Air Quality: EPA's Proposed Interstate Air Quality Rule

Order Code RL32273

CRS Report for Congress

Received through the CRS Web

Air Quality:

EPA’s Proposed Interstate Air Quality Rule

March 13, 2004

*name redacted*

Specialist in Energy Policy

Resources, Science, and Industry Division

*name redacted*

Deputy Assistant Director

Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Air Quality: EPA’s Proposed Interstate Air Quality Rule

Summary

On December 17, 2003, the Environmental Protection Agency (EPA) issued a

proposed rule to address the effect of interstate transport of air pollutants on nonattainment of the National Ambient Air Quality Standards (NAAQS) for fine

particulates (PM2.5) and ozone (specifically, the 8-hour standard). The proposed

Interstate Air Quality (IAQ) rule appeared in the Federal Register January 30, 2004.

For PM2.5, the proposed rule finds that the interstate transport of sulfur dioxide (SO2)

and nitrogen oxides (NOx) from 28 states and the District of Columbia contributes

significantly to downwind non-attainment; for ozone, the proposed rule finds that

interstate transport of NOx from 25 states and D.C. contributes significantly to

downwind non-attainment of the 8-hour standard.

With the IAQ rule, EPA proposes a region-wide emissions cap for NOx and SO2

to be implemented in two phases — 2010 and 2015. Based on the methodology

employed in the proposed rule, EPA estimates reductions of about 70% from baseline

emissions in 2015. EPA’s methodology determined the caps by applying “highly cost

effective” pollution controls on electric generating units.

EPA has presented the proposed IAQ rule and the accompanying proposed

Mercury (Hg) rule as a “suite of integrated air actions” to reduce emissions of three

pollutants — SO2, NOx, and Hg. The two proposed rules are integrated in such a

way that the technologies reducing SO2 and NOx emissions under the IAQ rule also

reduce enough Hg emissions to meet the modest 2010 reduction requirements of the

proposed Hg rule. This combination of requirements and technology allows utilities

to meet the requirements of both rules without installing three different control

technologies — one for each pollutant. As EPA does not provide a cost-benefit

analysis of Hg reductions, it is not possible to quantitatively determine whether this

decision is economically efficient in terms of potential Hg benefits foregone by not

imposing a more stringent reduction requirement.

However, from the broader perspective of the interaction of the proposed rules

with the underlying Clean Air Act (CAA), there is a resulting lack of integration. It

is likely to be argued that the proposed rule simply represents another layer on an

already multi-layered cake called the Clean Air Act. Adding a regionwide annual

cap and trade program onto a regulatory structure whose foundation is health-based

national standards that focus on the local concentration of pollutants in the ambient

air presents numerous difficulties. As a result, there are multiple inconsistencies

between the proposed rule and other provisions of the CAA. These conflicts are not

surprising — there is little EPA can do to resolve them out by regulation. If the

Administration’s goal is to restructure CAA compliance strategies toward marketoriented cap and trade programs without creating more layers and conflicts, it is

possible a statutory solution will be necessary.

This report will be updated if events warrant.

Contents

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Why Did EPA Do It? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

How Did EPA Come Up with All Its Determinations? . . . . . . . . . . . . . . . . . 5

Significant Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Regional Cap / State Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Implementation Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Cap and Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Is It Adequate? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

What About the NOx SIP Call? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

What About Consistency with Title IV? . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

What About Other CAA Titles? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

What About Clear Skies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

What Is Next? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

List of Figures

Figure 1. EPA Estimates of Counties in Non-Attainment of the 8-hour Ozone

and PM2.5 NAAQS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Figure 2. States Determined to Significantly Contribute to Ozone and

PM2.5 Non-Attainment in Downwind Eastern Counties . . . . . . . . . . . . . . . . 7

Figure 3. U.S. Emissions of SO2, NOx, and Hg by Source . . . . . . . . . . . . . . . . . . 8

Figure 4. EPA’s Projections of PM2.5 NAAQS in 2015 . . . . . . . . . . . . . . . . . . . 11

Figure 5. EPA’s Projections of 8-Hour Ozone NAAQS Compliance in 2015 . . 12

List of Tables

Table 1. EPA Estimates of Regional NOx and SO2 Caps and

Percentage Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Table 2. Estimated Schedule for 8-hour Ozone and PM2.5 NAAQS . . . . . . . . . . . 4

Table 3: Projected Control Costs for Electric Generators . . . . . . . . . . . . . . . . . . . 9

Air Quality: EPA’s Proposed Interstate Air

Quality Rule

Overview

On December 17, 2003, the Environmental Protection Agency (EPA) issued

proposed rules to address the effects of interstate transport of air pollutants on nonattainment of the National Ambient Air Quality Standards (NAAQS) for fine

particulates (PM2.5) and ozone (specifically, the 8-hour standard).1 The proposed

Interstate Air Quality (IAQ) rule appeared in the Federal Register January 30, 2004.

For PM2.5, the proposed rule finds that the interstate transport of sulfur dioxide (SO2)

and nitrogen oxides (NOx) from 28 states and the District of Columbia contributes

significantly to downwind non-attainment; for ozone, the proposed rule finds that

interstate transport of NOx from 25 states and the District of Columbia contributes

significantly to downwind non-attainment of the 8-hour standard.

To remedy the situation, the proposed rule generally follows the methodology

EPA employed in an earlier regulation that addressed interstate transport of ozone

pollution, the NOx SIP Call.2 In the NOx SIP Call, EPA found 21 states and the

District of Columbia significantly contributed to non-attainment of the 1-hour ozone

NAAQS.3 To remedy the situation, EPA set statewide emissions budgets for NOx

emissions, and recommended that states achieve those budgets through “highly costeffective” controls on electric generators and large industrial facilities under a

regional cap and trade program. States are to implement controls by May 31, 2004.

With the IAQ rule, EPA proposes a region-wide emissions cap for NOx and SO2

to be implemented in two phases — 2010 and 2015. Based on the methodology

employed in the proposed rule, EPA’s estimates of emissions under the caps are

provided in Table 1, along with percent reductions from the basecase. EPA’s

methodology determines the caps by applying “highly cost effective” pollution

controls on electric generating units.

1

Environmental Protection Agency, Rule to Reduce Interstate Transport of Fine Particulate

Matter and Ozone (Interstate Air Quality Rule); Proposed Rule (69 Federal Register 45664650). Hereafter referred to as the Proposed Interstate Air Quality Rule.

2

For background and discussion of the NOx SIP Call, see CRS Report 98-236 ENR, Air

Quality: EPA’s Ozone Transport Rule, OTAG, and Section 126 Petitions — A Hazy

Situation? by (name redacted) and (name redacted).

3

Originally, the rule included 22 states; however, Wisconsin was removed from the rule’s

reduction requirements by the court during litigation in 2000. See: Michigan v. EPA, 213

F.3d 663 (D.C. Cir. 2000) cert. denied 532 U.S. 904 (2001)

CRS-2

Table 1. EPA Estimates of Regional NOx and SO2 Caps and

Percentage Reduction

(million tons)

Year

NOx

Emissions

(no cap)

NOx Emissions

(cap)

SO2 Emissions

(no cap)

SO2 Emissions

(cap)

2010

3.1

1.6 (48%)

9.0

3.9 (57%)

2015

3.2

1.3 (59%)

8.3

2.7 (67%)

Source: Proposed Interstate Air Quality Rule (69 Federal Register 4566-4650)

Based on the cost-effectiveness methodology, each of the affected states is

assigned a statewide “emissions budget.” Each covered state would be required to

submit a revised State Implementation Plan (SIP) identifying measures it intended

to implement to achieve its emissions budget. States would be free to choose

whatever means they deemed appropriate, subject to EPA approval. However, EPA

strongly believes that the regional emissions cap can be most cost-effectively

achieved through a regional cap-and-trade program focused on electric generators

and intends on issuing a proposed cap-and-trade model program rule to encourage

that option.

Background

Why Did EPA Do It?

In 1997, EPA finalized new NAAQS for both PM2.5 and ozone.4 The new

NAAQS for ozone revised the previous ozone NAAQS by tightening the standard

from 0.12 parts per million (ppm) to 0.08 ppm, increasing the averaging time from

1 hour to 8 hours, and measuring compliance by averaging concentrations rather than

by counting individual peak concentrations exceeding the standard. The new PM2.5

NAAQS was set at an annual maximum concentration of 15 micrograms per cubic

meter (ug/m3) based on the 3-year average of annual arithmetic mean PM2.5

concentrations from one or more community-oriented monitors; and a 24-hour

concentration of 65 ug/m3, based on the 3-year average of the 98th percentile of 24hour PM2.5 concentrations at each population-oriented monitor within an area.

EPA has taken a cautious approach to implementing the two NAAQS. Attempts

to coordinate the new 8-hour standard with the previous 1-hour standard proved

difficult and subject to considerable litigation. In the case of the PM2.5 standard,

comprehensive monitoring data were unavailable in 1997 to determine compliance

and make designations. In 1998, the Congress set a statutory schedule for the two

NAAQS, based on EPA’s previously announced Interim Implementation Policy.5

Judicial review and other factors combined to delay the designations.

4

Published in the Federal Register on July 18 (62 FR 38652-38896), the standards became

effective September 16, 1997.

5

Transportation Equity Act for the 21st Century, P.L. 105-178, Title VI.

CRS-3

Figure 1 (based on 2000-2002 data) shows that for PM2.5, EPA analysis indicates

violations of the NAAQS over the eastern part of the United States and parts of

California and Montana. Specifically, data show at least one monitor measuring

concentrations in exceedence of the NAAQS in 120 counties. All 120 counties

violate the annual standard; a few violate both the annual and the 24-hour standard;

none violate only the 24-hour standard. The population of the affected counties is 65

million.6 Figure 1 also shows that for the 8-hour Ozone NAAQS, EPA analysis

indicates widespread violations of the NAAQS over the eastern and midwestern

United States, California and Texas, along with scattered areas in Louisana, New

Mexico and the lower Midwest. Specifically, data show 297 counties currently

violate the 8-hour ozone standard. The population of the affected counties is 115

million.7

Figure 1. EPA Estimates of Counties in Non-Attainment of the

8-hour Ozone and PM2.5 NAAQS

Counties With Monitors Exceeding the Ozone

and PM2.5 NAAQS in 2002

Ozone Nonattainment (226 Counties)

PM2.5 Nonattainment (49 Counties)

Both Nonattainment (71 Counties)

Source: Environmental Protection Agency.

6

Proposed Interstate Air Quality Rule, 69 Federal Register 4572

7

Proposed Interstate Air Quality Rule, 69 Federal Register 4572

CRS-4

The 1997 8-hour ozone and PM2.5 NAAQS set in motion the Clean Air Act’s

SIP process under section 110. The promulgation of the revised ozone NAAQS and

the new PM2.5 NAAQS meant that the SIPs of many states were no longer adequate

to bring those states into compliance by the statutory deadline. Under Section

110(k)(5), if EPA finds a SIP inadequate, it must require the affected state to submit

a revised SIP that includes sufficient measures to bring that state into compliance.

This is known as a “SIP Call.”

In the case of the 8-hour and PM2.5 NAAQS, the process of developing effective

compliance strategies is complicated by the problem of transported air pollutants.

Under section 110(a)(2)(D), SIPs must include adequate provisions to prevent

sources within that state from contributing significantly to non-attainment in one or

more downwind states. Finding that interstate transport of SO2 and NOx contributes

significantly to ozone and PM2.5 non-attainment, the EPA issued the proposed

Interstate Air Quality rule (IAQ) in December, 2003.

Combining the requirements of the CAA with EPA intentions as stated in the

proposed rule, the major milestones are set out in Table 2.

Table 2. Estimated Schedule for 8-hour Ozone and PM2.5 NAAQS

Milestones

8-Hour Ozone NAAQS

PM2.5 NAAQS

EPA proposes

implementation rule

June 2003

Expected Spring 2004

Governors submit

designations of nonattainment areas

July 2003

Designations to be

submitted after 3 years of

data has been received.

Expected February 2004

EPA Proposes Interstate

Air Quality rule

January 2004

EPA promulgates final

implementation rule

Expected early 2004

Expected late 2004, early

2005

EPA promulgates final

designations

Expected April 15, 2004,

effective May 2004

1 year after submissions.

Expected by December 31,

2004

EPA promulgates final

Interstate Air Quality

rule

Expected December 2004 to June 2005

States submit IAQ Rule

SIPs

Expected 18 months after IAQ rule is promulgated

(July-December 2006)

States submit revised SIPs

to achieve PM2.5 and

Ozone NAAQS

3 years after designations

(April-May 2007)

3 years after designations

(December 2007- January

2008)

CRS-5

Milestones

8-Hour Ozone NAAQS

PM2.5 NAAQS

NAAQS compliance

deadline

Varies according to the

severity of the problem

(2007-2021)

5 to10 years after

designations (2009-2014)

Interstate Air Quality

rule compliance

deadlines

Two phases: 2010 and 2015

As indicated by the table above, EPA would require States to submit their IAQ

rule SIP before the NAAQS non-attainment SIPs are required. EPA justifies the

submission of transported air pollutant SIPs by upwind states before the submission

of non-attainment SIPs by downwind states on the basis of Section 110(a)(1)-(2) and

Section 172(b) of the Clean Air Act and on policy considerations.8 EPA argues that

the upwind reductions will facilitate planning by downwind states and that downwind

states will benefit from the relatively early reductions because they themselves

contribute to non-attainment elsewhere.

How Did EPA Come Up with All Its Determinations?

The proposed IAQ rule is based on a series of determinations by EPA with

respect to pollution transport, cost-effective pollution control, and compliance

feasibility. These determinations are made within the SIP process of Sections

110(k)(5) and 110(a)(2)(D). 9

Significant Contribution. The pivotal finding by EPA in the proposed IAQ

rule is that affected states significantly contribute to non-attainment in downwind

states. This determination defines the geographic scope of the proposed rule. For

states in the eastern United States, EPA conducted a series of modeling runs to

determine the contribution various upwind states are projected to make to areas in the

eastern U.S. projected by EPA to be in non-attainment in 2010 and 2015. For ozone

non-attainment, a “significant contribution” was defined by EPA as the product of

three factors: (1) actual amount of transported pollution from upwind states that

contribute to non-attainment in downwind states; (2) how often contributions over

specific thresholds occur; and (3) the comparative amount of the upwind transported

8

Section 110 requires submission of SIPs to attain NAAQS, including transport provisions,

within 3 years after promulgation of a NAAQS. Section 172(b) requires submission of SIPs

in response to a non-attainment designation within 3 years of the designation. EPA argues

this sequence indicates the priority given to the transport SIPs over the non-attainment SIPs.

Proposed Interstate Air Quality rule, p. 4624.

9

Section 110(k)(5) provides for EPA to issue a SIP Call if existing SIPs are determined to

be substantially inadequate to attain or maintain a NAAQS or mitigate interstate pollutant

transport as described in sections 176A (involving Interstate Transport Commissions) or 184

(involving control of interstate ozone air pollution). Section 110(a)(2)(D) requires states to

submit SIPs to the EPA that contain adequate provisions prohibiting emissions of any air

pollutant that contributes significantly to NAAQS or Prevention of Significant Deterioration

(PSD) non-attainment in any other state.

CRS-6

contribution to the total non-attainment situation in the downwind area.10 For the 8hour ozone NAAQS, EPA modeled the emissions impact of the 31 states east of or

bordering the Mississippi River on 47 eastern downwind counties. States whose

maximum contribution was estimated at less than 2 parts per billion (ppb) and/or

contribute less than 1 percent to total non-attainment were screened out. After

evaluating the remaining eastern states on the three criteria above on 47 eastern

downwind counties, 25 states were found to make a significant contribution to nonattainment.11 Those states are shown in Figure 2.

For PM2.5 NAAQS, EPA modeled the emissions impacts of 41 states on 57

eastern downwind counties.12 Because the controlling PM2.5 NAAQS is the annual

standard, EPA only considered two of the three factors listed for ozone in

determining significant contribution: actual amount and comparative amount.13 In the

proposed rule, EPA is suggesting that the threshold for determining significant

contribution be 0.15ug/m3 — one percent of the annual standard of 15 ug/m3. Based

on that threshold, EPA found 28 states and the District of Columbia were projected

to contribute significantly to 2010 PM2.5 non-attainment. These states are shown in

Figure 2. As an alternative, EPA modeled emission contributions if the threshold

was a more stringent 0.10 ug/m3. This threshold added two states to the list of

contributors — North Dakota and Oklahoma.

EPA does not specify the process by which it determined that interstate transport

of pollution is not a significant contributor to non-attainment in states such as

California, Arizona, or Montana. The proposed rule simply states:

In analyzing significant contribution to nonattainment, we determined it was

reasonable to exclude the Western U.S., including the States of Washington,

Idaho, Oregon, California, Nevada, Utah and Arizona from further analysis due

to geography, meteorology, and topography. Based on these factors, we

concluded that the PM2.5 and 8-hour ozone nonattainment problems are not likely

to be affected significantly by pollution transported across these States’

boundaries. Therefore, for the purpose of assessing States’ contributions to

nonattainment in other States, we have only analyzed the nonattainment counties

located in the rest of the U.S.14

The rule provides no other specific basis for EPA’s determination that western

non-attainment areas should not be subject to the rigorous modeling eastern nonattainment areas were. None of the extensive modeling conducted for non-attainment

areas in the eastern United States was conducted on non-attainment areas in the

western United States.

10

Proposed Interstate Air Quality rule, pp. 4600-4601.

11

For modeling purposes, the District of Columbia’s emissions were combined with those

of Maryland. Proposed Interstate Air Quality rule, p. 4601.

12

The seven states in the contiguous 48 states not included were Washington, Oregon,

California, Arizona, Nevada, Utah, and Idaho.

13

Proposed Interstate Air Quality rule, p. 4608.

14

Proposed Interstate Air Quality rule, p. 4581.

CRS-7

Figure 2. States Determined to Significantly Contribute to Ozone and

PM2.5 Non-Attainment in Downwind Eastern Counties

8-Hour Ozone: Summertime

NOx reduction requirements

for 25 states

Not significant

PM2.5: Annual SO2 and NOx reduction

requirements for 28 states

Not significant

Significant NOx SIP Call states

States where summertime NOx not required for 8-hour ozone, but is for PM2.5

Significant Non-SIP Call states

States where summertime NOx control also needed for 8-hour ozone

States included under an alternative analysis

Source: Environmental Protection Agency.

Regional Cap / State Budget. With a determination of significant

contribution, the proposed IAQ rule moves toward developing a cost-effective

remedy. Maintaining the need to base its remedy on “highly cost-effective

reductions,” EPA examined the potential balance of local control to interstate

controls along with the availability and timing of cost-effective pollution control

measures in upwind states. Projecting non-attainment areas in 2010, EPA concluded

that for many PM2.5 non-attainment areas:

...it would be difficult, if not impossible, to reach attainment unless

transport is reduced to a much greater degree and over a much broader regional

area than by the simultaneous adoption of local controls within specific

nonattainment areas. In addition, we found that much of the air quality

improvement that did occur in downwind areas with this strategy was due to

reductions in transported sulfate attributable to upwind SO2 emissions.15

15

Proposed Interstate Air Quality rule, p. 4582.

CRS-8

EPA conclusions with respect to 8-hour ozone non-attainment areas were less

dramatic, but still significant enough for EPA to conclude that further regional

reductions were warranted.16

Calling for a combination of local and interstate transport control, EPA

developed criteria for determining “highly cost-effective” transport control levels.

SO2 and NOx are emitted by a variety of sources. As indicated in Figure 3, below,

sulfur dioxide is primarily emitted by stationary sources, particularly coal-fired

electric generators. In the case of nitrogen oxides, mobile sources are the primary

source, although stationary sources, particularly electric generators and industrial

boilers, make substantial contributions to the overall totals. Generally arguing that

electric generators provided the most cost-effective emission reduction source and

that data were lacking on other stationary sources, EPA focused on reductions from

electric generators to determine emission budgets. In contrast, for the NOx SIP Call,

large industrial combustion sources were included in EPA’s cost-effectiveness

calculations.

Figure 3. U.S. Emissions of SO2, NOx, and Hg by Source

2000 Sulfur Dioxide

2000 Nitrogen Oxides

Utilities (22%)

Utilities (63%)

1999 Mercury

Utilities (40%)

Fuel Combustionelectric utilities

Other stationary

combustion *

16

Industrial Processing

Transportation

Miscellaneous

Specifically, EPA modeling indicated that from 22% to 96% of projected 2010 nonattainment is due to transport, depending on the specific area. Proposed Interstate Air

Quality rule, p. 4584.

CRS-9

Focusing on electric generators 25 MW or greater, EPA developed a threshold

for controlling transported pollutants by comparing the average and marginal costs

of other SO2 and NOx regulatory actions, along with other factors. Specifically,

EPA compared the average and marginal costs of installing flue-gas desulfurization

(FGD) and selective catalytic reduction (SCR) technologies on electric generators

with the average and marginal costs of other regulatory actions, including Best

Available Control Technology (BACT) determinations, individual state actions, New

Source Performance Standards (NSPS), and various mobile source decisions.

Comparing the costs presented in Table 3 with previous regulatory actions, EPA

found these costs to be “highly cost-effective.” Applying these “highly cost-effective”

control technologies on electric generators, EPA determined the final regionwide cap

presented in Table 1.

Table 3: Projected Control Costs for Electric Generators

(1999$/ton removed)

SO2 Control

Costs

2010 Average

Cost

2010 Marginal

Cost

2015 Average

Cost

2015 Marginal

Cost

$700

$700

$800

$1,000

SO2 Control

Cost (high cost

case*)

NOx Control

Costs

NOx Control

Costs (high

cost case*)

$900

$800

$1,300

$1,100

$700

$1,300

$1,500

$1,600

* Assumes high electricity demand and high natural gas prices.

Source: Proposed Interstate Air Quality Rule, p. 4613-4615

Based on the assumption that States would solely target electric generators for

control, EPA proceeded to determine the appropriate statewide emission budgets.

For SO2, EPA attempted to meld the proposed rule’s allocation scheme with the

existing Title IV acid rain program. With both programs based on electric

generators, EPA proposes to essentially have states require a two-for-one redemption

of CAA Title IV allowances during phase 1, and a three-for-two redemption of Title

IV allowances during phase 2. Such redemption ratios would represent a 50%

reduction during phase 1 and 67% during phase 2. For NOx , EPA would calculate

emission budgets for affected units by multiplying a NOx emission rate specified in

the proposed rule by the unit’s historical annual heat input. Similar to the allocation

formula for Title IV, the proposed rule would set the NOx emission rate at 0.15

lb./mmBtu during phase 1, increasing the stringency to 0.125 lb./mmBtu during

phase 2. The baseline for the annual heat input for each unit would be the highest

annual input for any year 1999 through 2002.

CRS-10

Implementation Schedule. As noted up front, EPA’s proposed rule would

divide the mandated reductions into two phases beginning in 2010 and 2015. The

deadline for phase 1 was determined by EPA based primarily on an analysis of

available boilermaker labor.17 Based on the assumption that all reductions would

come from electric generators and from the installation of FGD and SCR, EPA

argues that 49 gigiwatts (Gw) of additional scrubbers and 25 Gw of additional SCR

units would be necessary to meet the 2010 phase 1 requirement.18 EPA believes this

to be the maximum feasible FGD and SCR construction that can be completed by the

year 2010.

EPA does not provide a detailed analysis of its justification for choosing 2015

for the deadline for phase 2. Indeed, it doesn’t provide the amount of additional

control technology installation necessary to achieve the incremental reduction.

Instead, EPA states the following to justify 2015 for phase 2:

The EPA recognizes that the power sector will need to devote large amounts of

capital to meet the control requirements of the first phase. Controls installed in

2010 will generally be the largest and easiest to install. Subsequent controls will

need to be installed at more plants and under more challenging circumstances.

We believe that deferring the second phase to 2015 will provide enough time for

companies to overcome these technical challenges and raise additional,

reasonably-priced capital needed to install controls.19

Cap and Trade. EPA’s preferred implementation strategy is a regionwide cap

and trade program focused solely on electric generators. Under the proposed rule, if

states choose to cap emissions from their electric generators, they do not have to

require reductions on any other type of emission source, stationary, mobile, or area.

If a state chooses to control electric generators, it “must impose a cap because this

category may feasibly implement a cap.”20 States are encouraged to submit SIPs that

follow the guidelines EPA would provide in a model cap and trade program to be

promulgated later. It is EPA’s hope that States will join together to make the system

regionwide, such as the case with the NOx SIP Call. However, states could not be

forced to join a regionwide program, just as with the NOx SIP Call, nor to restrict

affected sources to electric generators.

Under the proposed rule, there would be two cap and trade systems — one each

for SO2 and NOx. Each would cover the same 28 state area defined by the PM2.5

significant contribution finding and operate on an annual basis, as both pollutants

contribute to the PM2.5 problem. No specific treatment of NOx emissions reductions

is provided for in the proposed rule to deal with the seasonal nature of the ozone

problem.

17

Propose Interstate Air Quality Rule, p. 4617

18

These installations are in addition to the 14GW of FGD and 15Gw of SCR contained in

the basecase scenario for 2010.

19

Proposed Interstate Air Quality Rule, p. 4617

20

Proposed Interstate Air Quality rule, p. 4626.

CRS-11

Issues

Is It Adequate?

The purpose of the proposed rule is to address interstate transport of pollutants

that are hindering downwind states from attaining the 8-hour ozone and PM2.5

NAAQS. As indicated by Figures 4 and 5, the proposed rule is predicted by EPA to

have a greater impact on PM2.5 attainment in the eastern U.S. than on eastern 8-hour

ozone attainment. According to EPA, 120 counties were out of compliance with the

PM2.5 NAAQS in 2002. The projected basecase is predicted by EPA to bring 58 of

those counties into compliance by 2015. EPA further predicted that the proposed

IAQ rule will bring an additional 28 counties into compliance. EPA states this would

leave 13 counties in the eastern U.S. in non-compliance in 2015. EPA does not

provide any data on the 2015 non-compliance situation in the West where the

proposed IAQ rule would have no effect. In contrast, EPA states that 297 countries

were out of compliance with the 8-hour ozone standard in 2001. The projected

basecase is predicted by EPA to bring 240 counties into compliance. EPA further

predicts that the proposed rule will bring an additional 8 eastern counties into

compliance. EPA states this would leave 26 counties in the eastern U.S. in noncompliance in 2015. Like the PM2.5 analysis, EPA doesn’t provide data on the 2015

non-compliance situation in the West where the rule would have no direct effect.

Figure 4. EPA’s Projections of PM2.5 NAAQS in 2015

Remaining Counties Likely to Exceed the Annual

Fine Particle Standard under the Base Case* in 2015

PM2.5 attainment status in 2015 IAQR proposal:

• The IAQR proposal would bring 28 additional eastern counties into

attainment with the fine particle standard (as compared to the Base

Case*).

Remaining Counties Likely to Exceed the Annual

Fine Particle Standard with IAQR in 2015

Manhattan=Red

PM2.5

standard =

15 µg/m3

Manhattan=White

41 Nonattainment Counties

PM2.5 attainment status in 2015 base case:

• Existing programs will bring 58 eastern counties into attainment

with the fine particle standard (compared to current conditions).

13 Nonattainment Counties

Source: Environmental Protection Agency.

CRS-12

Figure 5. EPA’s Projections of 8-Hour Ozone NAAQS Compliance in 2015

Ozone attainment status in 2015 IAQR proposal case:

Remaining Counties Likely to Exceed the 8-hour

Ozone Standard under Base Case in 2015

• The NOx SIP Call will bring many Eastern counties into attainment with the

8-hour ozone standard.

• With IAQR proposal, as compared to the Base Case, the number of

counties out of attainment with the 8-hour ozone standard decreases from

34 to 26.

Remaining Counties Likely to Exceed the 8-hour

Ozone Standard with IAQR in 2015

8-hour Ozone

Standard =

0.08 ppm

34 Nonattainment Counties

Ozone attainment status in 2015 base case:

• Existing programs (primarily the NOx SIP Call and vehicle rules)

will bring 240 additional eastern counties into attainment with the 8hour ozone standard (compared to current conditions).

26 Nonattainment Counties

Source: Environmental Protection Agency.

This environmental result raises several questions with respect to the proposed

rule’s adequacy. The first is the magnitude of the reductions required. As EPA notes

in the proposed rule, a court review of the NOx SIP Call suggested that EPA could

be very aggressive in defining significant contribution. Quoting the court in

Michigan v. EPA, EPA focused on the following:

EPA has determined that ozone has some adverse health effects — however

slight — at every level [citing National Ambient Air Quality Standards for Ozone

62 FR 38856 (1997)]. Without consideration of cost it is hard to see why any

ozone-creating emissions should not be regarded as fatally “significant” under

section 110(a)(2)(D)(i)(I).21 [emphasis in original]

A more stringent threshold for significant contribution could result in more

states being involved in the reduction scheme.

Likewise the stringency of the “highly cost-effective” criteria for determining

actual budgets could be questioned. EPA has based its reduction program on

“highly-cost effective” SO2 and NOx emission reductions from electric generators.

It has defined “highly cost-effective”in terms of reduction costs compared with

21

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

in Proposed Interstate Air Quality Rule, p. 4584.

CRS-13

previous regulatory actions, similar to its criteria in the NOx SIP Call. However,

EPA’s own cost-benefit analysis suggests that control costs could rise dramatically

without jeopardizing the very favorable cost-benefit results. As stated by EPA:

The benefit-cost analysis concludes that substantial net economic benefits to

society are likely to be achieved as a result of the reduction in emissions

occurring as a result of this rulemaking. The results detailed below show that

this rule would be highly beneficial to society, with annual net benefits in 2010

of approximately $55 billion ($58 billion benefits compared to social cost of

approximately $3 billion) and net benefits in 2015 of $80 billion ($84 [billion]

benefits compared to social costs of $4 billion). All amounts are reflected in

1999$.22

Thus, it could be argued that “highly cost-effective” could be interpreted in a

way to justify greater reductions based on the cost-benefit analysis, rather than

relying on the proposed rule’s rationale that is based on the proposed rule’s

comparative cost with other regulatory actions.

EPA’s choice of focusing only on electric generators may also raise questions,

given the cost-benefit analysis, the recommendations of the Ozone Transport

Assessment Group (OTAG), and EPA’s NOx SIP Call.23 OTAG’s recommendations

to EPA with respect to the NOx SIP Call called for NOx controls on large and

medium non-utility stationary sources in addition to controlling utility sources. In

the final NOx SIP Call, EPA calculated state emission budgets based on five sectors:

electric utility, nonutility sources, area sources, nonroad engines, and highway

vehicles. Budgets were based on cost effective reductions, with substantial

reductions required from electric generators and from nonutility sources. Indeed

EPA used a 70% reduction requirement for large industrial facilities and RACT

control (generally 25-50%) for smaller sources.24 In the proposed IAQ rule, EPA

generally released the other stationary source components from the proposed rule

because of lack of data. However, EPA does not explain why it felt it had sufficient

data in 1997 to propose a NOx SIP Call that included these sources, but doesn’t have

sufficient data to include these sources in the proposed IAQ rule.

22

Proposed Interstate Air Quality Rule, p. 4644.

23

OTAG was created by EPA and the 37 easternmost states under the 1990 Clean Air Act

Amendments to recommend ways of reducing ozone transport in the northeastern part of the

country. Final recommendations were made in 1997.

24

Specifically, for utility sources, EPA used a NOx emission rate of 0.15 lb. NOx /mmBtu

to determine budget allocations. For area sources, EPA assumed no new controls. For

nonutility sources, EPA used a 70% reduction requirement for large sources, and RACT

controls (generally 25%-50%) for smaller sources. EPA calculated the highway vehicle

budget by assuming implementation of existing SIPs, along with the following federal

measures: national low emission vehicle standards, 2004 heavy-duty engine standards, and

revisions to emissions test procedures. Finally, EPA calculated the budget for nonroad

engines assuming implementation of existing SIPs, along with the following federal

measures: federal small engine standards (Phase II), and 1997 proposed nonroad diesel

engine standards. See proposed Ozone Transport Rule and Appendix B (OTAG

Recommendations), 62 Federal Register 60318-60420, November 7, 1997.

CRS-14

A third aspect of the scope of the rule that may raise questions is the decision

to exempt the West from consideration. As indicated in figure 1, the West has

significant areas out of compliance with the PM2.5 standard, the 8-hour ozone

standard, or both. As noted earlier, EPA does not present any detailed analysis

justifying its choice to exclude the West. With the court decision looking favorably

on an aggressive interpretation of “significant contribution,” the highly favorable

cost-benefit analysis, and the significant problems of 8-hour ozone and PM2.5 nonattainment in parts of the West (particularly in California), some will maintain a more

comprehensive analysis is in order.

A final parameter of the proposed rule that may raise questions is the timing of

the reductions. For states facing attainment deadlines and the prospect of imposing

costly local controls, cost-effective emissions reductions from the proposed IAQ rule

are viewed as critical. As stated by Pennsylvania:

Pennsylvania endorses the comments submitted by the Ozone Transport

Commission. These comments list a number of concerns that the states in the

Ozone Transport Region have with the IAQR. The most important concern with

the IAQR is that the reductions do not come soon enough. Compliance with the

proposed emissions caps is not required until after the 8-hour ozone and the

PM2.5 attainment dates and therefore cannot be relied upon for control measures

to meet these ambient standards.25

EPA argues that 2010 is the earliest that reductions can feasibly be mandated,

taking into account regulatory, economic, and engineering considerations. However,

questions may be asked about the magnitude of reductions that are feasible by 2010.

In the proposed rule, EPA focuses on the availability of skilled boilermakers as an

important constraint on installing control technology — specifically FGD and SCR.26

Arguing that demand for pollution control equipment and skilled boilermakers would

come during a narrow window (18 months) at the end of the compliance period, EPA

concludes:

In developing the first phase control levels, we intended to maximize the total

control installations possible (and thus total reductions) considering the

constraint on boilermaker labor, while getting similar reductions for both

pollutants. This results in predicted reductions of between 40 and 50 percent for

both pollutants in the first phase.27

Obviously, if a more phased-in installation schedule was assumed by EPA, the

labor constraint could be lessened, allowing additional control technology

installations to occur.

25

Nicholas DiPasquale, Deputy Secretary, Pennsylvania Department of Environmental

Protection. Testimony Before the U.S. Environmental Protection Agency On the proposed

Utility Mercury Reductions and Interstate Air Quality Rules, Philadelphia, Pennsylvania,

February 25, 2004, p. 6.

26

27

Proposed Interstate Air Quality Rule, p. 4617.

Proposed Interstate Air Quality Rule, p. 4617. EPA does not make clear whether or not

its discussion includes installations embedded in the baseline along with the additional

installations required by the proposed rule.

CRS-15

Interestingly, if EPA’s logic used to justify its phase 1 schedule is applied to its

smaller phase 2 schedule, the resulting phase 2 deadline could arguably follow phase

1 by only18 months — July 1, 2011. This would be based on a seamless rotation of

design, construction, and test personnel from phase 1 to phase 2.28 If the lesser

reduction required for phase 2 meant fewer labor constraints, the deadline could be

moved up. This scenario would provide continuous employment for the industry,

maintaining a quality labor pool, rather than the start-stop-start scenario provided by

EPA’s 2015 deadline. However, EPA modified its logic for justifying its 2015 phase

2 deadline from an analysis focused on labor to a qualitative argument focused on

potential site-specific technical problems with further installations and potential

utility financing problems. As quoted earlier, EPA provides no details connected

with its proposed 2015 deadline.

What About the NOx SIP Call?

In the proposed rule, EPA stresses the similarity of the proposed rule’s

methodologies to those of its previous NOx SIP Call. Although the methodologies

used by EPA to develop the proposed rule may rest substantially on the NOx SIP

Call, there are differences between the two rules that may raise questions. First,

because the NOx SIP Call focuses on ozone attainment, it is a seasonal control

program (May-September). In contrast, the proposed rule’s NOx trading program

would be run on an annual basis. This presents questions because the proposed rule’s

scope is different from that of the NOx SIP Call. For example, Massachusetts,

Rhode Island, and New Hampshire are under either the NOx SIP Call’s or the Ozone

Transport Commission’s trading scheme for seasonal control of NOx, but are not

covered under the proposed rule. The NOx SIP Call includes large industrial boilers

along with electric generators in its trading program; the proposed rule focuses on

electric generators alone.

The details of the proposed IAQ rule’s trade and cap program are not addressed

in the proposed rule. EPA intends to address transitional and compatibility issues,

along with providing affected states with a model cap and trade program, in a

Supplemental Notice of Proposed Rulemaking (SNPR). For electric generators

during phase 1, the transition may not be difficult as the mandated emissions rate for

phase 1 is the same as it is for the NOx SIP Call (.15 lb./mmBtu), although the

proposed program’s baseline year and annual basis are different. However, for states

and industrial sources that could be left in a much smaller seasonal trading program,

the economic impact could be substantial, as most sources move to the larger annual

trading program set up under the proposed rule.

28

EPA argues that an 18 month period 21 months before the deadline is the crunch time for

boilermaker labor. Assuming the boilermakers begin shifting to phase 2 projects 3 months

before the phase 1 deadline (i.e., while the phase 1 installations are being tested) and

assuming a 3 month testing period after phase 2 installations, the phase 2 deadline would

be 18 months after the phase 1 deadline — July 1, 2011.

CRS-16

What About Consistency with Title IV?

Working to develop a regional cap and trade SO2 program raises issues with

respect to the statutory nationwide SO2 cap and trade program created under Title IV

of the 1990 Clean Air Act Amendments. Title IV of the 1990 CAA Amendments

required the reduction of SO2 emissions from electric generators from about 15

million tons in 1988 to 8.95 million tons by January 1, 2000. In addition, it mandates

that the 8.95 million ton cap be maintained into the future, requiring new SO2

emitting utility plants to offset their emissions with further reductions from existing

facilities. To implement the program, Title IV created a comprehensive permit and

emissions allowance system. An allowance is a limited authorization to emit a ton

of SO2 during or after a specific year. Issued by EPA, the allowances are allocated

to existing power plants according to formulas provided in Title IV. The utility

receives the allowances for a given plant regardless of the actual operation of the

plant. For example, a utility may choose to shut down an existing power plant and

use those allowances to offset emissions from two or more newer, cleaner facilities.

Generally, a power plant that commenced operation after enactment receives no

allowances, requiring it to obtain allowances from the existing pool of allowances in

order to operate. A utility may trade allowances nationally as well as bank

allowances for future use or sale.

EPA’s attempt to add a more stringent regional system to a nationwide program

raises several questions. The most obvious is the creation of a large quantity of

surplus Title IV allowances developing as sources in the regional control area reduce

emissions. These allowances could potentially be used by states not participating in

the proposed rule (a phenomenon commonly called “leakage”). EPA believes this

will not be a big problem, arguing:

The potential for leakage is dependent upon the size of the region. The large

eastern trading region proposed in today’s rule — which is based upon

addressing PM2.5 — is not likely to result in significant leakage because the

region is large enough to take advantage of the physical limitations in the

electricity grid that prevent large power movements from the East to the West (or

vice versa) through the Western Interconnect.29

EPA proposes to require states to modify Title IV allowances for affected

powerplants, requiring two-for-one and three-for-two transactions as discussed

previously (p. 10). Modifying Title IV allowances could be a source of contention;

however, allowances are not cast in concrete by the 1990 CAAA. As noted, an

allowance is a limited authorization to emit SO2. Title IV states explicitly that an

allowance is not a property right, and that: “Nothing in this title or in any other

provision of law shall be construed to limit the authority of the United States to

terminate or limit such authorization.” (Section 403(f)). The Senate report on Title

IV (from which this language originated) elaborates on this provision with the

following:

29

Proposed Interstate Air Quality Rule, p. 4631.

CRS-17

The purpose in characterizing the legal or property status of allowances in

new section [403](f) of the Act is to make clear that regulatory actions taken

subsequent to the issuance of allowances are not subject to the “takings clause”

of the U.S. Constitution. Allowances are, in large part, simply iterations of each

unit’s permit under this title. Since the permits will be, in effect, legally binding

statements of each unit’s emissions limitation obligations under the pollution

control program established herein, the subsection makes clear that should the

Congress or the Administrator limit, revoke or otherwise modify the allowances

or the underlying regulatory program established by new title IV of the Act or the

regulations promulgated pursuant thereto, the U.S. government will not be

obliged to compensate allowance-holders for loss of the allowances or any loss

in their value. Allowances are but the means of implementing an emissions

limitation program, which can be altered in response to changes in the

environment or for other reasons of public policy.30

Thus, EPA may have significant flexibility in modifying Title IV allowances “in

response to changes in the environment or for other reasons of public policy.”

However, the proposed IAQ rule’s attempt to modify and restrict Title IV allowances

may nonetheless be subject to litigation.

What About Other CAA Titles?

Besides the programs discussed above, the proposed rule would have effects on

other provisions of the Clean Air Act, particularly the regional haze program,31 and

potential Section 126 petitions.

The reductions required under the proposed rule would have the effect of

reducing regional haze in the eastern U.S.. EPA requests comment on the extent to

which the requirements of the proposed rule could satisfy the requirements of its

regional haze program. Presumably, this would include the requirement under

Section167A of the CAA that certain existing sources install Best Available Retrofit

Technology (BART) to protect visibility in national parks and wilderness areas. In

addition EPA requests comment on whether the emissions cap under the proposed

rulemaking could be expanded to states outside the IAQ control region to assist them

in meeting their regional haze obligations.32

EPA does not discuss the potential problems SO2 emission leakage could have

on the regional haze program in the West.

A second CAA provision potentially affected by the proposed rule concerns

petitions filed under Section 126. Under Section 126(b), any state or political

subdivision may petition EPA for a finding that any major source or group of

stationary sources located in another state is emitting pollutants that “significantly

30

Senate Report 101-228, December 20, 1989 p. 321

31

Regional haze program 64 Federal Register 35714, July 1, 1999.

32

Proposed Interstate Air Quality Rule, p. 4587

CRS-18

contribute” to the non-attainment of a NAAQS by the downwind state.33 Under the

NOx SIP Call, EPA, along with several states that had filed Section 126 petitions to

force upwind states to reduce NOx emission affecting their ability to meet the 1-hour

ozone NAAQS, agreed to use the threat of action under Section 126 as a backup to

the NOx SIP Call if that rule was derailed by the courts. In the proposed rule, EPA

proposes to use any Section 126 petitions with respect to PM2.5 or 8-hour ozone in

the same manner.34 However, it is not clear that petitioning states will agree with

EPA that a program with a 10 year compliance schedule meets the spirit and letter

of Section 126.

A third interaction between the proposed rule and the CAA is controls on

mercury (Hg) emissions from coal-fired electric generators. In announcing the

proposed IAQ rule in December, 2003, the Administration also announced a

companion proposed Hg rule for electric generators.35 The Hg proposal attempts to

integrate its reduction requirement with the NOx and SO2 requirements of the IAQ

rule by mandating Hg reductions that can be achieved by the technologies that would

be used to achieve the IAQ rule. The result is a modest reduction in Hg compared

with the levels of reductions achieved under EPA’s previous regulations on

Municipal Waste Combustors and on Medical Waste Incinerators, or achieved by

utility Hg control technology that has been field-tested and is being actively marketed

commercially.36 EPA’s integrated approach allows electric generators to meet its

proposed Hg limits without having to install specific Hg control technology, such as

has been installed on incinerators and other facilities. However, if the IAQ rule is

stalled, then the economic advantage of the integration for Hg control will be lost.

In contrast, if the Hg rule is stalled, the IAQ will achieve the modest reductions

entailed in the Hg rule without the rule. In any case, the Hg rule most likely will be

the source of extensive litigation.

33

EPA is to respond to the petition within 60 days. If the petition is granted, the offending

sources must cease operations within 3 months unless the sources comply with emission

controls and compliance schedules as determined by EPA to bring them in compliance with

the section.

34

Proposed Interstate Air Quality Rule, p. 4580

35

For more on the proposed Hg rule, see: (name redacted) , Mercury Emissions to the

Air: Regulatory and Legislative Proposals, CRS Report RL31881.

36

EPA estimates its proposed utility Hg rule will achieve about a 29% reduction in 1999

levels by 2010. Under previous EPA Hg rules for Municipal Waste Combustors and Medical

Waste Incinerators, reductions of over 90% from 1990 levels were achieved. The firm

ADA.ES claims its Activated Carbon Injection (ACI) technology is available now and

proven to achieve Hg reduction of over 90% in utility applications. See

[http://www.adaes.com/]. For information on other Hg control technologies, see the

Institute of Clean Air Companies website for recent technical papers and presentations

[http://www.icac.com/ ]

CRS-19

What About Clear Skies?

The proposed rule is not the Bush Administration’s preferred means of

addressing the transported air pollution problem.37 Its preferred means is the Clear

Skies Act (H.R. 999/S. 485) introduced in the 108th Congress. Clear Skies would

amend the Clean Air Act to place emissions caps on electric utility emissions of SO2,

NOx, and Hg. Implemented through a tradeable allowance program, the emissions

caps would be imposed in two phases: 2010 (2008 in the case of NOx) and 2018.38

However, noting the uncertainty of the legislative process, EPA believes the

proposed rule is the prudent course.

The Administration’s preference for Clear Skies is not hard to understand for

a variety of reasons. The larger market and additional time provided by the national

scope and extended deadlines of Clear Skies promise a less expensive remedy

compared with the proposed IAQ/Hg rules in terms of cost per ton of pollutant

reduced. The national scope also eliminates issues of leakage and lack of western

coverage that may create controversy for the proposed IAQ rule. The statutory nature

of Clear Skies means changes in the Title IV allowance program and the NOx SIP

Call would be definitive.

Perhaps more importantly, Clear Skies deals directly with many of the CAA

interface issues raised above. Clear Skies’ modifications to CAA provisions to

resolve problems that otherwise could arise include:

! New statutory standards for SO2, NOx, particulate matter, and Hg for new

sources that would replace NSPS; modified sources could opt in and be

exempted from BACT determinations, LAER determinations, BART

requirements, New Source Review (NSR), and Maximum Achieveable

Control Technology (MACT) requirements (the latter with respect to Hg).

Existing sources can also receive these exemptions if they agree to meet a

particulate matter standard specified in the bill along with good combustion

practices to minimize carbon monoxide emissions within 3 years of

enactment.

! Exemption for steam electric generating facilities from Hg regulation under

Section 112 of the CAAA.

! Relief from enforcement of any Section 126 petition before 2012

However, these changes raise questions of their own that could enlarge the

debate on the Clean Air Act beyond the increased use of market mechanisms. In

addition, there is yet to be a vote on Clear Skies, or any other multi-pollutant control

bill in this Congress. Whether the proposed rule will encourage or discourage such

a vote this year is unclear.

37

38

Proposed Interstate Air Quality Rule, p. 4580

For more on Clear Skies and other proposed multi-pollutant legislation, see: (name redacted)

and (name redacted),

Air Quality: Multi-Pollutant Legislation in the 108th Congress, CRS

Report RL31779.

CRS-20

What Is Next?

The 60 day public comment period for the proposed rule ends on March 30th.

With much of the public focus on the accompanying proposed mercury rule, the

Interstate Air Quality rule has not received much attention. However, if

promulgated, the proposed rule would have far-reaching effects in terms of

economics, environmental impact, and policy.

In terms of economics, there are different perspectives at work. The economic

perspective embodied in the proposed rule may best be described as a costeffectiveness approach. Cost curves are constructed and compared with an eye

toward finding the most cost-effective reduction level — the “knee” in the cost curve.

At this point, the proposed rule is maximizing the reductions achieved per dollar

spent. Accordingly, the proposed rule sets its reduction targets in this vicinity. To

increase the likelihood that reductions will be economically efficient, the proposed

rule includes several market mechanisms, such as trading and banking, to encourage

affected parties to seek the most efficient solution to their compliance problem.

Likewise, deadlines are set with cost considerations in mind. Implementing

environmental goals through market mechanisms, thereby allowing polluters to

choose their lowest cost abatement actions, represents a general elevation of

economic “efficiency” as the guiding principle of decision-making. This focus is

more evident when one considers the interaction between the proposed Interstate Air

Quality rule with the proposed Mercury rule.

A second economic perspective on setting reduction targets under the proposed

rule would be to base it on cost-benefit analysis. The difference between the costs

and benefits of the proposed rule is an order of magnitude in favor of the benefits.

This number is based primarily on one benefit — reduced premature fatalities among

adults resulting from reduced PM 2.5.39 Other potential categories of benefits are not

assessed.40 If one were to adopt the classic economic perspective of setting the

marginal cost of control at the marginal benefit received, it is highly likely that the

reductions mandated by the proposed rule would be higher. Likewise, deadlines

might be advanced to achieve the benefits quicker. This approach of defining “highly

cost-effective” reductions is not discussed in the proposed rule. Economics appears

to be defined in the proposed rule as costs to the electric utility industry. Alternative

perspectives are not addressed.

Environmental impacts addressed by the proposed bill derive primarily from

sulfur dioxide control. The phase 1 NOx requirements for electric generators are

similar to those of the NOx SIP Call. Ozone is not a focus, even to the point of

ignoring the seasonal nature of the problem in favor of an annual reduction program.

As a result, the primary benefits of the proposed rule are from PM2.5 compliance and

avoidance of related SO2-caused impacts such as regional haze. The focus on SO2

is in line with EPA’s cost-benefit analysis that quantifies benefits mostly from SO2

control.

39

Proposed Interstate Air Quality Rule, p. 4645.

40

Proposed Interstate Air Quality Rule, p. 4647.

CRS-21

However, from the perspective of the proposed rule’s environmental goal of

addressing non-attainment of the PM2.5 and ozone NAAQS in downwind states, a

complementary focus on the characteristics of the ozone problem might seem

appropriate. In this case, refinement of the proposed rule with respect to ozone

would be necessary. The NOx SIP Call is a seasonal program because ozone is a

seasonal problem. If EPA wishes to keep the annual NOx program proposed in the

rule because of its PM2.5 and regional haze advantages, a seasonal weighting factor

might be considered to ensure greater NOx reductions during the ozone season while

allowing greater emissions at other times of the year. Whether this would have a

positive or negative effect on the overall cost-benefit of the rule can not be

determined quantitatively as EPA did not estimate many benefits of ozone reduction.

Thus, while more focus on NOx and consequently on ozone could make the proposed

rule more effective, it is unclear if it would be more economically efficient.

From a policy standpoint, EPA has presented the proposed Interstate Air Quality

rule and the accompanying proposed Mercury rule as a “suite of integrated air

actions” to reduce emissions of three pollutants — SO2, NOx, and Hg.41 The two

proposed rules are integrated in such a way that the technologies reducing SO2 and

NOx emissions under the Interstate Air Quality rule also reduce enough Hg emissions

to meet the 2010 reduction requirements of the proposed Mercury rule. This

combination of requirements and technology allows utilities to meet the requirements

of both rules without installing three different control technologies — one for each

pollutant. If the Hg reduction were more stringent, utilities could be forced to install

activated carbon injection (ACI) in addition to the FGD and SCR technologies

assumed to be chosen under the proposed Interstate Air Quality rule. As EPA does

not provide a cost-benefit analysis of Hg reductions, it is not possible to

quantitatively determine whether this decision is economically efficient in terms of

potential Hg benefits foregone by the lower reduction requirement.

However, from the broader perspective of the interaction of the proposed rules

with the underlying Clean Air Act, there is a resulting lack of integration. It is likely

to be argued that the proposed rule simply adds another layer on an already multilayered cake called the Clean Air Act. Adding a regionwide annual cap and trade

program on top a regulatory structure whose foundation is health-based national

standards that focus on the local concentration of pollutants in the ambient air

presents numerous difficulties. As a result, there are multiple inconsistencies between

the proposed rule and other provisions of the Clean Air Act. These conflicts are not

surprising — there is little EPA can do to resolve them through regulation. If the

Administration’s goal is to restructure CAA compliance strategies toward marketoriented cap and trade programs without creating more layers and conflicts, it is

possible a statutory solution will be necessary.

41

Environmental Protection Agency. “Clean Air Proposals Promise Sharp Power Plant

Pollution Reductions.” Press Release, December 15, 2003.

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