Air Quality and Electricity: Initiatives to Increase Pollution Controls

Order Code RS20553

Updated October 25, 2002

CRS Report for Congress

Received through the CRS Web

Air Quality and Electricity:

Initiatives to Increase Pollution Controls

Larry B. Parker and John E. Blodgett

Specialists in Energy and Environmental Policy

Resources, Science, and Industry Division

Summary

Since the mid-1990s, EPA has initiated actions resulting in regulatory mandates

and enforcement actions directed primarily at coal-fired electric generating utilities.

These actions would, if implemented, substantially reduce air pollutants, particularly

nitrogen oxides (NOx). These initiatives include the Ozone Transport Rule (also called

the NOx SIP Call); a set of “Section 126 petitions” in which 12 states allege under

Section 126 of the Clean Air Act (CAA) that pollutants originating in upwind states

prevent their attainment of clean air standards; and a set of enforcement actions based

on New Source Review (NSR) requirements of the CAA that have resulted in lawsuits

against several utilities and an administrative order against the Tennessee Valley

Authority. Although these are separate initiatives, they are related in that each

ultimately focuses on emissions from utilities in the Midwest and South. As of January

22, 2001, the EPA has declared 11 states and the District of Columbia as failing to

submit revised SIPs required under the Ozone Transport Rule; the EPA has approved

four section 126 petitions; and two of the NSR lawsuits have resulted in consent decrees

(Tampa Electric Co. and PSEG), and two others have been settled in principle (Virginia

Power and Cinergy). In June 2002, the Bush Administration recommended new

rulemaking be commenced on the definition of “routine maintenance”: a key point of

contention in the lawsuits. Legislative activity focuses on multi-pollutant strategies as

an alternative to these piecemeal initiatives. In June 2002, the Senate Environment and

Public Works Committee reported out S. 556 – a comprehensive, multi-pollutant

reduction bill. This report will be updated as events warrant.

Background

Since the mid-1990s, the U.S. Environmental Protection Agency (EPA) has initiated

actions that have resulted in regulatory mandates and enforcement actions that would, if

implemented, substantially reduce air pollutants (particularly nitrogen oxides – NOx)

emitted by some electric generating facilities. An Ozone Transport Assessment Group

(OTAG), formed by EPA in May 1995, laid the groundwork for the regulatory initiatives;

it directly led to the Ozone Transport Rule (also called the NOx SIP Call). In a

Congressional Research Service ˜ The Library of Congress

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supplementary action, 12 states petitioned EPA under Section 126 of the CAA,

concerning interstate pollution, alleging that NOx originating in upwind states prevented

their attainment of ozone standards. An EPA Office of Enforcement & Compliance

Assurance audit of New Source Review (NSR) applications required under provisions of

the Clean Air Act (CAA) that began in late 1996 was the precursor to the enforcement

initiative; it led in November 1999 to lawsuits against seven utilities in the Midwest and

South and an administrative order against the Tennessee Valley Authority alleging

violations of NSR requirements of the CAA.1

The first two initiatives, the Ozone Transport Rule and the Section 126 petitions, are

related to each other substantively.2 These initiatives would further control NOx to assist

states in the Northeast in meeting the existing, statutory 1-hour ozone National Ambient

Air Quality Standard (NAAQS). The Ozone Transport Rule includes all or part of 19

eastern states and the District of Columbia. Based on the eight petitions EPA has ruled

on, EPA’s Section 126 determinations would involve a subset of the NOx SIP Call’s 19

states – 12 states and the District of Columbia.

The enforcement initiative is not legally or procedurally related to the above

initiatives; however, the NSR enforcement action by EPA has substantive associations

with them in that NOx is a primary (but not sole) focus, and many of the utilities named

as defendants in these cases would also have to reduce emissions under the NOx SIP Call

and Section 126 determinations. Unlike the other actions, the NSR action does not

involve new regulatory action, but enforcement of existing law and regulations. As such,

it is handled by the EPA’s Office of Enforcement & Compliance Assurance, not a

regulatory office, and involves other pollutants electric generators emit besides NOx

(specifically sulfur dioxide (SO2) and particulates).

What is the Focus?

The primary focus of the regulatory initiatives and a primary effect of EPA’s

enforcement action is to reduce NOx emissions in the eastern part of the United States.

The environmental purpose for doing so is to reduce the interstate transportation of this

ozone precursor, thus assisting localities along the eastern seaboard in attaining the ozone

NAAQS. The actions would also mitigate acid rain. The initiatives and enforcement

action by EPA focus on coal-fired electric generating facilities both because they are

major sources of emissions – in 1997 they emitted 24% of the country’s NOx (and also

62% of its SO2, 31% of its carbon dioxide (CO2), and approximately one-third of the

1

For more details on the Ozone Transport Rule and Section 126 petitions, see CRS Report 98236, Air Quality: EPA’s Ozone Transport Rule, OTAG, and Section 126 Petitions – A Hazy

Situation?, updated March 9, 2001. For more details on EPA’s NSR action, see CRS Report

RL30432, Air Quality and Electricity: Enforcing New Source Review.

2

Until recently they were also linked administratively and procedurally through ties to another

regulatory action by EPA – the 1997 promulgation of a new 8-hour National Ambient Air Quality

Standard (NAAQS) for ozone. That linkage was broken by EPA when litigation temporarily

halted implementation of the 8-hour standard. Some observers include the 8-hour standard as a

related fourth initiative, but this report includes it only to the extent it is related to the NOx SIP

Call, the Section 126 petitions, and the enforcement action.

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country’s mercury (Hg)) – and because they represent the most cost-effective sources of

large emission reductions for NOx and SO2.

In the case of the Section 126 determinations and the NSR enforcement action, coalfired powerplants are explicitly targeted for emissions reductions. In the case of the NOx

SIP Call, EPA cannot explicitly target sources (that is the responsibility of each affected

state), but the allocation scheme used by EPA to determine the allowable emissions

budget for individual states is based primarily on substantial reductions from coal-fired

powerplants. In general, the initiatives identified here would require affected powerplants

to reduce their NOx emissions by about 75%-85%. Although the Section 126

determinations and the NSR enforcement action target individual sources, EPA provides

flexibility for utilities to achieve the mandated reduction by means other than simply

installing NOx control equipment on affected units. As indicated by EPA’s NSR

settlement with Tampa Electric discussed later, the consent decree involves several

different NOx control strategies to reduce NOx emissions by over 85%, as well as

controls to reduce SO2 emissions by almost 80%, by the year 2010.

Figure 1 indicates the states affected by the initiatives identified here. In line with

the initiatives’ focus on coal-fired electric generating facilities, the Midwest is the primary

location of affected powerplants. Five states – Indiana, Kentucky, North Carolina, Ohio,

and West Virginia – would be affected by all three initiatives. In contrast, Mississippi and

Florida have utilities targeted only under the NSR enforcement initiatives; Missouri,

Connecticut, Rhode Island, and Massachusetts are targeted only under the Ozone

Transport Rule. The other states have utilities targeted under the Ozone Transport Rule

and either a Section 126 determination or NSR enforcement.

Figure 1

The costs and benefits of these initiatives could be substantial, as indicated by Table

1. The NOx SIP Call is the most wide ranging of the initiatives, with estimated costs of

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$1.7 billion annually and estimated quantifiable benefits of $1.1-$4.2 billion annually.

Because EPA’s methodology uses cost-effectiveness for determining emission budgets,

the lion’s share of the costs would be borne by the utility industry. The smaller scope of

the Section 126 determinations reduces emissions abatement and benefits, but also costs.

Of course, this scope could increase if additional petitions submitted to EPA result in

more states being implicated as sources of transported ozone. Finally, the evolving scope

of EPA’s NSR action makes estimates of its costs and benefits difficult, if not impossible,

at this time.

Table 1. Estimated Costs and Benefits of Initiatives

NOx SIP Call

Section 126

Findings

NSR Action

Estimated

Emission

Reductions (2007)

NOx –1.14 million

tons (ozone season)

NOx – 0.66 million

tons (ozone season)

NOx – n/a

SO2 – n/a

Particulates –

n/a

(annually)

Estimated Costs

(1990$)

$1.7 billion

Estimated

Quantifiable

Benefits (1990$)

$1.1-$4.2 billion

Estimated Costs to

Utilities (1990$)

$1.4 billion

$1.0 billion

$1.2 billion

$1.0 billion

n/a

n/a

n/a

n/a = not available

Source: CRS Report 98-236.

Recent Actions

Since January 2000 significant actions have occurred with all three of the initiatives.

The status of these initiatives as of January 22, 2002, is summarized in Table 2. Perhaps

the most significant action has been the decision of a 3-judge panel of the D.C. Circuit

Court of Appeals to uphold EPA’s Ozone Transport Rule with respect to the 1-hour ozone

NAAQS (Michigan v. EPA, No. 98-1497 (D.C. Cir. March 3, 2000)), and to lift the stay

on implementation. In upholding EPA’s authority and methodology in developing the

NOx SIP Call, the court did make some modifications; in particular, that EPA’s

methodology did not support the inclusion of Wisconsin or all of Missouri and Georgia

in the Rule (a decision reflected in Figure 1). In lifting the stay, the court ordered affected

states to submit revised State Implementation Plans (SIPs) within 4 months of its June 22,

2000, order. In a subsequent ruling issued August 30, 2000, the court ordered EPA to

move its original May 2003, compliance deadline to May 31, 2004. In March 2001, the

Supreme Court denied a hearing to opponents of the SIP Call, effectively affirming the

appeals court decision. In December 2000, EPA declared that 11 states and the District

of Columbia failed to submit revised SIPs by the extended October 30, 2000 deadline.

By November 2002, all the affected states had submitted revised SIPs except Michigan,

which has submitted a draft SIP revision.

None of these proceedings, however, affect the indefinite stay of EPA findings with

respect to the 8-hour ozone standard. In February 2001, the Supreme Court ruled that

although EPA has the authority to set a new 8-hour ozone standard, its interpretation of

the relationship between the 1-hour standard’s statutory implementation strategy and its

new 8-hour standard implementation strategy was unreasonable and unlawful. The Court

left it to EPA to “develop a reasonable interpretation” of the statutory provisions as they

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relate to the implementing the new 8-hour standard (Whitman v. American Trucking

Associations, 531 U.S. 457 (2001) decided February 27, 2001).

Table 2. Status of Initiatives

1-hour Ozone Standard

8-hour Ozone Standard

Ozone Transport Rule

Supreme Court denies

hearing on SIP Call

3/5/01. Stay lifted by

appeals court 6/22/00.

EPA finds 11 states and

D.C. failed to submit

SIPs 11/19/00. Deadline

for compliance moved to

March 31, 2004.

Appeals court granted

EPA motion to stay 8hour findings. Supreme

Court rules EPA has

authority to promulgate

8-hour standard, but that

its implementation

strategy is unlawful.

EPA left to develop a

“reasonable” alternative.

Section 126 Petitions

EPA granted 4 of

original petitions,

1/18/00. D.C. Circuit

Court of Appeals

upholds EPA authority,

5/15/01.

On 1/15/02, EPA

announces it will delay

compliance deadline

until March 31, 2004.

EPA has indefinitely

stayed finding on

original petitions,

1/18/00.

NSR Enforcement

In February 2000, EPA

and Tampa Electric

announced agreement on

a consent decree that

would settle EPA’s NSR

suit with that utility. In

November and December

2000, EPA announced

agreements in principle

with Virginia Power and

Cinergy.

In January 2002, EPA

and PSEG announced the

filing and settlement of a

EPA/ State of New

Jersey NSR suit.

With respect to the Section 126 petitions, EPA announced its 1-hour ozone findings

on the 8 original petitions on January 18, 2000.3 EPA granted four of the eight petitions

for the 1-hour ozone standard: Connecticut, Massachusetts, New York, and Pennsylvania.

Petitions from four other states were denied as these states no longer had areas that were

not in attainment with the 1-hour standard. The rule specifies NOx allocations for 392

facilities in 12 states and the District of Columbia, and implemented through a cap-andtrade program. The D.C. Circuit Court of Appeals upheld EPA’s authority to issue the

rule on May 15, 2001, but ordered EPA to reconsider factors used in setting emission

limits (Appalachian Power Co. v. EPA). EPA responded to the court’s order on August

3, 2001. On January 15, 2002, the EPA announced it would delay the compliance

deadline for the Section 126 rule from May 1, 2003, to May 31, 2004, in line with the

deadline for the NOx SIP Call. EPA argues that a court order issued August 24, 2001,

had already suspended the compliance deadline for powerplants, and it would be unfair

to make other emission sources meet an earlier deadline.

In January 2000, EPA decided to indefinitely stay its original final determinations

with respect to the 8-hour standard, given litigation regarding that standard. It also

announced that findings with respect to petitions by the District of Columbia, Delaware,

Maryland, and New Jersey would be determined in the future.

3

Environmental Protection Agency, Findings of Significant Contribution and Rulemaking on

Section 126 Petitions for Purposes of Reducing Interstate Ozone Transport: Final Rule, 65

Federal Register 2675-2767, January 18, 2000.

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Since the filing of the NSR lawsuits in November 1999 (and subsequent lawsuits

filed in 2000), several significant actions have occurred. First, in February 2000, EPA

announced that it had come to an agreement with Tampa Electric Company on a consent

decree that will settle the NSR lawsuit against that utility. The agreement will reduce

NOx emissions by over 85% (and SO2 emissions by almost 80%) through a combination

of fuel switching to natural gas, pollution control equipment optimization, and other

techniques. The estimated $1 billion program is expected by Tampa Electric to have a

“small” impact on its customers’ bills.4

Second, on November 16, 2000, EPA and Virginia Power announced that an

“agreement in principle” had been reach to settle EPA’s NSR suit against Virginia Power.

Over 12 years, Virginia will spend $1.2 billion to reduce NOx and SO2 emissions by

about 70% through a combination of pollution control equipment and fuel switching. This

announcement was followed on December 21, 2000 by a similar agreement in principle

between EPA and Cinergy involving a $1.4 billion investment in control technology.

Third, on January 24, 2002, EPA and the State of New Jersey announced the filing

and settlement of an NSR suit against PSEG Fossil LLC. PSEG agreed to reduce its SO2

emissions by 90% and its NOx emissions by 83% from 2000 levels by 2012 at an

estimated cost of $337 million. In addition, PSEG agreed to reduce CO2 emissions by

15% from 1990 levels.

Litigation on these cases has slowed as participants assess the impact of the Bush

Administration’s June 2002 recommendations to revise the New Source Review process.

Of particular interest is an EPA recommendation that a new rulemaking be commenced

on the definition of “routine maintenance,” a key point of contention in the above

lawsuits. As of October 2002, no formal rulemaking has been proposed by EPA as the

drafting process has not been completed.5

Congressional Actions

The continuing difficulties in the Northeast both in meeting the ozone NAAQS and

in reducing acid precipitation have focused attention on emissions from fossil fuel-fired

utilities, particularly of NOx – and on the potential costs of reducing those emissions.

Concerned about the piecemeal nature of these initiatives, some in Congress have been

working on comprehensive, multi-pollutant alternative strategies to reduce emissions. In

June 2002, the Senate Environment and Public Works Committee reported out S. 556 –

a comprehensive, multi-pollutant bill that would incorporate market-oriented mechanisms

to control NOx, SO2, and CO2, and tonnage limitations on Hg.6 No floor action has been

scheduled.

4

Tampa Electric, “Tampa Electric Reaches Agreement with EPA, Department of Justice on

Environmental Issues” [http://www.tampaelectric.com/TENWRelease022900.html].

5

The seven recommendations fall into two categories: (1) four recommendations that would

complete a rulemaking process begun under the Clinton Administration in 1996 and would be

issued as a direct final rule; and (2) three recommendations that would be put out as a proposed

rulemaking and subject to normal administrative procedures. Revisions to the definition of

routine maintenance would fall under the second category.

6

For a review of proposed legislation, see CRS Report RL31326, Air Quality: Multi-pollutant

Legislation, by (name /redacted), October 22, 2002.

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