002.