The Clean Air Act’s Good Neighbor Provision: Overview of Interstate Air Pollution Control

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The Clean Air Act’s Good Neighbor Provision:

Overview of Interstate Air Pollution Control

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Updated August 30, 2018

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R45299

SUMMARY

The Clean Air Act’s Good Neighbor Provision:

Overview of Interstate Air Pollution Control

Notwithstanding air quality progress since 1970, challenges remain to reduce pollution

in areas exceeding federal standards and to ensure continued compliance elsewhere. The

movement of air pollutants across state lines, known as interstate transport, has made it

difficult for some downwind states to attain federal ozone and fine particulate matter

(PM2.5) standards, partly because states lack authority to limit emissions from other

states.

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The Clean Air Act’s “Good Neighbor” provision (Section 110(a)(2)(D)) seeks to address

this issue and requires states to prohibit emissions that significantly contribute to another state’s air quality

problems. It requires each state’s implementation plan (SIP)—a collection of air quality regulations and

documents—to prohibit emissions that either “significantly contribute” to nonattainment or “interfere with

maintenance” of federal air quality standards in another state. The act also authorizes states to petition EPA to

issue a finding that emissions from “any major source or group of stationary sources” violate the Good Neighbor

provision (Section 126(b)).

EPA and the states have implemented regional programs to address interstate ozone and PM2.5 transport and

comply with the Good Neighbor provision. These programs set emission “budgets” for ozone and PM2.5 precursor

emissions—specifically, sulfur dioxide (SO2) and nitrogen oxide (NOx) as PM2.5 precursors and seasonal NOx

emissions as an ozone precursor. The current program—the Cross State Air Pollution Rule (CSAPR)—focuses on

limiting interstate transport of power sector SO2 and NOx emissions to eastern states.

Power sector emissions in CSAPR states are below emission budgets as a result of regulatory and market factors

(see figure). Annual SO2, annual NOx, and ozone season NOx emissions from CSAPR sources decreased 77%,

41%, and 15%, respectively, between 2009 and 2016.

CSAPR Emission Trends: 2009-2016

Source: EPA Air Markets Program Data, https://ampd.epa.gov/ampd/.

Notes: The Clean Air Interstate Rule was in effect 2009 through the end of 2014 and was replaced by CSAPR on January 1, 2015.

EPA has concluded that regional SO2 and NOx programs have reduced interstate transport of PM2.5 and ozone. The

Energy Information Administration’s national-scale analysis identifies market and regulatory factors contributing

to emission reductions. It is unclear whether emissions will remain well below budgets, given recent prices of

ozone season NOx allowances (i.e., authorization for each ton emitted) and the supply of banked allowances for

future use in lieu of emission reductions.

Research indicates that ozone transport harms air quality in downwind states. However, stakeholder views vary

regarding the extent to which interstate transport impacts air quality. Some note that some coal-fired power plants

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The Clean Air Act’s Good Neighbor Provision: Overview of Interstate Air Pollution Control

do not fully use already-installed pollution controls. Several states have sought additional upwind reductions in

ozone precursors through Section 126(b) petitions. Others have questioned the feasibility of achieving additional

reductions in ozone precursors, raising concerns about emissions from international or natural sources.

EPA recently proposed to determine that CSAPR fully addresses Good Neighbor obligations for the 2008 ozone

standard but has not yet made a “Good Neighbor” determination for the more stringent 2015 ozone standard. The

agency has therefore not yet determined whether and how it will update the CSAPR budgets with respect to the

2015 ozone standard.

Members of Congress may have an interest in better understanding how EPA and states implement the Clean Air

Act’s Good Neighbor provision, particularly as EPA continues its assessment of Good Neighbor obligations under

the 2015 ozone standard.

The following issues, among others, may inform deliberations about interstate air transport. First, the extent to

which existing programs will improve air quality in areas not meeting the 2015 ozone standard is to be

determined. CSAPR has not addressed NOx emissions from nonpower sector sources, such as large industrial

boilers. EPA concluded that industrial sources have potential to cost-effectively reduce NOx emissions but is less

certain about the structure of potential NOx control strategies. Second, some have questioned whether additional

regulatory incentives are necessary to fulfill Good Neighbor obligations, particularly given current NOx allowance

prices. These prices are below the marginal abatement cost, which may result in higher emissions. Third, EPA’s

current air quality initiatives may indirectly affect its Good Neighbor assessments. EPA recently sought comment

on potential flexibilities for the development of Good Neighbor SIPs.

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The Clean Air Act’s Good Neighbor Provision: Overview of Interstate Air Pollution Control

Contents

Introduction ..................................................................................................................................... 1

Background ..................................................................................................................................... 3

Implementing the Good Neighbor Provision .................................................................................. 5

SIPs Process .............................................................................................................................. 5

Section 126(b) Petitions ............................................................................................................ 6

Interpreting “Significant Contribution” .................................................................................... 9

Programs Addressing Interstate Pollution ..................................................................................... 10

Acid Rain Program.................................................................................................................. 12

Ozone Control: Regional NOx Programs ................................................................................ 13

Ozone Transport Commission NOx Budget Program ....................................................... 13

NOx Budget Trading Program ........................................................................................... 14

Ozone and PM Control: Regional SO2 and NOx Trading Programs ....................................... 16

Clean Air Interstate Rule ................................................................................................... 17

Cross State Air Pollution Rule .......................................................................................... 18

Results of Regional SO2 and NOx Trading Programs ....................................................... 22

Status of Good Neighbor Determinations for Ozone Standards .................................................... 25

Good Neighbor Determinations and the 2008 Ozone Standard .............................................. 26

Good Neighbor Determinations and the 2015 Ozone Standard .............................................. 28

Issues for Congressional Consideration ........................................................................................ 28

NOx Emission Trends .............................................................................................................. 29

Incentives for NOx Reductions ................................................................................................ 31

Related EPA Air Quality Initiatives......................................................................................... 31

Figures

Figure 1. Implementation Timeline of Regional Ozone and Particulate Matter Control

Programs...................................................................................................................................... 11

Figure 2. States Covered by CSAPR ............................................................................................. 19

Figure 3. CSAPR Sources Emission Trends, 2009-2016 .............................................................. 23

Figure 4. Comparison of CSAPR Emissions Budgets and Actual Emissions in 2016 .................. 24

Contacts

Author Contact Information .......................................................................................................... 32

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The Clean Air Act’s Good Neighbor Provision: Overview of Interstate Air Pollution Control

Introduction

The movement of air pollutants across state lines, known as interstate transport, has posed a

decades-long challenge to air quality protection. The Clean Air Act (CAA) assigns responsibility

to states to limit emissions from sources within their borders as needed to attain federal healthbased air quality standards. A state’s air quality, however, may be affected by emissions from

upwind sources located in a different state. Hence, controlling emissions within the border of a

state may not be sufficient to attain the air quality standard. The downwind state lacks authority to

limit emissions from the sources in the upwind state(s) but is nonetheless responsible for attaining

the federal standards.

Interstate transport has made it difficult for some downwind states to attain federal standards for

ozone and fine particulate matter (PM2.5). Both of these pollutants are formed by precursor

emissions that can travel long distances. Specifically, sulfur dioxide (SO2) and nitrogen oxide

(NOx) contribute to the formation of PM2.5 in the air.1 NOx and volatile organic compounds

(VOCs) react in sunlight to form ground-level ozone, the main component of smog.2 Studies have

shown that these precursor emissions, as well as ozone and PM2.5, are regional pollutants,

meaning that they can travel hundreds of miles through the atmosphere.3 For example, Bergin et

al.’s study of the eastern United States concluded that regional transport affected air quality in

most eastern states. They attributed an average of 77% of each state’s ozone and PM2.5

concentrations to emissions from upwind states.4

These regional emissions are associated with health impacts and are therefore of concern. For

example, research shows that ground-level ozone is associated with aggravated asthma, chronic

bronchitis, heart attacks, and premature death.5 Studies have also linked exposure to particulate

matter to respiratory illnesses, such as aggravated asthma, as well as heart attacks and premature

death.6

The CAA’s “Good Neighbor” provision recognizes such interstate issues and requires states to

prohibit emissions that significantly contribute to air quality problems in another state (Section

1 PM

2.5 is also directly emitted by sources (e.g., construction sites, unpaved roads, smokestacks, or fires). See U.S.

Environmental Protection Agency (EPA), Particulate Matter (PM) Basics, https://www.epa.gov/pm-pollution/

particulate-matter-pm-basics#main-content. For detailed information about PM and the formation of PM, see National

Research Council, Global Sources of Local Pollution: An Assessment of Long-Range Transport of Key Air Pollutants

to and from the United States, 2010, pp. 67-76.

2 EPA, Basic Information about Ozone, https://www.epa.gov/ozone-pollution/basic-information-about-ozone.

3 EPA, Interstate Air Pollution Transport, https://www.epa.gov/airmarkets/interstate-air-pollution-transport. See also

EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74514, October 26,

2016; and EPA, Fact Sheet. The Cross-State Air Pollution Rule: Reducing the Interstate Transport of Fine Particulate

Matter and Ozone, July 2011, p. 1, https://www.epa.gov/sites/production/files/2016-09/documents/csaprfactsheet.pdf.

4 Michelle S. Bergin et al., “Regional Air Quality: Local and Interstate Impacts of NO and SO Emissions on Ozone

and Fine Particulate Matter in the Eastern United States,” Environmental Science & Technology, vol. 41, no. 13 (2007),

pp. 4677-4689. In addition, EPA summarizes studies about regional transport. See EPA, “Cross-State Air Pollution

Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74514.

5 In addition, ground-level ozone is associated with environmental effects, such as negative impacts on forests and crop

yields. For information about the health and environmental effects of ozone, see EPA, Basic Information about Ozone;

and EPA, Integrated Science Assessment (ISA) of Ozone and Related Photochemical Oxidants, February 2013,

https://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247492.

6 EPA, Health and Environmental Effects of Particulate Matter (PM), https://www.epa.gov/pm-pollution/health-andenvironmental-effects-particulate-matter-pm. See also EPA, Integrated Science Assessment for Particulate Matter,

December 2009, https://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=216546.

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110(a)(2)(D)). It requires each state’s implementation plan—a collection of air quality regulations

and documents—to include adequate provisions to prohibit emissions that either “contribute

significantly” to nonattainment or “interfere with maintenance” of federal air quality standards in

another state.7

Since the 1990s, the U.S. Environmental Protection Agency (EPA) and the states have

implemented various regional programs to address interstate air transport. Many of these

programs have since concluded. The current program—the Cross State Air Pollution Rule

(CSAPR, pronounced “Casper”)—is an emissions trading program for 28 states in the eastern part

of the United States. EPA established CSAPR to limit interstate transport of power sector SO2 and

NOx emissions and help states comply with the 1997 and 2006 PM2.5 standards as well as the

1997 and 2008 ozone standards.

EPA has attributed emission reductions to CSAPR and the agency’s other emissions trading

programs, such as the Acid Rain Program: annual SO2 emissions from power plants participating

in CSAPR were 1.2 million tons in 2016, an 87% reduction from 2005 levels.8 CSAPR power

plants also emitted 420,000 tons of NOx in the 2016 ozone season, roughly an 80% reduction

from the 1990 ozone season NOx emissions.9

Emissions reduction progress notwithstanding, some areas of the country do not meet federal air

quality standards for pollutants like ozone and particulate matter. In 2018, EPA designated 52

areas with approximately 200 counties or partial counties as “nonattainment” with respect to the

2015 ozone standard.10

Members of Congress representing both downwind and upwind states may have an interest in

how EPA and states implement the CAA’s Good Neighbor provision, particularly as states begin

to develop plans for nonattainment areas to come into compliance with the 2015 ozone standards.

Some downwind states with nonattainment areas have attributed their ozone violations—at least

in part—to emission sources from upwind states.11 Downwind states have also expressed

concerns that transported air pollution contributes to harmful human health impacts and adversely

affects economic growth.12 For example, a Maryland state agency reported that transport of

7 CAA §110(a)(2); 42 U.S.C. §7410(a)(2).

8 EPA reports emissions reductions achieved under several cap-and-trade programs designed to reduce SO

2 and NOx

from power plants, including the Acid Rain Program, the Clean Air Interstate Rule (CAIR), and CSAPR (which

replaced CAIR in 2015). EPA reports that most of the SO2 and NOx emission reductions since 2005 occurred in

response to CAIR. See EPA, 2016 Program Progress, “Emission Reductions,” https://www3.epa.gov/airmarkets/

progress/reports/pdfs/2016_full_report.pdf, and “Emission Reductions: SO2 Emission Trends,” https://www3.epa.gov/

airmarkets/progress/reports/pdfs/2016_full_report.pdf.

9 EPA, 2016 Program Progress, “Emission Reductions: Ozone Season NO Emission Trends.” https://www3.epa.gov/

airmarkets/progress/reports/pdfs/2016_full_report.pdf.

10 On April 30, 2018, EPA designated 51 areas as nonattainment with the 2015 ozone standard. EPA designated one

more area as nonattainment on July 17, 2018. For the designations of 51 nonattainment areas, see EPA, “Additional Air

Quality Designations for the 2015 Ozone National Ambient Air Quality Standards,” 83 Federal Register 25776, June 4,

2018. For the July 2018 designation, see EPA, “Additional Air Quality Designations for the 2015 Ozone National

Ambient Air Quality Standards—San Antonio, Texas Area,” 83 Federal Register 35136, July 25, 2018. For more

information about the 2015 ozone standard and EPA’s recent designations, see CRS Report R43092, Implementing

EPA’s 2015 Ozone Air Quality Standards, by (name redacted) and (name redacted) .

11 In their recommendations to EPA regarding designation of nonattainment areas, Delaware, New Jersey, and

Wisconsin attributed ozone violations in their jurisdiction to emissions transported from other states. See state

recommendation letters to EPA, https://www.epa.gov/ozone-designations/2015-ozone-standards-staterecommendations-epa-responses-and-technical-support.

12 For example, see U.S. Senator Richard Blumenthal et al., letter to Honorable Scott Pruitt, Administrator, EPA,

February 23, 2018, https://www.blumenthal.senate.gov/imo/media/doc/

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emissions from upwind states has required Maryland’s sources to compensate with “deeper instate emissions reductions,” thereby adding economic costs to the state’s business community.13

Upwind states have disagreed with the approach used by EPA to determine whether emissions

from upwind sources contribute to downwind air quality problems. For instance, Ohio’s state

environmental agency described EPA’s transport approach as “deeply flawed,” concluding that it

would place “an unfair amount of responsibility” on upwind power plants to reduce emissions.14

To assist Members and staff in understanding interstate transport issues, this report presents

background information about the CAA’s interstate transport provision, provides a brief history

of regional programs leading up to CSAPR, discusses key aspects of the CSAPR program and

program results, summarizes the status of Good Neighbor determinations with respect to ozone

standards, and concludes with issues for congressional consideration.

Background

The CAA requires EPA to establish national standards for air pollutants that meet the criteria in

Section 108(a)(1). These pollutants—the “criteria pollutants”—are those that EPA has determined

“may reasonably be anticipated to endanger public health or welfare” and whose presence in

“ambient air results from numerous or diverse mobile or stationary sources.”15 EPA must design

two types of National Ambient Air Quality Standards (NAAQS) for the criteria pollutants.

Primary NAAQS must protect public health with an “adequate margin of safety,” and secondary

NAAQS must “protect public welfare from any known or anticipated adverse effects.”16 The

NAAQS are concentration standards measured in parts per million (ppm) by volume, parts per

billion (ppb) by volume, and micrograms per cubic meter of air (µg/m3).17 The NAAQS do not set

direct limits on emissions but rather define what EPA considers to be clean air for the pollutant in

question.18

Section 109(d) of the act requires periodic NAAQS reviews. Every five years, EPA must review

the NAAQS and the science upon which the NAAQS are based and then revise the NAAQS if

necessary. This multi-step process is rarely completed within the five-year review cycle and is

often the subject of litigation that results in court-ordered deadlines for completion of NAAQS

2018.02.23%20Letter%20to%20Pruitt%20re%20CT%20Clean%20Air%20Act%20Petition.pdf; and U.S. Congress,

Senate Environment and Public Works Committee, Subcommittee on Clean Air and Nuclear Safety, Cooperative

Federalism Under the Clean Air Act: State Perspectives, 115th Cong., 2nd sess., April 10, 2018. See testimony of Shawn

Garvin, Department of Natural Resources and Environmental Control, p. 3, https://www.epw.senate.gov/public/_cache/

files/7/9/79fab6e4-ae5d-4e6f-af30-d4cd30d7b3d7/18D52D3F4801CCF26167EC7F17CD4C16.garvin-testimony04.10.2018.pdf.

13 Maryland Department of Environment, “Governor Larry Hogan Announces State Lawsuit Against EPA,” press

release, September 27, 2017, http://news.maryland.gov/mde/2017/09/27/governor-larry-hogan-announces-statelawsuit-against-epa/.

14 Craig Butler, Director, Ohio Environmental Protection Agency, letter to Honorable Gina McCarthy, Administrator,

EPA, February 1, 2016, p. 1. See EPA-HQ-OAR-2015-0500-0283 at http://www.regulations.gov.

15 CAA §108(a)(1), codified at 42 U.S.C. §7408(a)(1). EPA determined that the following pollutants meet the Section

108 criteria: (1) carbon monoxide, (2) lead, (3) nitrogen dioxide, (4) ozone, (5) particulate matter, and (6) sulfur

dioxide. For more information about the act’s requirements, see CRS Report RL30853, Clean Air Act: A Summary of

the Act and Its Major Requirements, by (name redacted) .

16 CAA §109(b), codified at 42 U.S.C. §7409(b).

17 EPA, “NAAQS Table,” https://www.epa.gov/criteria-air-pollutants/naaqs-table.

18 CRS Report R43092, Implementing EPA’s 2015 Ozone Air Quality Standards, by (name redacted) and (name re

dacted).

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reviews.19 Since January 1997, EPA has completed at least one review for each of the six criteria

pollutants (carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur

dioxide), with standards being made more stringent for five of the six.20 Most of the revisions

finalized in this time period were for the ozone and particulate matter standards.21

The CAA assigns responsibility to states to establish procedures to attain and maintain the

NAAQS within their borders. In particular, the act requires each state to submit a new or revised

state implementation plan (SIP) to EPA within three years of a NAAQS promulgation or

revision.22 This SIP submission, also known as an “infrastructure SIP,” outlines how the state will

implement, maintain, and enforce the NAAQS.23 The infrastructure SIP allows EPA to “review

the basic structural requirements of [a state’s] air quality management program in light of each

new or revised NAAQS.”24 Examples of the basic structural requirements include enforceable

emission limits, an air monitoring program, an enforcement program, air quality modeling

capabilities, and “adequate personnel, resources, and legal authority.”25

The state’s SIP must also address its interstate transport obligations under the CCAA. EPA refers

to this section of the SIP submission as the “Good Neighbor SIP.” The Good Neighbor SIP must

prohibit “certain emissions of air pollutants because of the impact they would have on air quality

in other states.”26 Specifically, the state’s Good Neighbor SIP must prohibit sources in that state

from “emitting any air pollutant in amounts which will … contribute significantly to

nonattainment in, or interfere with maintenance” of a NAAQS in another state.27

EPA reviews SIPs to ensure they meet statutory requirements. The agency also has authority to

require states to revise their SIPs. Furthermore, the act requires EPA, under certain conditions, to

19 On May 9, 2018, the EPA Administrator announced five principles—one of which was meeting statutory

deadlines—for EPA to follow in future NAAQS reviews. See E. Scott Pruitt, EPA Administrator, memorandum to

Assistant Administrators, May 9, 2018, https://www.epa.gov/criteria-air-pollutants/back-basics-process-reviewingnational-ambient-air-quality-standards.

20 EPA has not revised the carbon monoxide (CO) NAAQS since 1985, when it revoked the secondary CO NAAQS.

See EPA, Table of Historical Carbon Monoxide (CO) National Ambient Air Quality Standards (NAAQS),

https://www.epa.gov/co-pollution/table-historical-carbon-monoxide-co-national-ambient-air-quality-standards-naaqs.

For a summary of current NAAQS for all six criteria pollutants and links to the history of standards for each of these

pollutants, see EPA, “NAAQS Table.”

21 For a summary of the most recent ozone NAAQS revision, see CRS Report R43092, Implementing EPA’s 2015

Ozone Air Quality Standards, by (na me redacted) and (name redacted) . For a summary of the most recent particulate

matter NAAQS revision, see CRS Report R42934, Air Quality: EPA’s 2013 Changes to the Particulate Matter (PM)

Standard, by (n ame redacted).

22 CAA §110(a)(1); 42 U.S.C. §7410(a)(1).

23 EPA, Guidance on Infrastructure State Implementation Plan (SIP) Elements under the Clean Air Act Sections

110(a)(1) and 110(a)(2), September 2013, p. 1, https://www.epa.gov/sites/production/files/2015-12/documents/

guidance_on_infrastructure_sip_elements_multipollutant_final_sept_2013.pdf.

24 EPA, Guidance on Infrastructure State Implementation Plan, p. 2.

25 EPA, Guidance on Infrastructure State Implementation Plan, p. 2.

26 The Good Neighbor SIP is part of the infrastructure SIP. States with nonattainment areas must also submit

“nonattainment SIPs” that address more detailed statutory requirements for coming into attainment. See EPA, “Federal

Implementation Plans: Interstate Transport of Fine Particulate Matter and Ozone and Correction of SIP Approvals,” 76

Federal Register 48216, August 8, 2011. See also EPA, “Notice of Availability of the Environmental Protection

Agency’s Preliminary Interstate Ozone Transport Modeling Data for the 2015 Ozone National Ambient Air Quality

Standard (NAAQS),” 82 Federal Register 1734, January 6, 2017.

27 CAA §110(a)(2)(D)(i)(I); 42 U.S.C. §7410(a)(2)(D)(i)(I).

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impose sanctions and to issue a Federal Implementation Plan (FIP) if a state fails or declines to

submit or implement an adequate SIP.28

Recognizing ongoing challenges with ozone transport, the 1990 CAA Amendments established

regional planning provisions specific to ozone. For example, CAA Section 184 created a multistate ozone transport region, known as the Ozone Transport Region (OTR), and established the

northeast Ozone Transport Commission (OTC) to advise EPA about ozone controls in the OTR.29

The OTR is comprised of 12 Northeastern and Mid-Atlantic states (Connecticut, Delaware,

Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode

Island, Vermont, certain counties in Northern Virginia) and Washington, DC.30 The CAA required

states in the OTR to impose controls on sources in all specified areas, regardless of attainment

status. Such controls included enhanced vehicle inspection and maintenance programs and

reasonably available control technology for sources of VOCs.31

In addition, CAA Section 176A allows EPA to establish transport regions to address regional

pollution problems contributing to violations of a primary NAAQS. The agency must establish a

commission, comprised of EPA and state officials, for each transport region that makes

recommendations to EPA on appropriate mitigation strategies.

Implementing the Good Neighbor Provision

The CAA provides two independent statutory authorities to facilitate compliance with the Good

Neighbor provision: (1) the SIPs process under Section 110 and (2) a petition process under

Section 126(b). While these authorities are separate, they each address the same objective—that

is, the Good Neighbor provision in Section 110(a)(2)(D)(i).32 The remainder of this section

describes how these authorities may be used to enforce the Good Neighbor provision.

SIPs Process

As previously noted, a state’s SIP must prohibit sources in that state from “emitting any air

pollutant in amounts which will … contribute significantly to nonattainment in, or interfere with

maintenance” of a NAAQS in another state.33 If EPA finds an existing SIP inadequate, it must

require the state to revise the SIP.34 This procedure is known as a “SIP call” and it can be issued to

multiple states at the same time. Specifically, EPA must issue a SIP call whenever the agency

determines that the SIP is “substantially inadequate to attain or maintain” a particular NAAQS, to

ensure that the state’s sources do not contribute significantly to a downwind state’s

28 Regarding EPA’s authority to issue FIPs, see CAA Section 110(c)(1); 42 U.S.C. Section 7410(c)(1). Regarding the

sanctions EPA may impose, see CAA Section 110(m); 42 U.S.C. Section 7410(m).

29 CAA §184; 42 U.S.C. §7511(c). See also Philip E. Karmel, “Interstate Transport and Regional Approaches to

Regulating Air Pollution,” in The Clean Air Act Handbook, ed. Julie R. Domike and Alec C. Zacaroli, 4th ed. (Chicago:

American Bar Association, 2016), pp. 115-136.

30 CAA §184(a); 42 U.S.C. §7511(c).

31 CAA §184; 42 U.S.C. §7511(c). For further analysis of this provision, see also Philip E. Karmel, “Interstate

Transport and Regional Approaches to Regulating Air Pollution,” in The Clean Air Act Handbook, ed. Julie R. Domike

and Alec C. Zacaroli, 4th ed. (Chicago: American Bar Association, 2016), pp. 115-136.

32 EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and Maryland,” 83 Federal Register

26675, June 8, 2018.

33 CAA §110(a)(2)(D)(i)(I); 42 U.S.C. §7410(a)(2)(D)(i)(I).

34 CAA §110(k)(5); 42 U.S.C. §7410(k)(5).

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nonattainment, or if it is otherwise inadequate to meet any CAA requirement.35 EPA can also

issue a SIP call if states do not meet the CAA Section 184 requirements of the OTR.

Section 126(b) Petitions

Under CAA Section 126(b), any state or political subdivision can petition EPA to issue a “finding

that any major source or group of stationary sources emits or would emit any air pollutant in

violation” of the Good Neighbor provision.36 Section 126(b) requires EPA to make a decision

within 60 days. If EPA grants the petition, the sources identified in the petition must cease

operations within three months unless they comply with emission controls and compliance

schedules set by EPA.

While Section 126(b) and a SIP call each enforce the Good Neighbor provision, they differ in

their implementation.37 First, a state or political subdivision must initiate the 126(b) petition,

whereas EPA initiates the SIP call. Second, unlike a SIP call, the 126(b) petition is limited to a

“major source or group of stationary sources” and cannot be used to address minor or mobile

sources.38 Third, EPA may directly regulate upwind sources when it grants a 126(b) petition,

whereas a SIP call results in direct EPA regulation only if EPA issues a FIP in response to a state’s

failure to respond adequately to the SIP call.

EPA’s review of 126(b) petitions has sometimes coincided with the agency’s SIP call process. For

example, in 1998, EPA coordinated its review of eight 126(b) petitions when it promulgated a SIP

call. EPA acknowledged the distinction between the CAA authorities for the 126(b) petition

process and the SIP call but coordinated the two actions because they were both designed to

reduce ozone transport in the eastern United States.39

States have also submitted 126(b) petitions ahead of the deadlines for Good Neighbor SIPs.40 For

example, in 2011, EPA granted a 126(b) petition from New Jersey, finding that a coal-fired

generating station in Pennsylvania contributed significantly to nonattainment with the SO2

NAAQS in New Jersey.41 Some considered EPA’s approval of this petition to reflect a more

expansive interpretation of Section 126 in which 126(b) petitions are not necessarily limited to

35 CAA §110(k)(5); 42 U.S.C. §7410(k)(5).

36 CAA §126(b); 42 U.S.C. §7426(b). Section 302(j) defines major stationary source as “any stationary facility or

source of air pollutants which directly emits, or has the potential to emit, one hundred tons per year or more of any air

pollutant (including any major emitting facility or source of fugitive emissions of any such pollutant, as determined by

rule by the Administrator)” (CAA §302(j); 42 U.S.C. §7602(j)). Section 126(b) cannot be used to address emissions

from mobile sources, such as cars and trucks. Another section of the CAA—Title II (42 U.S.C. §§7521-7590)—

contains most of the act’s provisions for mobile sources.

37 CAA §126(b); 42 U.S.C. §7426(b). For additional discussion of the differences between 126(b) petitions and a SIP

call, see Philip E. Karmel, “Interstate Transport and Regional Approaches to Regulating Air Pollution,” in The Clean

Air Act Handbook, pp. 133-134.

38 Karmel, “Interstate Transport,” in The Clean Air Act Handbook, p. 133.

39 EPA, “Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment

Group Region for Purposes of Reducing Regional Transport of Ozone,” 63 Federal Register 57361-57362, October 27,

1998.

40 As previously noted, the Good Neighbor SIP is part of the infrastructure SIP. States with nonattainment areas must

also submit “nonattainment SIPs” that address more detailed statutory requirements for coming into attainment. See

EPA, “Federal Implementation Plans,” 76 Federal Register 48216.

41 EPA, “Final Response to Petition from New Jersey Regarding SO Emissions from the Portland Generating Station,”

76 Federal Register 69052, November 7, 2011.

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the time frame of Good Neighbor SIP updates.42 Whereas EPA had previously considered 126(b)

petitions several years after revising a NAAQS—and after making attainment and nonattainment

designations for revised standards—EPA approved New Jersey’s 126(b) petition before

Pennsylvania was required to complete its Good Neighbor SIP for the 2010 revision to the SO2

NAAQS.43 EPA promulgated an emissions limit for the generating station that would reduce its

SO2 emissions by 81% and set a compliance deadline of three years.44 In 2013, the U.S. Court of

Appeals for the Third Circuit upheld EPA’s interpretation of Section 126, concluding that the

CAA allows EPA to make a Section 126 finding independently of the Section 110 SIP process.45

States have continued to submit Section 126(b) petitions related to ozone interstate transport. For

example, Connecticut, Delaware, Maryland, and New York have submitted 126(b) petitions

related to compliance with the 2008 and/or 2015 ozone NAAQS.46 As of July 2018, EPA has

denied the petition from Connecticut and has proposed to deny petitions from Delaware and

Maryland.47 Among the various reasons for denying Connecticut’s petition, EPA found that the

petition did not reflect current operations at the named source—a power plant located in

Pennsylvania.48 In particular, EPA stated that the air quality modeling in Connecticut’s petition

was based on 2011 emissions data and therefore did not account for subsequent NOx reductions,

noting that the named source “primarily burned natural gas with a low NOx emission rate in the

2017 ozone season.”49 In addition, EPA conducted its own analysis using the agency’s current

multi-step framework for determining what constitutes a significant contribution.50 The agency’s

analysis did not identify additional “highly cost-effective controls available at the source and thus

no basis to determine that [the named source] emits or would emit in violation of the good

neighbor provision with respect to the 2008 ozone NAAQS.”51 While EPA “expects the facility to

42 Karmel, “Interstate Transport,” in The Clean Air Act Handbook, p. 134.

43 For EPA’s discussion about the timing of 126(b) petitions and Good Neighbor SIPs, see EPA, “Final Response to

Petition from New Jersey Regarding SO2 Emissions from the Portland Generating Station,” 76 Federal Register 6905369056, November 7, 2011. For the 2010 SO2 NAAQS revision, see EPA, “Primary National Ambient Air Quality

Standard for Sulfur Dioxide; Final Rule,” 75 Federal Register 35520, June 22, 2010.

44 EPA, “Final Response to Petition from New Jersey Regarding SO Emissions from the Portland Generating Station,”

76 Federal Register 69066-69068, November 7, 2011.

45 GenOn REMA, LLC v. EPA, 722 F.3d 513, 521-22 (3d Cir. 2013).

46 EPA, Ozone National Ambient Air Quality Standards (NAAQS) Section 126 Petitions, June 2018,

https://www.epa.gov/ozone-pollution/ozone-national-ambient-air-quality-standards-naaqs-section-126-petitions.

47 For the final decision on Connecticut’s petition, see EPA, “Response to June 1, 2016 Clean Air Act Section 126(b)

Petition from Connecticut,” 83 Federal Register 16064, April 13, 2018. For the proposed denial of Delaware and

Maryland’s petitions, see EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and Maryland,” 83

Federal Register 26675, June 8, 2018.

48 EPA also concluded that Connecticut’s petition did not provide enough information regarding the source’s impact on

air quality in Connecticut on high ozone days. For example, EPA stated that the petition did not demonstrate whether

the days in which emissions from the named source had the largest impact on Connecticut’s air quality monitors

coincided with the highest modeled ozone days at the Connecticut monitors. EPA, “Response to June 1, 2016 Clean Air

Act Section 126(b) Petition from Connecticut,” 83 Federal Register 16064, 16071-16072, April 13, 2018. See also

Connecticut Department of Energy and Environmental Protection, Petition to the U.S. EPA Pursuant to Section 126 of

the Clean Air Act for Abatement of Emissions from the Brunner Island Coal Fired Generating Units in Pennsylvania,

as Such Generating Units Significantly Contribute to Nonattainment of, and Interfere with Maintenance of, the 2008

Ozone NAAQS in the State of Connecticut, June 1, 2016.

49 EPA, “Response to June 1, 2016 Clean Air Act Section 126(b) Petition from Connecticut,” 83 Federal Register

16072, April 13, 2018.

50 Regulatory actions and litigation have led to EPA’s establishment of the current framework that it uses to assess

Good Neighbor obligations. The framework establishes a screening threshold and accounts for both cost and air quality

improvements. See “Framework to Assess Good Neighbor Provision” in this report for complete discussion.

51 EPA, “Response to June 1, 2016 Clean Air Act Section 126(b) Petition from Connecticut,” 83 Federal Register

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continue operating primarily by burning natural gas in future ozone seasons,”52 others have

expressed concern that there is no “enforceable requirement prohibiting” the named source from

switching back to coal.53

Similarly, in June 2018, EPA proposed to deny petitions from Delaware and Maryland, in part

because EPA found “several elements of the states’ analyses … insufficient to support the states’

conclusions.”54 For example, EPA said that Delaware’s petitions did “not provide any analysis

indicating that Delaware may be violating or have difficulty maintaining the 2008 or 2015 ozone

NAAQS in a future year associated with the relevant attainment dates.”55 EPA also noted that

Delaware used 2011 emissions data, which EPA characterized as “generally higher than, and

therefore not representative of, current and future projected emissions levels at these [named

sources] and in the rest of the region.”56 Delaware has disagreed with EPA’s proposed denial on

various grounds. Among other things, Delaware stated that EPA has not “shown valid modeling

or justification that Delaware will attain the 2015 ozone standard by its 2021 Marginal

nonattainment deadline.”57 In particular, EPA’s projections analyzed the year 2023, which is the

attainment deadline for areas designated as moderate nonattainment with respect to the 2015

ozone standard.58

Finally, EPA proposed to deny Maryland’s petition, in part because the agency disagreed with

Maryland that NOx limits for 36 named sources should be based on the respective units’ lowest

observed emissions rates.59 Specifically, Maryland’s petition concluded that the 36 named sources

were operating pollution controls “sub-optimally based on a comparison of their lowest observed

NOx emissions rates between 2005 and 2008, which Maryland describes as the ‘best’ observed

16065.

52 EPA, “Response to June 1, 2016 Clean Air Act Section 126(b) Petition from Connecticut,” 83 Federal Register

16072.

Arthur N. Marin, Executive Director, Northeast States for Coordinated Air Use Management, letter to William

Wehrum, Assistant Administrator, Office of Air and Radiation, EPA, March 26, 2018, http://www.nescaum.org/

documents/nescaum-comments-ct-126-petition-20180326.pdf/.

54 EPA also proposed to find that, based on its own analysis, there are “no additional highly cost-effective emissions

reductions available at the sources, and, thus, that none of the named sources currently emit or would emit in violation

of the good neighbor provision with respect to the relevant ozone standard.” EPA, “Response to Clean Air Act Section

126(b) Petitions from Delaware and Maryland,” 83 Federal Register 26677, June 8, 2018.

55 For complete discussion, see EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and

Maryland,” 83 Federal Register 26676, June 8, 2018; and Delaware’s four 126(b) petitions (Brunner Island,

Conemaugh, Harrison, Homer City), available at Delaware Department of Natural Resources and Environmental

Control, Delaware’s 126(b) Petitions for Clean Air, http://www.dnrec.delaware.gov/Air/Pages/126-Petitions.aspx.

56 EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and Maryland,” 83 Federal Register

26676, June 8, 2018. Delaware has responded that EPA’s 2017 data show two of the named sources operating with

emissions rates similar to those in 2011, see Delaware Department of Natural Resources and Environmental Control,

Testimony on EPA’s Proposed Denial of Delaware’s 126(b) Petitions, June 22, 2018, p. 2,

http://www.dnrec.delaware.gov/Air/Documents/06-22-Dave-Fees-testimony-at-EPA-public-hearing.pdf.

57 Delaware Department of Natural Resources and Environmental Control, Testimony on EPA’s Proposed Denial, p. 3.

58 EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and Maryland,” 83 Federal Register

26678. See also EPA, Ozone NAAQS Timelines, https://www.epa.gov/ozone-pollution/ozone-naaqs-timelines.

59 For complete discussion, see EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and

Maryland,” 83 Federal Register 26677, and Maryland Department of Environment, Petition to the U.S. EPA Pursuant

to Section 126 of the Clean Air Act for Abatement of Emissions from 36 Coal-Fired Electric Generating Units at 19

Plants in Five States that Significantly Contribute to Nonattainment of, and Interfere with Maintenance of, the 2008

Ozone NAAQS in the State of Maryland, November 16, 2016, http://news.maryland.gov/mde/wp-content/uploads/sites/

6/2016/11/MD_126_Petition_Final_111616.pdf.

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emissions rates, to emissions rates from the 2015 and 2016 ozone seasons.”60 EPA disagreed that

the lowest historical NOx emissions rate is representative of “ongoing achievable NOx rates” in

part because over time, some NOx controls (e.g., selective catalytic reduction [SCR] systems)

“may have some broken-in components and routine maintenance schedules entailing replacement

of individual components.” EPA stated that in a 2016 rulemaking addressing regional ozone

transport, the agency determined that the “third lowest fleetwide average coal-fired [power plant]

NOx rate” for power plants using SCR to be “most representative of ongoing, achievable emission

rates.”61 Maryland has disagreed with EPA’s proposed denial, noting that it will “testify in

opposition to the proposal and use all available tools, including litigation.”62

Interpreting “Significant Contribution”

Enforcement of the CAA’s interstate transport provisions hinges on a key test in Section

110(a)(2)(D)(i)—whether one state “significantly contributes” to a violation of the NAAQS in

another state. The CAA does not, however, define what constitutes a significant contribution.

Instead, this phrase has been interpreted through EPA rulemakings addressing interstate air

pollution. The agency’s interpretation has been contentious at times, given that it “inherently

involves a decision on how much emissions control responsibility should be assigned to upwind

states, and how much responsibility should be left to downwind states.”63 Stakeholders have

challenged the legality of EPA’s interpretations over the years.64

The regulatory actions and litigation have led to EPA’s establishment of the current framework to

address the Good Neighbor provision for ozone and particulate matter.65 The framework

establishes a screening threshold—interstate pollution that exceeds 1% of the NAAQS—to

identify states with sources that may contribute significantly to air quality problems in downwind

states.66 Upwind states that exceed this threshold for interstate pollution are evaluated further—

considering cost and air quality factors—to determine whether emission reductions are needed.67

EPA has clarified that it generally uses this framework to determine what constitutes a significant

contribution when evaluating Good Neighbor SIPs and when evaluating a 126(b) petition.68 See

“Framework to Assess Good Neighbor Provision” for detailed discussion of the framework.

60 EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and Maryland,” 83 Federal Register

26677.

61 EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and Maryland,” 83 Federal Register

26677.

62 Maryland Department of Environment, “Maryland Environment Secretary Grumbles Statement on EPA’s Proposed

Denial of the Maryland Department of the Environment’s Clean Air Act Petition,” press release, June 1, 2018,

http://news.maryland.gov/mde/2018/06/01/maryland-environment-secretary-grumbles-statement-on-epas-proposeddenial-of-the-maryland-department-of-the-environments-clean-air-act-petition/.

63 EPA, “Federal Implementation Plans,” 76 Federal Register 48248.

64 For a summary of how litigation has influenced implementation of the Good Neighbor provision, see CRS Report

R43699, Key Historical Court Decisions Shaping EPA’s Program Under the Clean Air Act, by (name redacted)

65 EPA, “Federal Implementation Plans,” 76 Federal Register 48208 (see in particular Section VI). For brief summary

of the framework, see Peter Tsirigotis, Director, EPA Office of Air Quality Planning and Standards, memorandum to

Regional Air Division Directors, EPA Regions 1-10, March 27, 2018, https://www.epa.gov/sites/production/files/201803/documents/transport_memo_03_27_18_1.pdf.

66 EPA, “Federal Implementation Plans,” 76 Federal Register 48248. Under this approach, 1% of the 2015 ozone

NAAQS (70 ppb) equals 0.7 ppb.

67 EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74507-74508.

68 EPA stated, “While either provision may be applied to address interstate transport, they are also closely linked in that

a violation of the prohibition in CAA Section 110(a)(2)(D)(i) is a condition precedent for action under CAA Section

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Programs Addressing Interstate Pollution

Pursuant to the CAA, EPA and states have implemented various market-based programs that

target regional emissions of SO2 and NOx from power plants. One type of market-based program,

known as emissions trading, sets a limit (or “cap”) on total emissions within a defined geographic

area or economic sector and requires covered entities to surrender an allowance for each unit—

typically a ton—of emissions.69 Such programs are also known as “cap-and-trade.”

Under an emissions cap, covered entities with relatively low emission-reduction costs have a

financial incentive to reduce emissions because they can sell unused allowances to entities that

face higher costs to reduce their facility emissions. The requirements vary by each program. For

example, policymakers may decide to distribute the emission allowances to covered entities at no

cost (based on, for example, previous years’ emissions), sell the allowances (e.g., through an

auction), or use some combination of these strategies. In addition, some programs may permit

covered entities to “bank” or save surplus allowances for future use while others may not.

The remainder of this section presents a brief history of the interstate transport programs

implemented prior to 2015, given their cumulative impact on regional emission reductions. The

“Cross State Air Pollution Rule” section then provides more detail about CSAPR, the current

emissions trading program intended to limit interstate transport of power sector SO2 and NOx

emissions. Figure 1 summarizes the timeline of the regional programs for ozone and particulate

matter control.

126(b) and, critically, that significant contribution to nonattainment and interference with maintenance are construed

identically for purposes of both provisions (since the identical terms are naturally interpreted as meaning the same thing

in the two linked provisions).” See EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and

Maryland,” 83 Federal Register 26675.

69 EPA, What Is Emissions Trading?, https://www.epa.gov/emissions-trading-resources/what-emissions-trading.

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Figure 1. Implementation Timeline of Regional Ozone and Particulate Matter Control Programs

Source: CRS analysis.

Notes: The program dates in the figure represent the timeline for implementation and not enactment of statutory mandates. In addition, the Acid Rain Program, which

seeks to reduce power sector emissions that cause acid rain (i.e., SO2 and NOx), was established under the 1990 CAA Amendments and remains in effect today.

a. CAIR refers to the Clean Air Interstate Rule.

b. CSAPR refers to the Cross State Air Pollution Rule.

c. OTC NOx refers to the Ozone Transport Commission Nitrogen Oxide Budget Program.

d. NOx SIP Call refers to the Nitrogen Oxide State Implementation Plan Call.

e. Clean Air Act (CAA) of 1970 initially mandated the “Good Neighbor” provision, which was subsequently amended under the 1977 CAA and the 1990 amendments.

CRS-11

The Clean Air Act’s Good Neighbor Provision: Overview of Interstate Air Pollution Control

Acid Rain Program

EPA established the Acid Rain Program (ARP) under Title IV of the 1990 CAA Amendments to

reduce power sector emissions that cause acid rain.70 Specifically, the ARP targets SO2 emissions

through cap-and-trade and addressed NOx emissions through an emissions-rate-based program.71

Since its inception over two decades ago, the ARP has achieved notable reductions in these

regional pollutants at lower-than-predicted costs. The market-based program also served as the

basis for subsequent programs addressing interstate pollution.72

Under Title IV of the CAA, EPA implemented the ARP in two phases. The first phase—1995 to

1999—included 110 high-emitting coal-fired power plants, which had been identified in the

statute and spanned 21 eastern and midwestern states.73 The second phase began in 2000 and

included more coal-fired power plants as well as those firing oil and natural gas, accounting for

nearly all fossil-fueled power plants in the lower 48 states.74 EPA set the annual SO2 emissions

cap at 9.97 million allowances in 2000 and decreased it in subsequent years. The ARP remains in

effect today. The annual SO2 cap—8.95 million tons of SO2 per year—has not changed since

2010. The annual cap is roughly half of the SO2 emitted by the power sector in 1980.75

EPA distributed SO2 allowances based on statutory formulas and accounted for historical

emission rates and fuel consumption.76 The “existing” power plant units—those in operation prior

to November 15, 1990—received allowances for free.77 The “new” power plant units—those

commencing operations after November 15, 1990—generally did not receive free allowances and

had to purchase them on the market.78 At the end of each year, covered power plants have to

surrender one allowance for each ton of SO2 emitted. Unused allowances can either be sold or

70 CAA §401; 42 U.S.C. §7651.

71 CAA Title IV set goals for the year 2000 of reducing annual SO

2 emissions by 10 million tons from 1980 levels and

reducing annual NOx emissions by 2 million tons, also from 1980 levels. CAA §401(b); 42 U.S.C. §7651(b). See also

CRS Report RL30853, Clean Air Act: A Summary of the Act and Its Major Requirements, by (name redacted) .

72 According to EPA’s 2016 Progress Report, covered sources in the ARP emitted 1.5 million tons of SO on an annual

basis—a 91% reduction below 1990 levels—and 1.2 million tons of NOx on an annual basis—an 81% reduction below

1990 levels. See EPA, 2016 Progress Report: Cross-State Air Pollution Rule and Acid Rain Program, “Program

Basics,” 2016, pp. 7-8, https://www3.epa.gov/airmarkets/progress/reports/pdfs/2016_full_report.pdf. For additional

discussion about the results of the ARP, see Gabriel Chan et al., The SO2 Allowance Trading System and the Clean Air

Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation, Harvard Environmental Economics

Program, January 2012, https://heep.hks.harvard.edu/files/heep/files/so2-brief_digital_final.pdf.

73 CAA §404(e), Table A; 42 U.S.C. §7651(c)(e), Table A.

74 EPA, Acid Rain Program, SO Reductions, https://www.epa.gov/airmarkets/acid-rain-program. See also Richard

Schmalensee and Robert Stavins, “Lessons Learned from Three Decades of Experience with Cap and Trade,” Review

of Environmental Economics and Policy, vol. 11, no. 1 (Winter 2017), p. 61.

75 EPA, 2016 Progress Report, p. 8. EPA reports the cap in units of allowances: The annual SO cap is 8.95 million

allowances. The CAA defines each allowance as one ton. See definition of allowance in CAA §402(3); 42 U.S.C.

§7651(a)(3).

76 CAA §403; 42 U.S.C. §7651(b). EPA elaborated on and codified the distribution criteria at 40 C.F.R. 73.10.

77 For statutory definition, see CAA §402(8); 42 U.S.C. §7651(a)(8). For statutory direction on distribution of SO

allowances, see CAA §403; 42 U.S.C. §7651(b).

78 New power plants that met statutory criteria could receive some allowances from EPA. For statutory definition, see

CAA §402(10); 42 U.S.C. §7651(a)(10). For statutory direction on distribution of SO2 allowances to new units, see

CAA §403(e); 42 U.S.C. §7651(b)(e).

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banked for use in later years.79 The market value of unused allowances, therefore, serves as an

incentive for power plants to “reduce emissions at the lowest cost.”80

The NOx portion of the ARP does not involve cap-and-trade but follows a more traditional

regulatory approach. It is implemented through boiler-specific NOx emission rates.81 This

program has provided power plants with some compliance flexibility, for example, by allowing

the use of emissions rate averaging plans for units under common control, provided they meet

certain conditions.82 According to one analysis of the ARP, the NOx portion “helped demonstrate

the cost-effectiveness of NOx controls,” and by 2000, it “encouraged the installation of advanced

NOx combustion controls, such as low-NOx burners, and the development of new power plant

designs with lower NOx emission rates.”83

While the ARP reduced SO2 and NOx emissions from the power sector, additional reductions

were needed to meet ambient air quality standards under the CAA and to address the statute’s

Good Neighbor provision.84 For example, in 1997, EPA revised the NAAQS for ozone and

particulate matter—which are formed by SO2 and NOx—to be more stringent.85 The next sections

summarize some of the programs designed to achieve these reductions.

Ozone Control: Regional NOx Programs

Ozone control strategies had focused on VOC emissions until the mid-1990s, when market-based

programs began targeting another ozone precursor, NOx, given its “important role … in ozone

formation and transport.”86 Specifically, two regional trading programs were implemented

between 1999 and 2009 to address ozone by reducing NOx emissions. The first one, the “Ozone

Transport Commission NOx Budget Program,” was in effect between 1999 and 2002. It was then

replaced by the second program, the “NOx Budget Trading Program,” which ran until 2009.

Ozone Transport Commission NOx Budget Program

The OTC—a multistate organization established under the 1990 CAA Amendments to advise EPA

on ozone transport issues—developed the NOx Budget Program and implemented it through a

Memorandum of Understanding (MOU) with nearly all of the OTC states.87 The OTC NOx

Budget Program set a regional budget (i.e., cap) on NOx emissions from electric utilities and large

79 For more implementation details, see EPA, Acid Rain Program.

80 Chan et al., The SO

2 Allowance Trading System, p. 4.

81 EPA, Acid Rain Program, Overview.

82 EPA, 2016 Progress Report, p. 10.

83 Sam Napolitano et al., “The U.S. Acid Rain Program: Key Insights from the Design, Operation, and Assessment of a

Cap-and-Trade Program,” Electricity Journal, vol. 20, no. 7 (August/September 2007), p. 50.

84 Chan et al., The SO Allowance Trading System, p. 17.

85 For the 1997 ozone NAAQS revision, see EPA, “National Ambient Air Quality Standards for Ozone,” 62 Federal

Quality Standards for Particulate Matter,” 62 Federal Register 38652, July 18, 1997.

86 EPA and OTC, NO Budget Program, 1999-2002 Progress Report, March 2003, p. 1, https://www.epa.gov/sites/

production/files/2015-08/documents/otcreport.pdf.

87 The OTC is comprised of the governors of the 12 states in the OTR (Connecticut, Delaware, Maine, Maryland,

Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia) and the

mayor of the District of Columbia. CAA §184; 42 U.S.C. §7511(c). All states in the OTC signed the MOU except for

Virginia. EPA and OTC, NOx Budget Program, p. 1. For the MOU, see https://otcair.org/upload/Documents/

Memorandums/att2.htm.

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industrial boilers during the “ozone season” (May through September), which is the time of year

weather conditions are most favorable for ozone formation.88 Under the MOU, states “were

responsible for adopting regulations, identifying sources, allocating NOx allowances, and

ensuring compliance,” while EPA was “responsible for approving the states’ regulations and

tracking allowances and emissions.”89

Before emissions trading began under the OTC NOx Budget Program, sources under the ARP

were required to meet CAA emission rate standards that were in effect at that time. Sources could

not emit above the NOx level expected if using Reasonably Available Control Technology.90 Next,

the cap-and-trade program began in 1999 and ran until 2002, at which point the OTC NOx Budget

Program was effectively replaced by the NOx Budget Trading Program (see next section).

In 2002, the sources participating in the OTC NOx Budget Program reduced ozone season NOx

emissions 60% below 1990 baseline levels.91 Despite the NOx reductions in the Northeast, many

northeastern and mid-Atlantic states were unable to meet a statutory deadline to attain the onehour ozone NAAQS. EPA concluded that these areas had not met this statutory deadline largely

because of ozone transport from upwind areas.92

NOx Budget Trading Program

The NOx Budget Trading Program (NBP) effectively replaced the OTC NOx Budget Program and

was implemented between 2003 and 2009. The NBP encompassed a wider geographic area than

the OTC NOx Budget Program and targeted NOx reductions from electric utilities and nonutility

sources (e.g., large industrial boilers).93 EPA established the NBP under the NOx SIP Call, which

required a number of eastern and midwestern states, plus the District of Columbia, to revise their

SIPs to address regional ozone transport.94 The NOx SIP Call set a NOx ozone season budget for

each state and required upwind states to adopt SIPs that would reduce NOx emissions to a level

that would meet the budgets.

In the NOx SIP Call, EPA observed that “virtually every nonattainment problem is caused by

numerous sources over a wide geographic area,” leading the agency to conclude that “the solution

to the problem is the implementation over a wide area of controls on many sources, each of which

may have a small or unmeasurable ambient impact by itself.”95 Ultimately, EPA expected that this

88 EPA and OTC, NO Budget Program, pp. 1-3.

89 EPA, Ozone Transport Commission NO

x Budget Program, https://www.epa.gov/airmarkets/ozone-transportcommission-nox-budget-program.

90 The NO component of the ARP—boiler-specific NO emission rates on an annual basis—was in effect at the same

time as the ozone NOx trading programs, which addressed NOx emissions in the summer (i.e., ozone season). The ARP

NOx program remains in effect today and applies to “ARP-affected units that are older, historically coal-fired boilers.”

EPA, 2016 Progress Report, p. 15. See also EPA and OTC, NOx Budget Program, p. 4. For summary and detailed

analysis of the OTC NOx Budget Program, see Dallas Burtraw and Sarah Jo Szambelan, U.S. Emissions Trading

Markets for SO2 and NOx, Resources for the Future, October 2009, pp. 21-24, http://www.rff.org/files/sharepoint/

WorkImages/Download/RFF-DP-09-40.pdf.

91 EPA and OTC, NO Budget Program, p. 6.

92 EPA, “Finding of Significant Contribution,” 63 Federal Register 57361.

93 Nonutility sources refers to industrial sources that produce electricity or steam primarily for internal use. Examples

include boilers and turbines at manufacturing facilities, such as paper mills and petroleum refineries. See EPA, The

NOx Budget Program: 2008 Emission, Compliance, and Market Analyses, July 2009, p. 3, https://www.epa.gov/sites/

production/files/2015-08/documents/nbp_2008_ecm_analyses.pdf.

94 EPA, “Finding of Significant Contribution,” 63 Federal Register 57356.

95 EPA, “Finding of Significant Contribution,” 63 Federal Register 57377.

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would “eliminat[e] the emissions that significantly contribute to nonattainment or interference

with maintenance of the ozone NAAQS in downwind states.”96

EPA based the NOx SIP Call in part on recommendations from the Ozone Transport Assessment

Group (OTAG), a group created by EPA and the 37 easternmost states.97 Of most relevance,

OTAG recommended strategies to reduce NOx emissions from utilities as well as large and

medium nonutility sources in a trading program.98

EPA accounted for the cost of NOx controls when establishing the NOx budgets.99 EPA identified

cost-effective reductions in the electric utility and nonutility source sectors. These control

strategies informed the establishment of the NOx emission budgets.100 EPA did not identify costeffective controls in other sectors—namely, area sources (i.e., nonmobile sources that emit less

than 100 tons of NOx per year),101 nonroad engines (i.e., mobile sources that do not operate on

roads and highways, such as engines used to power snowmobiles, chainsaws, or lawnmowers),102

or highway vehicles. Under the NOx SIP Call, states could require their sources to comply with

the emissions budget or participate in a regional cap-and-trade program. EPA developed a model

rule for a regional emissions trading program—known as the NOx Budget Trading Program—to

assist states interested in the trading option. All of the jurisdictions—20 states and the District of

Columbia—adopted the NBP into their SIPs and participated in the NBP.103

In 2008, NBP emissions were 9% below the 2008 cap, representing a 75% reduction compared to

1990 baseline levels.104 This also represented a 62% reduction below a 2000 baseline, which

accounted for emission reductions that occurred under the 1990 CAA Amendments before

implementation of the NBP.105

96 EPA, “Response to Clean Air Act Section 126(b) Petitions from Delaware and Maryland,” 83 Federal Register

26668.

97 The westernmost OTAG states ranged from North Dakota to Texas, with all remaining OTAG states located

eastward of these states. For a map of OTAG states, see EPA, Supplemental Ozone Transport Rulemaking Regulatory

Analysis, April 7, 1998, p. 1-2, https://archive.epa.gov/ttn/ozone/web/pdf/supregan.pdf.

98 EPA, “Finding of Significant Contribution,” 63 Federal Register 57358-57359.

99 In 2000, the D.C. Circuit held in Michigan v. EPA that nothing in Section 110(a)(2)(D) bars EPA from considering

costs. For additional information, see CRS Report R43699, Key Historical Court Decisions Shaping EPA’s Program

Under the Clean Air Act, by (name redacted)

100 EPA, “Finding of Significant Contribution,” 63 Federal Register 57405.

101 EPA, “Finding of Significant Contribution,” 63 Federal Register 57498. Examples of area sources of NO emissions

include wildfires and residential water heaters. EPA, “Finding of Significant Contribution and Rulemaking for Certain

States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone,” 62

Federal Register 60353, November 7, 1997.

102 Additional examples of nonroad engines are those used for agricultural, construction, and mining equipment as well

as aircraft and train engines. EPA, “Finding of Significant Contribution and Rulemaking for Certain States in the

Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone,” 62 Federal

103 The NO SIP Call included 22 states and the District of Columbia, but a later ruling removed one state (Wisconsin)

and parts of two other states (Missouri and Georgia). The court left requirements for the remaining 19 states in place.

See Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000) cert. denied 532 U.S. 904 (2001). See also EPA, 2016 Program

Progress, “Program Basics.”

104 EPA, The NO Budget Program: 2008 Emission, Compliance, and Market Analyses, July 2009, p. 4,

https://www.epa.gov/sites/production/files/2015-08/documents/nbp_2008_ecm_analyses.pdf.

105 EPA, The NO Budget Program, p. 4.

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EPA observed that ozone season NOx emissions decreased each year between 2003 and 2008 and

attributed these reductions in part to the installation of NOx controls.106 The agency noted that

emissions vary year-to-year due to variables such as weather, electricity demand, and fuel costs.

For example, EPA attributed the NOx reductions between 2007 and 2008 primarily to lower

electricity demand. However, analysis of the entire NBP period—2003 to 2008—shows a

reduction in ozone season NOx emissions despite a slight increase in demand for electricity. EPA

reported that the average NOx emission rate for the 10 highest electricity demand days (i.e., hot

days when use of air conditioning is high) decreased in each year of the NBP. This metric for

peak electricity days was 44% lower in 2008 compared to 2003.107

EPA reported that ozone concentrations decreased by 10% between the years 2002 and 2007

across all states participating in the NBP.108 EPA also observed a “strong association between

areas with the greatest NOx emission reductions from NBP sources and downwind monitoring

sites measuring the greatest improvements in ozone.”109 Progress notwithstanding, some NBP

areas remained in nonattainment status with the ozone NAAQS as the NBP program concluded

by the end of 2008.110

Ozone and PM Control: Regional SO2 and NOx Trading Programs

In 2005, EPA determined that interstate transport of SO2 and NOx contributed significantly to

ozone and PM2.5 nonattainment.111 Specifically, EPA found that (1) interstate transport of NOx

from 25 states and the District of Columbia contributed significantly to nonattainment, or

interfered with maintenance, of the 1997 eight-hour ozone NAAQS; and (2) interstate transport of

SO2 and NOx from 23 states and the District of Columbia contributed significantly to

nonattainment, or interfered with maintenance, of the 1997 PM2.5 NAAQS.112 To address these

findings, EPA promulgated a rule that applied to 28 eastern states and the District of Columbia.113

This rulemaking is known as the Clean Air Interstate Rule (CAIR).

106 EPA, The NO

x Budget Program, pp. 5-6.

107 EPA, The NO

x Budget Program, p. 6.

108 Based on ozone concentrations averaged over an eight-hour time interval and after adjusting for meteorological

conditions. See EPA, NOx Budget Trading Program: Compliance and Environmental Results, December 2008, p. 44,

https://www.epa.gov/sites/production/files/2015-08/documents/2007-nbp-report.pdf.

109 Based on ozone concentrations averaged over an eight-hour time interval and after adjusting for meteorological

conditions. See EPA, NOx Budget Trading Program: Compliance and Environmental Results, p. 44.

110 EPA, The NO Budget Program: 2008 Emission, Compliance, and Market Analyses, July 2009, p. 6,

https://www.epa.gov/sites/production/files/2015-08/documents/nbp_2008_ecm_analyses.pdf. The NBP was effectively

replaced by the ozone season NOx component of the Clean Air Interstate Rule. See EPA, 2016 Program Progress, p. 8.

111 EPA identified the geographic areas and interstate air emissions transport through a series of modeling runs. EPA

also used several criteria to determine what constituted a “significant contribution” for ozone nonattainment and for

PM2.5 nonattainment. EPA changed this approach in CSAPR, which replaced CAIR. The CSAPR approach is discussed

later in this report.

112 EPA, “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule);

Revisions to Acid Rain Program; Revisions to the NOx SIP Call; Final Rule,” 70 Federal Register 25167, May 12,

2005.

113 EPA, “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule),” 70

Federal Register 25170. The totals reported in this paragraph include Minnesota, which EPA included in the CAIR

final rule. EPA subsequently promulgated a final rule to stay the effectiveness of CAIR and associated CAIR FIP

requirements for Minnesota. More recent publications may therefore exclude Minnesota from the total number of states

that were subject to CAIR. For Final Stay of CAIR and CAIR FIP for Minnesota, see EPA, “Administrative Stay of

Clean Air Interstate Rule for Minnesota; Administrative Stay of Federal Implementation Plan to Reduce Interstate

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A legal challenge, however, vacated and remanded CAIR to EPA.114 CAIR remained in effect

while EPA responded to the court decision and developed a new regional program addressing air

transport, known as CSAPR. CSAPR replaced CAIR on January 1, 2015, and remains in effect

today.115 The remainder of this section discusses each program in turn.

Clean Air Interstate Rule

CAIR established a regional cap-and-trade program to reduce power sector SO2 and NOx

emissions. Specifically, CAIR established emission budgets for each of the 28 states as well as a

model rule for a multi-state cap-and-trade program in the power sector.116 Under CAIR, states

could achieve their emission budgets by requiring their sources to participate in the cap-and-trade

program.

CAIR set three emissions caps: Two were annual emissions caps to limit SO2 and NOx as

precursor emissions to PM2.5, and the third was an ozone season cap limiting NOx as a precursor

emission to ozone. The annual NOx and seasonal NOx caps were implemented as the “CAIR NOx

annual” and “CAIR ozone season NOx” programs, respectively, in 2009. The SO2 emissions cap

was implemented as the “CAIR SO2 annual” program in 2010.117

The scope of CAIR differed from prior NOx trading programs. Whereas the NBP had included

both electric generators and nonutility industrial sources (e.g., boilers and turbines), CAIR

focused only on electric generators. As previously noted, OTAG’s recommendations for the NOx

SIP Call included NOx controls for medium and large nonutility stationary sources as well as

electric generating units. While nonutility sources emit both NOx and SO2, EPA did not require

NOx and SO2 reductions from these sources under CAIR. EPA concluded that it needed more

reliable emissions data and better information about control costs to require reductions from

nonutility sources in CAIR. Specifically, EPA stated that it lacked information about the costs to

integrate NOx and SO2 controls at nonutility sources and therefore could not determine whether

such controls would qualify as “highly cost-effective” under CAIR.118

Some stakeholders disagreed with this conclusion, noting that EPA had cost information from the

NOx SIP Call. EPA responded that the geographic scope of the NOx SIP Call differed somewhat

from CAIR, and therefore it had limited emissions data about nonutility sources in CAIR states

that were outside of the NOx SIP Call. In addition, EPA expected that projected NOx and SO2

emissions from nonutility sources were “significantly lower than projected” emissions from

Transport of Fine Particulate Matter and Ozone for Minnesota,” 74 Federal Register 56721, November 3, 2009.

114 North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008). See also CRS Report R43699, Key Historical Court

Decisions Shaping EPA’s Program Under the Clean Air Act, by (name redacted)

115 EPA, 2016 Program Progress, p. 9.

116 EPA, “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule),” 70

Federal Register 25162.

117 EPA, 2016 Program Progress, pp. 10-11.

118 EPA, “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule),” 70

Federal Register 25214-25215.

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electric generators.119 EPA concluded that states would be better positioned to “make decisions

regarding any additional control requirements for [non-utility] sources.”120

CAIR was challenged in court. The U.S. Court of Appeals for the District of Columbia concluded

that CAIR was flawed, finding among other things that the CAIR trading program did not assure

some “measurable” emission reduction in each upwind state.121 The court reasoned that the

“[e]missions reduction by the upwind states collectively was not enough to satisfy Section

110(a)(2)(D).”122 The court ultimately remanded CAIR to EPA in December 2008, allowing

CAIR to remain in effect while EPA developed a replacement rule.123 The CAIR programs for

NOx (annual and ozone season) began in 2009 and the CAIR SO2 program began in 2010. The

programs continued through the end of 2014.124

Cross State Air Pollution Rule

In 2011, EPA promulgated CSAPR to address the court’s concerns regarding CAIR.125 CSAPR

implementation began in 2015—replacing CAIR—and it remains in effect today. Similar to

CAIR, CSAPR aims to reduce ozone and PM2.5 interstate transport. As shown in Figure 2,

CSAPR requires 27 states to reduce SO2 emissions, annual NOX emissions, and/or ozone season

NOX emissions from the power sector.126 Specifically, CSAPR sets annual SO2, annual NOx, and

ozone-season NOx budgets for the covered states and allows states to determine how they will

achieve those budgets, including the option of emissions trading.

119 EPA projected that in 2010, under base case conditions, electric generator emissions would contribute 70% of SO

(and 25% NOx) in the CAIR region compared to 15% of SO2 (and 16% NOx) from nonelectric generator boilers and

turbines. EPA, “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule),”

70 Federal Register 25214.

120 EPA, “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule),” 70

Federal Register 25215.

121 North Carolina v. EPA, 531 F.3d 896, 908 (D.C. Cir. 2008). CRS Report R43699, Key Historical Court Decisions

Shaping EPA’s Program Under the Clean Air Act, by (name redacted)

122 CRS Report R43699, Key Historical Court Decisions Shaping EPA’s Program Under the Clean Air Act, by (name

redacted)

123 Though initially vacating the CAIR rule, the D.C. Circuit revised its opinion some months later, leaving CAIR in

effect “until it is replaced by a rule consistent with our opinion.” North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C.

Cir. 2008). See also CRS Report R43699, Key Historical Court Decisions Shaping EPA’s Program Under the Clean

Air Act, by (name redacted)

124 EPA, 2016 Program Progress, p. 11.

125 EPA, “Federal Implementation Plans,” 76 Federal Register 48207.

126 CSAPR covers 27 states as of July 2018. Some changes have been made since EPA promulgated the 2011 CSAPR

rulemaking. For list of CSAPR states, see EPA, “States That Are Affected by the Cross-State Air Pollution Rule

(CSAPR),” https://www.epa.gov/csapr/states-are-affected-cross-state-air-pollution-rule-csapr.

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Figure 2. States Covered by CSAPR

Source: EPA (2018), “Map of States Covered by CSAPR,” https://www.epa.gov/airmarkets/map-states-coveredcsapr.

Note: Alaska and Hawaii (not shown) are not covered under the Acid Rain Program (ARP), which applies to

power plants in the contiguous United States, nor are they covered under the Cross State Air Pollution Rule

(CSAPR).

CSAPR differs from CAIR in other ways, though, and introduced a new approach to measuring a

significant contribution under Section 110(a)(2)(D). EPA had previously relied on a regional

analysis of significant contributions (e.g., in CAIR and the NOx SIP Call).127 As previously noted,

the D.C. Circuit found the regional approach flawed in a ruling on CAIR.128 As a result, EPA used

state-specific information under CSAPR to determine significant contributions at the state level.

After various legal challenges, the approach used in CSAPR remains in effect today. EPA has

determined that it can use this framework to assess the Good Neighbor provision each time it

revises the relevant NAAQS.129

Framework to Assess Good Neighbor Provision

EPA developed a multi-step framework to assess states’ Good Neighbor obligations and

determine each state’s significant contribution in CSAPR. First, EPA conducted air quality

127 EPA, “Federal Implementation Plans,” 76 Federal Register 48248.

128 North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008). See also CRS Report R43699, Key Historical Court

Decisions Shaping EPA’s Program Under the Clean Air Act, by (name redacted)

129 EPA, “Cross-State Air Pollution Rule Update,” 81 Federal Register 74507.

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modeling to project “downwind air quality problems”—that is, it identified downwind monitoring

receptors expected to have difficulty attaining or maintaining the NAAQS.130 Next, EPA

identified the links between upwind states and the downwind air quality monitoring sites with

projected attainment or maintenance difficulties. EPA then identified which of these linked

upwind states “contribute at least one percent of the relevant NAAQS” at the downwind sites.131

The agency next assessed the cost-effectiveness of emission control measures and air quality

factors to determine whether states exceeding this threshold made significant contributions or

interfered with maintenance of a NAAQS in a downwind state. That is, EPA determined that an

upwind state contributes significantly to a nonattainment or interference with maintenance of a

NAAQS if it produced more than 1% of NAAQS concentration in at least one downwind state

and if this pollution could be mitigated using cost-effective measures.

EPA modified the way it considered costs under CSAPR. Whereas EPA had previously based

“significant contribution” on the emissions that “could be removed using ‘highly cost effective’

controls,” the agency accounted for both cost and air quality improvement to measure significant

contributions under CSAPR.132 In CSAPR, EPA (1) quantified each state’s emission reductions

available at increasing costs per ton (“cost thresholds”), (2) evaluated the impact of upwind

reductions on downwind air quality, and (3) identified the cost thresholds providing “effective

emission reductions and downwind air quality improvement.”133

The last step of the Good Neighbor assessment framework requires the adoption of “permanent

and enforceable measures needed to achieve” the emission reductions.134 EPA implemented this

step through its promulgation of FIPs, giving states the option to replace the FIP with a SIP. 135

The FIPs specified the emission budgets for each state, reflecting the required SO2 and NOx

reductions from power plants in the state, and established the trading programs as each state’s

remedy to meet the emissions budgets.136

Legal challenges, which eventually reached the Supreme Court, delayed CSAPR

implementation.137 The Court largely upheld EPA’s approach, holding that EPA’s consideration of

cost in establishing states’ emission budgets was a “permissible construction of the statute.”138

130 For a summary of the process, see EPA, “Federal Implementation Plans,” 76 Federal Register 48211. See also

Tsirigotis, pp. 2-3.

131 EPA, “Federal Implementation Plans,” 76 Federal Register 48248.

132 EPA, “Federal Implementation Plans,” 76 Federal Register 48248.

133 EPA, “Federal Implementation Plans,” 76 Federal Register 48248.

134 Tsirigotis, p. 3.

135 EPA, “Federal Implementation Plans,” 76 Federal Register 48209.

136 See EPA, “Federal Implementation Plans,” 76 Federal Register 48210, and EPA, Regulatory Impact Analysis of the

Cross-State Air Pollution Rule (CSAPR) Update for the 2008 National Ambient Air Quality Standards for GroundLevel Ozone, September 2016, p. ES-8, https://www3.epa.gov/ttn/ecas/docs/ria/transport_ria_final-csapr-update_201609.pdf.

137 EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014). For summary of the CSAPR legal challenges

and the Supreme Court’s ruling, see CRS Report R43699, Key Historical Court Decisions Shaping EPA’s Program

Under the Clean Air Act, by (name redacted)

138 EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584, 1606–07 (2014).

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CSAPR Emissions Trading Programs

In response to the CAIR litigation, EPA designed “air quality-assured interstate emission trading

programs” to implement CSAPR.139 The CSAPR trading programs allow for interstate trading but

include provisions meant to ensure that all of the necessary reductions would occur in each

individual state. Specifically, EPA stated that the CSAPR assurance provisions “ensure that no

state’s emissions … exceed that specific state’s budget plus the variability limit (i.e., the state’s

assurance level).”140

EPA established four interstate trading programs for affected power plants under CSAPR: two for

annual SO2, one for annual NOX, and one for ozone-season NOX.141 These trading programs aim

to help downwind areas attain the 1997 and 2006 annual PM2.5 NAAQS and the 1997 and 2008

ozone NAAQS. The first phase of CSAPR, which began in 2015, sought to address the 1997 and

2006 PM2.5 NAAQS as well as the 1997 ozone NAAQS. The second phase of CSAPR, referred to

as the CSAPR Update, began in 2017 and has sought to address the 2008 ozone NAAQS.142

The total emissions budget for each CSAPR trading program equals the sum of the individual

state budgets covered by that program. Affected power plants receive an allocation of allowances

based on the emission budget for that trading program in the state. Each affected power plant

must have an allowance to emit each ton of the relevant pollutant. It may comply with its

allowance allocation by using control technologies to reduce emissions—and sell or bank any

surplus allowances—or buy more allowances on the market.143

EPA’s “CSAPR Update” rulemaking updated the ozone season NOx program with respect to the

2008 ozone NAAQS.144 Specifically, the CSAPR Update promulgated new FIPs for 22 states; 21

of these states were covered in the original CSAPR ozone season NOx trading program.145 The

updated ozone season NOx trading began in 2017 and largely replaced the original CSAPR ozone

season NOx trading program.146 EPA concluded based on its modeling analysis that emissions

from 10 of the states covered in the original CSAPR ozone season NOx trading program “no

longer significantly contribute to downwind nonattainment or interference with maintenance” of

139 EPA, “Federal Implementation Plans,” 76 Federal Register 48210.

140 Each state’s emissions budget accounts for the “inherent variability in power system operations.” See EPA, “Federal

Implementation Plans,” 76 Federal Register 48212, 48265, 48303.

141 One SO trading program—SO Group 1—covers sources in states that need to make larger reductions to eliminate

their significant contribution, while the second—SO2 Group 2—includes sources in states that need to make smaller

reductions. EPA, 2016 Program Progress, p. 9.

142 EPA, 2016 Program Progress, p. 9.

143 EPA clarified that while allowance trading—buying, selling, and banking—is allowed without restriction, there is a

limit on the surrender of SO2 allowances. A power plant in a Group 1 state can use only SO2 allowances allocated to

Group 1 states. Likewise, a power plant in a Group 2 state can use only Group 2 SO 2 allowances to cover SO2

emissions. EPA, “Federal Implementation Plans,” 76 Federal Register 48263-42864, 48284. See also EPA, 2016

Program Progress, p. 9.

144 EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74507.

145 Kansas was not covered in the original CSAPR ozone season NO program but was included in the CSAPR Update.

See EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74506.

146 The original ozone season CSAPR program was renamed “CSAPR NO Ozone Season Group 1 Trading Program”

and now includes just one state: Georgia. Georgia is not included in the CSAPR Update trading program, “CSAPR NO x

Ozone Season Group 2.” See EPA, “Determination Regarding Good Neighbor Obligations for the 2008 Ozone

National Ambient Air Quality Standard,” 83 Federal Register 31922, July 10, 2018; EPA, Overview of the Cross-State

Air Pollution Rule (CSAPR), https://www.epa.gov/csapr/overview-cross-state-air-pollution-rule-csapr; and EPA,

“Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74504.

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either the 1997 ozone NAAQS or the 2008 ozone NAAQS.147 Various states and stakeholders

have filed a petition for review of the CSPAR Update to the D.C. Circuit.148

CSAPR does not address the Good Neighbor provision with respect to either the 2012 revision to

the PM2.5 NAAQS149 or the 2015 revision150 to the ozone NAAQS.151 As of July 2018, states and

EPA are in the process of evaluating interstate ozone transport with respect to the 2015 ozone

NAAQS (see discussion under “Good Neighbor Determinations and the 2015 Ozone Standard”).

Regarding the 2012 PM2.5 standard, a 2016 EPA analysis determined that “few areas in the United

States” would “have problems attaining and maintaining the 2012 PM2.5 NAAQS due to the

relatively small number and limited geographic scope of projected nonattainment and

maintenance receptors.”152 EPA concluded that “most states will be able to develop good neighbor

SIPs that demonstrate that they do not contribute significantly to nonattainment or interfere with

maintenance of the 2012 PM2.5 NAAQS in any downwind state.”153 Currently, nine areas are

designated nonattainment with the 2012 PM2.5 standard, four of which are located in two CSAPR

states (Ohio and Pennsylvania). No areas are currently designated as maintenance with that

standard.154

Results of Regional SO2 and NOx Trading Programs

Power sector SO2 and NOx emissions have declined since 2005. EPA has attributed most of these

reductions to CAIR, which was in effect through the end of 2014.155 The agency noted that other

programs, such as state NOx emission control programs, also contributed to the reductions in

annual and ozone season NOx achieved by 2016.156 Figure 3 illustrates the trend of declining

emissions, showing that annual SO2, annual NOx, and ozone season NOx decreased between 2009

(the first year of CAIR) and 2016 (the latest year for which the EPA Air Markets Program Data

website reports emissions for all three programs).

147 EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74507.

148 Wisconsin v. EPA, No. 16-1406 (D.C. Cir. November 23, 2016).

149 Referred to as the “2012” PM2.5 NAAQS revision because EPA signed the rule in late 2012. The rule was

published in the Federal Register in early 2013. EPA, “National Ambient Air Quality Standards for Particulate

Matter,” 78 Federal Register 3086, January 15, 2013.

150 EPA, “National Ambient Air Quality Standards for Ozone,” 80 Federal Register 65292, October 26, 2015.

151 EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74507. EPA stated

it addressed the Good Neighbor provision for the 2012 PM2.5 NAAQS in a memorandum. See EPA, “Information on

the Interstate Transport ‘Good Neighbor’ Provision for the 2012 Fine Particulate Matter National Ambient Air Quality

Standards under Clean Air Act Section 110(a)(2)(D)(i)(I),” March 17, 2016, https://www.epa.gov/pm-pollution/

information-interstate-transport-good-neighbor-provision-2012-fine-particulate-matter.

152

Stephen D. Page, Director, EPA Office of Air Quality Planning and Standards, letter to EPA Regional Air Division

Directors, Regions 1-10, March 17, 2016, p. 3, https://www.epa.gov/sites/production/files/2016-08/documents/goodneighbor-memo_implementation.pdf.

153 Page, March 17, 2016, p. 7.

154 As of June 30, 2018. The states with nonattainment areas for the 2012 PM

2.5 standard are California, Idaho, Ohio,

and Pennsylvania. See EPA, Green Book: PM-2.5 (2012) Designated Area/State Information, June 30, 2018,

https://www3.epa.gov/airquality/greenbook/kbtc.html.

155 EPA, 2016 Program Progress, p. 18.

156 EPA, 2016 Program Progress, pp. 24, 30.

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Figure 3. CSAPR Sources Emission Trends, 2009-2016

Source: EPA Air Markets Program Data, https://ampd.epa.gov/ampd/.

Note: CAIR was in effect from 2009 through the end of 2014 and was replaced by CSAPR on January 1, 2015.

EPA attributed the SO2 reductions under CAIR/CSAPR and the ARP largely to the greater use of

pollution control technologies on coal-fired power plant units and “increased generation at natural

gas-fired units that emit very little SO2 emissions.”157 As noted by the U.S. Energy Information

Administration (EIA), nearly all SO2 emissions from the electricity sector are associated with

coal-fired generation.158 EPA reported that the average SO2 emissions rate for units subject to

either the CSAPR or ARP decreased 81% compared to 2005 rates. Most of the reductions were

from coal-fired units.159

Analysis from EIA reveals a similar trend at the national level, suggesting that a combination of

market and regulatory factors have contributed to SO2 reductions. EIA reported a 73% reduction

in national power sector SO2 emissions from 2006 to 2015, which it described as “much larger”

than the 32% reduction in coal-fired generation in that same period.160 EIA attributed the national

SO2 reductions to (1) changes in the electricity generation mix (e.g., less coal-fired generation

and more natural-gas-fired generation), (2) the installation of pollution control technologies at

coal- and oil-fired plants (in particular, to comply with the Mercury and Air Toxics rule), and (3)

lower use of the most-polluting power plants (e.g., retirements of coal-fired units).161 Another EIA

analysis reported that the eastern region of the United States—which includes all of the CSAPR

states except Texas—had the largest share of capacity retirements between 2008 and 2017

compared to the rest of the continental United States.162

157 EPA, 2016 Program Progress, p. 19.

158 EIA, “Sulfur Dioxide Emissions from U.S. Power Plants Have Fallen Faster Than Goal Generation,” February 3,

2017, https://www.eia.gov/todayinenergy/detail.php?id=29812.

159 EPA, 2016 Program Progress, p. 19.

160 EIA, “Sulfur Dioxide Emissions.”

161 EIA, “Sulfur Dioxide Emissions.” EIA stated that various factors influence the decision to retire a power plant and

analyzed retirements from the past decade in a separate report. See EIA, “Almost All Power Plants That Retired in the

Past Decade Were Powered by Fossil Fuels,” January 9, 2018, https://www.eia.gov/todayinenergy/detail.php?id=

34452.

162 EIA analyzed the lower 48 states of the United States and divided them into three regions: Western, Texas, and

Eastern. See EIA, “Almost All Power Plants.”

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In addition, emissions in 2016 were below the total emission budgets for each CSAPR trading

program (see Figure 4).163 EPA observed that this resulted in CSAPR allowance prices at the end

of 2016 that “were well below the marginal cost for reductions projected at the time of the final

rule [and that such prices] are subject, in part, to downward pressure from the available banks of

allowances.”164

Figure 4. Comparison of CSAPR Emissions Budgets and Actual Emissions in 2016

Source: EPA 2016 Progress Report and EPA Air Markets Program Data, https://ampd.epa.gov/ampd/.

EPA reported that preliminary data from the 2017 ozone season—the first CSAPR Update

compliance period—show that ozone season NOx emissions were below the total emission

budget.165

Emission allowance prices are generally affected by a number of factors, including supply and

demand, program design elements that influence supply and demand, and legal and regulatory

uncertainty.166 Analyses of ozone season NOx highlight summer weather as a key factor (e.g.,

higher than average temperatures could lead to greater demand for electricity). Power sector

compliance strategies (e.g., use of installed control technologies, switching to lower emitting

fuels, or retiring higher emitting units) are also relevant to ozone season allowance prices.167

Recent allowance prices in the CSAPR Update trading program appear to be lower than the

marginal cost to reduce ozone season NOx emission. One brokerage firm reported that by May

163 EPA, 2016 Program Progress, pp. 24, 30.

164 EPA, 2016 Program Progress, pp. 24, 30.

165 In 2017, CSAPR Update sources emitted a total of 294,478 tons of ozone season NO , below the total budget of

316,464 tons. EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal Register 31927.

166 Allowance banking—saving allowances for use in future years—is an example of a program design feature that may

influence allowance supply. For discussion about how legal and regulatory uncertainty has affected allowance prices in

regional SO2 and NOx markets, see Burtraw and Szambelan, U.S. Emissions Trading Markets for SO2 and NOx.

167 For example, see Evolution Markets, Market Update: Cross State Air Pollution Rule, March 21, 2018, p. 2,

http://www.evomarkets.com/content/news/reports_28_report_file.pdf; and Energy Ventures Analysis, “First Ozone

Season Under the CSAPR Update Rule Begins Amid Uncertain Market Conditions,” May 31, 2017,

https://www.evainc.com/energy-blog/first-csapr-ozone-season-underway/.

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2018—the start of the 2018 ozone season—NOx allowance prices ranged from $150 to $175 per

ton, suggesting that the availability of allowance prices at such low prices “could lead to some

decisions not to run some pollution controls at maximum output. This would, in turn, lead to

higher emissions.”168

The brokerage firm reported the marginal cost of ozone season NOx reductions to be about $300

per ton, though EPA considered higher marginal costs to develop the CSPAR Update emission

budgets.169 Specifically, EPA considered several cost thresholds—ranging from $800 per ton to

$6,400 per ton—and based the CSAPR Update emission budgets on reductions that could be

achieved at $1,400 per ton. EPA concluded that a $1,400 per ton threshold would maximize the

incremental benefits—the emission reductions and corresponding downwind air quality

improvements—compared to other marginal cost thresholds.170 EPA identified NOx control

strategies at this cost threshold to include optimizing use of existing operational Selective

Catalytic Reduction (SCR) controls, turning on existing but idled controls—for example, SCR

that had not been used for several seasons—and installing advanced combustion controls, such as

low-NOx burners.171

EPA has reported improvements in air quality, attributing progress in part to the regional SO2 and

NOx transport programs.172 For example, 34 of the 36 areas in the eastern United States that were

designated as nonattainment for the 1997 PM2.5 NAAQS now show concentrations below that

standard based on 2014-2016 data.173 In terms of ozone, all 92 of the eastern areas originally

identified as nonattainment under the 1997 ozone standard now show concentrations below that

standard based on 2014-2016 data.174 The 2014-2016 monitoring data also showed that 17 of the

22 areas in the eastern United States that were originally designated as nonattainment with the

2008 ozone standard now have concentrations below that standard.175

Status of Good Neighbor Determinations for Ozone

Standards

As previously noted, revisions to the NAAQS trigger the SIPs review process, through which

EPA determines whether states have met their Good Neighbor obligations. EPA has not yet

finalized its Good Neighbor determinations for either the 2008 revision or the 2015 revision to

the ozone standards. The remainder of this section summarizes the status of EPA’s Good

Neighbor determinations under each standard.

168 Evolution Markets, Market Update, p. 2, http://www.evomarkets.com/content/news/reports_28_report_file.pdf.

169 Evolution Markets, Market Update, p. 2.

170 EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74508, 74543.

171 EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74541, 74543. See

also EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal Register 31927.

172 EPA, 2016 Program Progress, pp. 55-70.

173 EPA had designated a total of 39 areas as nonattainment with respect to the 1997 PM

2.5 standard; 36 of these areas

were located in the eastern United States. EPA, 2016 Program Progress, p. 67.

174 EPA, 2016 Program Progress, p. 59.

175 EPA, 2016 Program Progress, p. 59.

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Good Neighbor Determinations and the 2008 Ozone Standard

EPA first sought to address ozone transport with respect to the 2008 ozone standard in the 2016

CSAPR Update. Specifically, the CSAPR Update covered 22 states and promulgated FIPs with

ozone season NOx budgets for power plants.176 EPA concluded at the time, however, that it could

not determine whether the CSAPR Update fully addressed the Good Neighbor provision with

respect to the 2008 ozone standard for 21 of the 22 covered states.177 In other words, the 2016

CSAPR Update “did not fully satisfy the EPA’s obligation to address the good neighbor provision

requirements” for those 21 states.178 EPA based its 2016 conclusion in part on the agency’s

projection of air quality problems at downwind monitors in 2017, even with implementation of

the CSAPR Update. EPA found that 21 of the 22 CSAPR Update states would contribute “equal

to or greater than 1 percent of the 2008 ozone NAAQS” to at least one nonattainment or

maintenance monitor in 2017.179

Since then, EPA has updated its air quality modeling and, on June 29, 2018, proposed to

determine that the CSAPR Update fully addresses 20 of the 21 remaining Good Neighbor

obligations for the 2008 ozone standards.180 As such, the agency has “proposed to determine that

it has no outstanding, unfulfilled obligation under Clean Air Act Section 110(c)(1) to establish

additional requirements for sources in these states to further reduce transported ozone pollution

under” the CAA’s Good Neighbor provision with respect to the 2008 ozone NAAQS.181

EPA based its proposed determination on the updated air quality modeling, which projected air

quality in 2023—a longer analytical time frame than it used in the CSAPR Update.182 The

updated projections showed that in 2023, there would not be any nonattainment or maintenance

monitors with respect to the 2008 ozone standard in the eastern United States.183

EPA’s selection of a future analytic year is an important factor in the Good Neighbor

determination.184 The agency based its selection of 2023 on two primary factors: (1) the

176 EPA, “Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS,” 81 Federal Register 74504, 74540.

177 Tennessee was the only state for which EPA found the CSAPR Update FIP fully addressed the Good Neighbor

provision with respect to the 2008 ozone standard. See EPA, “Cross-State Air Pollution Rule Update for the 2008

Ozone NAAQS,” 81 Federal Register 74504, 74540; and EPA, “Determination Regarding Good Neighbor

Obligations,” 83 Federal Register 31920.

178 EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal Register 31920.

179 EPA’s analysis projected nonattainment monitors in Connecticut, Texas, and Wisconsin in 2017 and maintenanceonly monitors in Connecticut, Maryland, Michigan, New York, and Texas in 2017. EPA, “Determination Regarding

Good Neighbor Obligations,” 83 Federal Register 31922.

180 Kentucky is the only one out of the group of 21 not covered by this proposed determination. EPA will address

Kentucky in a separate rulemaking. EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal Register

31915, 31923.

181 EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal Register 31916.

182 In the CSAPR Update, EPA selected the year 2017 because it was the last full ozone season from which data could

be used to determine attainment with the 2008 ozone standard by July 20, 2018, the attainment date for nonattainment

areas classified as moderate. In addition, EPA did not analyze ozone season NO x reductions available after 2017 due to

time constraints. Stephen D. Page, Director, EPA Office of Air Quality Planning and Standards, memorandum to EPA

Regional Air Division Directors, Regions 1-10, October 27, 2017, p. 3, https://www.epa.gov/airmarkets/october-2017memo-and-supplemental-information-interstate-transport-sips-2008-ozone-naaqs.

183 Page, October 27, 2017, p. 1, and EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal

184 Stakeholders have disagreed with EPA’s selection in other interstate air transport analyses, such as the 126(b)

petitions regarding the 2008 and 2015 ozone NAAQS. See, for example, Delaware Department of Natural Resources

and Environmental Control, Testimony on EPA’s Proposed Denial of Delaware’s 126(b) Petitions, p. 3.

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downwind attainment deadlines185 and (2) the time frame required to implement emission

reductions as “expeditiously as possible.”186 As of August 2018, the next attainment dates for the

2008 ozone standard are July 20, 2021 (for areas classified as “Serious” nonattainment) and July

20, 2027 (for areas classified as “Severe” nonattainment).187

The potential to “over-control” emissions was another factor that EPA identified as relevant to the

selection of the analytic year. EPA described it as relevant given the agency’s expectation that

future emissions will decline through implementation of existing local, state, and federal

programs and in light of holdings from the U.S. Supreme Court.188 EPA stated that it considered

both downwind states’ obligation to attain the ozone standards “as expeditiously as possible” and

EPA’s “obligation to avoid unnecessary over-control of upwind state emissions.”189 EPA did not

specify whether it expected separate agency actions that may affect ozone precursor emissions—

such as changes in the mobile source program—to affect its projections for 2023.

EPA acknowledged that the year it chose—2023—is later than the attainment date for areas

classified as “Serious” nonattainment (2008 ozone standard) but concluded that “it is unlikely that

emissions control requirements could be promulgated and implemented by the Serious area

attainment date.”190

The timing of EPA’s proposed determination was driven in part by a court order. A federal district

court in New York ordered EPA to propose determinations for five states by June 30, 2018, and

finalize them by December 6, 2018.191 EPA is under additional court-ordered and statutory

deadlines to fully address the Good Neighbor provision with respect to the 2008 ozone standard.

For example, another federal district court in California ordered EPA to address the Good

Neighbor provision for Kentucky by June 30, 2018.192 EPA is subject to statutory deadlines in

2018 and 2019 to address requirements for eight CSAPR Update states.193

185 The first factor stems from the D.C. Circuit’s finding in North Carolina v. EPA that “emissions reductions required

by the good neighbor provision should be evaluated considering the relevant attainment dates of downwind

nonattainment areas impact by interstate transport.” For the court case, see North Carolina v. EPA, 550 F.3d 896, 91112 (D.C. Cir. 2008).

186 For complete discussion about EPA’s selection of the year 2023, see Page, October 27, 2017, pp. 4-7.

187 Page, October 27, 2017, pp. 4-5. See also EPA, Ozone NAAQS Timelines, https://www.epa.gov/ozone-pollution/

ozone-naaqs-timelines.

188 EPA pointed to holdings from the U.S. Supreme Court and the D.C. Circuit Court “that the EPA may not require

emissions reductions greater than necessary to achieve attainment and maintenance of the NAAQS in downwind

areas.” Page, October 27, 2017, pp. 4-6. See also EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584, 1600-01

(2014); EME Homer City Generation, L.P. v. EPA, 795 F.3d 118, 127 (D.C. Cir. 2015).

189 Page, October 27, 2017, pp. 4-6.

190 Page, October 27, 2017, p. 6.

191 The five states are Illinois, Michigan, Pennsylvania, Virginia, and West Virginia. Order, New York v. Pruitt, 1:18cv-00406-JGK (S.D.N.Y. June 12, 2018).

192 Order, Sierra Club v. Pruitt, No. 3:15-cv-04328 (N.D. Cal. May 23, 2017). EPA approved Kentucky’s Good

Neighbor SIP, concluding that Kentucky’s SIP and Kentucky’s CSAPR Update FIP “fully address the requirements of

the good neighbor provision for the 2008 ozone NAAQS for Kentucky.” EPA, “Air Plan Approval; Kentucky; 2008

Ozone NAAQS Interstate Transport SIP Requirements,” 83 Federal Register 33730, July 17, 2018.

193 The eight states are Indiana, Ohio, New Jersey, Maryland, Louisiana, Texas, Wisconsin, and New York. EPA,

“Determination Regarding Good Neighbor Obligations,” 83 Federal Register 31931.

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Good Neighbor Determinations and the 2015 Ozone Standard

Evaluation of interstate ozone transport with respect to the 2015 ozone NAAQS is underway. EPA

has conducted air quality modeling to inform the development and review of the Good Neighbor

SIPs and issued the results in a memorandum in March 2018.194 States have the option to use

these modeling results—for example, projections of potential nonattainment and maintenance

monitoring sites with respect to the 2015 ozone NAAQS in the year 2023—to develop their Good

Neighbor SIPs. States are required to submit Good Neighbor SIPs with respect to the 2015 ozone

standard to EPA by October 1, 2018.195 EPA will then evaluate the adequacy of the SIPs and

determine whether additional steps are necessary to address ozone transport.

EPA’s March 2018 memorandum also identified “potential flexibilities” or “concepts” for

developing the Good Neighbor SIPs, describing considerations for each step of the transport

framework.196 One of these considerations centered on international ozone contributions.

Specifically, EPA seeks feedback on the evaluation of international ozone contributions when

determining whether a state significantly contributes to or interferes with maintenance of a

NAAQS. This “potential flexibility” might involve developing a “consensus on evaluation of the

magnitude of international ozone contributions relative to domestic, anthropogenic ozone

contributions” to nonattainment or maintenance receptors and consider whether to weigh the “air

quality, cost, or emission reduction factors” differently in areas with relatively high contributions

from international sources.197 EPA also invited stakeholders to suggest additional concepts—

“including potential EPA actions that could serve as a model”—for the way Good Neighbor

obligations are translated to enforceable emissions limits.198

Issues for Congressional Consideration

SO2 and NOx emissions have declined in recent decades, with SO2, annual NOx, and ozone season

NOx emissions well below the 2016 CSAPR budgets (see Figure 3 and Figure 4). EPA’s analysis

suggests that its regional SO2 and NOx programs have reduced interstate transport of PM2.5 and

ozone in the eastern United States. EIA’s national-scale analysis also points to a combination of

broader market and regulatory factors contributing to emission reductions, in particular for SO2.

Going forward, it is not clear whether emissions will remain well below CSAPR budgets given

recent low allowance prices for ozone season NOx and the supply of banked allowances that can

be used in future years.199 In addition, EPA has not yet issued a determination about whether

ozone transport contributes to air quality problems with respect to the 2015 ozone standard.200

194 Memorandum from Peter Tsirigotis, Director, to Regional Air Division Directors, EPA Regions 1-10, March 27,

2018, https://www.epa.gov/sites/production/files/2018-03/documents/transport_memo_03_27_18_1.pdf.

195 The CAA requires states to submit Good Neighbor SIPs to EPA within three years of a NAAQS revision. CAA

§110(a)(1); 42 U.S.C. §7410(a)(1).

196 EPA clarified that it is not recommending any changes and that any determinations about states’ Good Neighbor

obligations would undergo a notice-and-comment rulemaking. Tsirigotis, p. A-1.

197 Tsirigotis, p. A-3.

198 Under CSAPR, EPA has specified emissions budgets in a FIP to be implemented through an air-quality assured

trading program. EPA’s March 2018 memo does not indicate whether or how that approach might change. Tsirigotis, p.

A-3.

199 For details about the number of banked allowances, see EPA, 2016 Program Progress, pp. 44-50.

200 EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal Register 31923.

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The agency has, therefore, not yet determined whether and how it will update the CSAPR budgets

with respect to the 2015 ozone standard.

Stakeholder views on interstate air pollution transport vary, generally reflecting disagreements

about the level of emissions that should be reduced and which sources—and states—bear

responsibility for doing so. Some stakeholders have expressed concern that interstate transport

continues to harm air quality.201 For example, some stakeholders have expressed concern about

transport of ozone and ozone precursor emissions to downwind states—and the health impacts

associated with ozone exposure—and stated that some coal-fired power plants do not make full

use of “already-installed pollution controls” to reduce ozone precursor emissions.202 As discussed

earlier in this report, EPA has recently denied a 126(b) petition and proposed to deny others from

states seeking additional upwind reductions in ozone precursors, in part because the agency

disagreed with each state’s technical analysis (see “Section 126(b) Petitions”).203 Among the

stakeholders disagreeing with the agency’s rejection of Connecticut’s 126(b) petition was a

regional organization that raised concern that EPA has not used existing CAA tools to “adequately

address interstate ozone transport in a timely manner.”204 On the other hand, emissions are below

CSAPR budgets, and other stakeholders have questioned the feasibility of additional reductions in

ozone precursors. These stakeholders have raised concerns about the extent to which international

or natural sources contribute to ambient ozone concentrations.205 The following issues may

inform deliberations about interstate air transport, particularly as EPA continues its assessment of

Good Neighbor obligations with respect to the 2015 ozone standard.

NOx Emission Trends

Major sources of NOx emissions include power plants, industrial facilities, and mobile sources

such as cars and trucks.206 EPA reported that NOx emissions are expected to decline in the future

201 In their recommendations to EPA regarding designation of nonattainment areas, Delaware, New Jersey, and

Wisconsin attributed ozone violations in their jurisdictions to emissions transport from other states. See state

recommendation letters to EPA, https://www.epa.gov/ozone-designations/2015-ozone-standards-staterecommendations-epa-responses-and-technical-support.

202 U.S. Congress, House Committee on Science, Space, and Technology, Subcommittee on Environment, State

Perspectives on Regulating Background Ozone, 115th Cong., 2nd sess., June 21, 2018. Testimony of Elena Craft,

Environmental Defense Fund, pp. 1-5, 9, https://science.house.gov/sites/republicans.science.house.gov/files/

documents/HHRG%E2%80%93115%E2%80%93SY18%E2%80%93WState-ECraft-20180621_0.pdf.

203 For example, Connecticut, Delaware, Maryland, and New York submitted 126(b) petitions related to compliance

with the 2008 and/or 2015 ozone NAAQS. EPA, Ozone National Ambient Air Quality Standards (NAAQS) Section 126

Petitions, June 2018, https://www.epa.gov/ozone-pollution/ozone-national-ambient-air-quality-standards-naaqssection-126-petitions.

204 Arthur N. Marin, Executive Director, Northeast States for Coordinated Air Use Management, letter to William

Wehrum, Assistant Administrator, EPA Office of Air and Radiation, March 26, 2018, http://www.nescaum.org/

documents/nescaum-comments-ct-126-petition-20180326.pdf/.

205 U.S. Congress, House Committee on Science, Space, and Technology, Subcommittee on Environment, State

Perspectives on Regulating Background Ozone, 115th Cong., 2nd sess., June 21, 2018. See testimony of Diane D. Rath,

Alamo Area Council of Governments, pp. 5-7, https://science.house.gov/sites/republicans.science.house.gov/files/

documents/HHRG%E2%80%93115%E2%80%93SY18%E2%80%93WState-DRath-20180621_0.pdf; and testimony

of Timothy Franquist, Arizona Department of Air Quality, pp. 1-3, https://science.house.gov/sites/

republicans.science.house.gov/files/documents/HHRG%E2%80%93115%E2%80%93SY18%E2%80%93WStateTFranquist-20180621_0.pdf. See also EPA, Final Report on Review of Agency Actions that Potentially Burden the

Safe, Efficient Development of Domestic Energy Resources Under Executive Order 13783, October 25, 2017, p. 5,

https://www.epa.gov/laws-regulations/final-report-review-agency-actions-potentially-burden-safe-efficientdevelopment.

206 EPA estimated that mobile sources accounted for over 50% of continental U.S. NO emissions. EPA implements

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through a “combination of the implementation of existing local, state, and federal emissions

reduction programs and changing market conditions for [power] generation technologies and

fuels.”207 EIA’s projections, however, suggest that while coal-fired power generation declines in

the reference scenario, power sector NOx emissions remain relatively flat between 2017 and

2050, showing a total decline of 0.2%.208 EPA noted that nonpower-sector sources may be “wellpositioned to cost-effectively reduce NOx” emissions compared to the power sector, but the

agency also concluded that it has less certainty about nonpower-sector NOx control strategies.209

The extent to which the current collection of federal and state programs—such as CSAPR and

EPA mobile source programs that set tailpipe emission standards—improve air quality in areas

not meeting the 2015 ozone standard is to be determined.210 In 2015, EPA projected that existing

rules (e.g., those addressing automobile emission and fuel economy standards and rules affecting

power plants) would reduce ozone precursor emissions, regardless of whether EPA revised the

ozone NAAQS.211 EPA has subsequently proposed changes to some of these existing rules—

specifically, greenhouse gas emission (GHG) standards for passenger cars and light trucks and

existing coal-fired power plants.212 In particular, the proposal for passenger cars and light trucks

would freeze fuel economy and GHG standards at model year 2020 levels through model year

2026. The current GHG standards would decrease between model years 2020 and 2025 and were

projected to decrease carbon dioxide as well as ozone precursor emissions.213 In terms of power

separate programs to address mobile source emissions. EPA, “Determination Regarding Good Neighbor Obligations,”

83 Federal Register 31918.

207 EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal Register 31926.

208 EIA, Annual Energy Outlook 2018, Electricity Supply, Disposition, Prices, and Emissions, https://www.eia.gov/

outlooks/aeo/data/browser/#/?id=8-AEO2018&region=0-.

209 EPA, “Determination Regarding Good Neighbor Obligations,” 83 Federal Register 31927.

210 For more information about EPA’s “Tier 3” requirements for tailpipe emissions, see CRS Report R43497, Tier 3

Motor Vehicle Emission and Fuel Standards, by (name redacted) and (name redacted)

211 Specifically, EPA’s 2015 analysis projected that the existing rules would bring monitored ozone levels to 70 ppb or

lower in all but 14 counties (excluding California) of the 241 counties showing nonattainment with the 70 ppb level,

based on 2012-2014 monitoring data. EPA’s 2015 analysis also projected that the 2015 ozone revision would lead to

further emission reductions. For discussion, see CRS Report R43092, Implementing EPA’s 2015 Ozone Air Quality

Standards, by (name redacted) and (name redacted) . See also EPA, Regulatory Impact Analysis of the Final

Revisions to the National Ambient Air Quality Standards for Ground-Level Ozone, September 2015, p. 26,

https://www.regulations.gov/document?D=EPA-HQ-OAR-2013-0169-0057.

212 On August 1, 2018, the National Highway Traffic Safety Administration and EPA proposed to amend certain

existing Corporate Average Fuel Economy and GHG emission standards for passenger cars and light trucks. The

proposal has not yet been published in the Federal Register. A pre-publication version can be viewed at

https://www.epa.gov/sites/production/files/2018-08/documents/safe-my-2021-2026-cafe-ld-ghg-nhtsa-epa-nprm-201808-02.pdf. On August 20, 2018, EPA proposed, among other things, to replace the Clean Power Plan, an Obama

Administration rule that would limit carbon dioxide, SO2, and NOx emissions from existing fossil-fuel-fired power

plants. The proposed rule has not yet been published in the Federal Register but can be viewed on EPA’s website. See

EPA, “Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units; Revisions

to Emission Guideline Implementing Regulations; Revisions to New Source Review Program,” https://www.epa.gov/

stationary-sources-air-pollution/proposal-affordable-clean-energy-ace-rule.

213 For summary of the current GHG standards for cars and light trucks (model years 2017 to 2025) and projected

emission impacts, see EPA, EPA and NHTSA Set Standards to Reduce Greenhouse Gases and Improve Fuel Economy

for Model Years 2017-2025 Cars and Light Trucks, August 2012, https://nepis.epa.gov/Exe/ZyPDF.cgi/

P100EZ7C.PDF?Dockey=P100EZ7C.PDF. For additional discussion about these standards, see EPA, Regulatory

Impact Analysis: Final Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas Emission Standards and

Corporate Average Fuel Economy Standards, August 2012, https://nepis.epa.gov/Exe/ZyPDF.cgi/P100EZI1.PDF?

Dockey=P100EZI1.PDF. See also CRS Report R45204, Vehicle Fuel Economy and Greenhouse Gas Standards:

Frequently Asked Questions, by (name redacted), (name redacted), and (name redacted)

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plants, EPA concluded that its Affordable Clean Energy proposal to replace the Clean Power Plan

would increase carbon dioxide, SO2, and NOx emissions from the power sector relative to a

scenario with implementation of the Clean Power Plan.214 While the agency has not yet finalized

these changes, they may have implications for levels of ozone precursor emissions. That is,

regulatory changes affecting emissions in one sector—such as automobiles—may affect ozone

NAAQS implementation as states seek to ensure the necessary emission reductions are achieved

across all sources—mobile and stationary—in the state.

Incentives for NOx Reductions

A recent market report concluded that current NOx allowance prices—which are lower than the

marginal cost of NOx reductions—may ultimately lead to higher emissions.215 While EPA has set

state-specific emission budgets for CSAPR states intended to address interstate ozone transport

with respect to the 2008 ozone standard, it is not clear whether these budgets will be sufficient to

address Good Neighbor obligations under the more stringent 2015 ozone standard.

In light of this trend in NOx allowance prices, some have questioned whether additional

regulatory incentives may be necessary for states to fulfill Good Neighbor obligations.216 Some

states have urged EPA to implement additional regulatory requirements through 126(b)

petitions.217 For example, Delaware’s 126(b) submission to EPA concluded that “[a]dditional

regulatory incentive is required to ensure that the existing [Electric Generating Unit] NOx

controls are consistently operated in accordance with good pollution control practices.”218

Related EPA Air Quality Initiatives

Current Trump Administration air quality initiatives may indirectly affect consideration of states’

Good Neighbor obligations. The Administration has established a “NAAQS Reform” initiative

that, among other things, seeks to streamline the NAAQS review process and obtain Clean Air

Scientific Advisory Committee advice regarding background pollution and potential adverse

effects from NAAQS compliance strategies.219 EPA has also created an Ozone Cooperative

Compliance Task Force in response to some stakeholders’ concerns about international and long-

214 EPA, Regulatory Impact Analysis for the Proposed Emission Guidelines for Greenhouse Gas Emissions from

Existing Electric Utility Generating Units; Revisions to Emission Guideline Implementing Regulations; Revisions to

New Source Review Program, August 2018, pp. ES-8 to ES-9, https://www.epa.gov/sites/production/files/2018-08/

documents/utilities_ria_proposed_ace_2018-08.pdf.

215 Evolution Markets, Market Update, p. 2.

216 Thomas F. McNevin, “Recent Increases in Nitrogen Oxide (NO ) Emissions from Coal-Fired Electric Generating

Units Equipped with Selective Catalytic Reduction,” Journal of the Air and Waste Management Association, vol. 66,

no. 1 (2016), pp. 66-75.

217 EPA, Ozone National Ambient Air Quality Standards (NAAQS) Section 126 Petitions, June 2018,

https://www.epa.gov/ozone-pollution/ozone-national-ambient-air-quality-standards-naaqs-section-126-petitions.

218 David Small, Secretary, Delaware Department of Natural Resources and Environmental Control, letter to Gina

McCarthy, EPA Administrator, November 28, 2016, p.29, http://www.dnrec.delaware.gov/Air/Documents/

126b%20Petitions/Conemaugh%20126%20Petition.pdf.

219 E. Scott Pruitt, EPA Administrator, letter to EPA Assistant Administrators, May 9, 2018, https://www.epa.gov/sites/

production/files/2018-05/documents/image2018-05-09-173219.pdf. See also EPA, Final Report on Review of Agency

Actions That Potentially Burden the Safe, Efficient Development of Domestic Energy Resources Under Executive Order

13783, October 25, 2017, p. 3, https://www.epa.gov/laws-regulations/final-report-review-agency-actions-potentiallyburden-safe-efficient-development.

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range ozone transport as well as monitoring and modeling issues.220 Limited information is

available about the Ozone Cooperative Compliance Task Force and what actions it may

undertake.

In March 2018, EPA reiterated its interest in these particular ozone issues when it published air

quality projections meant to inform Good Neighbor evaluations with respect to the 2015 ozone

standard. Specifically, EPA’s memorandum sought comment on “potential flexibilities” for

developing the Good Neighbor SIPs, describing considerations for each step of the transport

framework, including assessment of international ozone transport.221

Author Contact Information

(name redacted)

Analyst in Environmental Policy

r[ edacted]@crs.loc.gov, 7-....

220 EPA, Final Report, p. 3.

221 EPA clarified that it is not recommending any changes and that any determinations about states’ Good Neighbor

obligations would undergo a notice-and-comment rulemaking. Tsirigotis, p. A-1.

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