Power Plant Reductions- EPA Gets it Wrong....Again

On August 21st, the D.C. Circuit Court vacated U.S. EPA's Cross-State Air Pollution Rule (CSAPR) also known at the "Transport Rule."  This is not the first time EPA has had its power plant pollution reduction rule vacated.  The Transport Rule was the replacement to the Clean Air Interstate Rule (CAIR) which was also struck down by the Court in December 2008.

Here was a paragraph from a blog post I wrote when EPA released the Transport Rule

After two years of development, EPA has released its proposed Transport Rule and is very confident it can withstand legal challenge. They stated in the presentation that their lawyers are confident the structure of the Transport Rule will meet the Courts mandate by ensuring elimination of "significant contribution."

I remember attending this presentation which was made by senior officials with EPA.  EPA said their lawyers had combed through the CAIR decision to make sure the had a lock solid replacement rule.  After the D.C. Circuit Court ruling, the EPA lawyers better go back to the drawing board. 

 Why the Court Struck Down the Transport Rule

The Court found two fundamental flaws with EPA's Transport Rule:

  1. Greater Reductions Required than a State's Contribution to Downwind Non-Attainment-  Under the Clean Air Act, State's are required to eliminate their contribution to non-attainment of federal air quality standards in downwind States.  Under the Transport Rule, EPA quantified State's downwind contribution, but then imposed controls on power plants that were based on cost.  In some cases EPA admitted the reductions were more than the State's contribution to downwind non-attainment.  The Court said EPA had no right to force reductions beyond a State's downwind contribution even if EPA found the reductions to be cost effective.
  2. EPA Ignored the Federalist Structure of the Clean Air Act-  Under the Transport Rule, EPA determined the contribution to downwind non-attainment and then immediately imposed specific reductions on sources in those states.  The Court said that EPA should have stopped after it quantified each State's contribution to downwind non-attainment and allowed each State to determine on its own how to eliminate that contribution. Each State should have been given an opportunity to chose its own mix of new air pollution reductions through the State Implementation Plan (SIP) process.

The Court decided to keep CAIR in place while EPA tries to figure out a legally defensible rule requiring reductions from power plants.  CAIR now remains in place after it was supposedly vacated by the Courts four years ago.

Implications from EPA's Ruling

It will be very difficult to craft a legally defensible rule that reduces power plant emissions on a regional basis in order to address the "significant contribution" provisions of the Clean Air Act.  To be fair to EPA, the Agency appears to get conflicting guidance from the Courts.

The Court in the CAIR ruling was sharply critical of EPA because it allowed power plants to avoid necessary reductions through its emission trading provisions.  The provisions of the Transport Rule were designed to specifically address the flaws identified by the Court.  EPA felt the Transport Rule addressed the fundamental flaw of CAIR by ensuring each State eliminated its contribution to downwind non-attainment.  But after two years of evaluation, EPA still issued an invalid rule.

In reaction to the ruling, EPA may give up on designing a regional reduction program for power plants.  It may simply define each State's significant contribution and leave it up to the State to find the necessary reductions.  If it goes this route it will shift the burden onto the State's in having to make the really hard choices in terms of emission reductions.  It is much easier for the State's to simply implement rules mandated by the federal EPA.  Otherwise, the States are left to pick the winners and losers in terms of costly new controls on companies within its borders.   

It also looks like it will be very difficult to develop any sort of power plant rule that has emission trading. EPA would likely have to go back to Congress to obtain clear authority under the Clean Air Act.  Any change to the Clean Air Act seems highly unlikely in today's political environment.  This is a shame because emission trading has been consistently found to be far more cost effective than traditional command and control regulation.

EPA Transport Rule- State Budgets Explained

U.S. EPA has released its CAIR replacement program called the "Transport Rule."  In a previous post I discussed EPA's efforts under the Transport Rule to address the Court's ruling striking down the CAIR rule.  After listening to a presentation by EPA, the structure of the Transport Rule is a little clearer.

The major issue identified by the Court was that CAIR failed to ensure that upwind states significant contribution to the air quality issues in downwind states would truly be eliminated.  The court ruled that utilities in a state could make no actual reductions, they simply could satisfy their regulatory obligations by purchasing allowances (pollution permits) under the cap and trade program. 

After two years of development, EPA has released its proposed Transport Rule and is very confident it can withstand legal challenge.  They stated in the presentation that their lawyers are confident the structure of the Transport Rule will meet the Courts mandate by ensuring elimination of "significant contribution."

Here is how the program works.  Each state has a firm budget which serves as a state specific  cap on emissions.  At the end of the trading year, U.S. EPA will review emissions information from each state and see if any exceeded their caps.  If a state is below the cap, nothing happens.  If the state is above, EPA will embark on a more extensive review to determine which companies within the state were responsible for exceeding the cap. 

Companies responsible for exceeding the state cap by failing to actually reduce emissions significantly enough, will be required to turn in extra allowances based upon their pro rata share of the amount the State's cap was exceeded.  Perhaps an oversimplified example would help:

 Assuming the state of Ohio has only three utilities companies operating in the State.  Hypothetically, it has a State budget under the Transport Rule of 90 tons.  In 2014, actual emissions in the State (120 tons) exceed its  budget by 30 tons. 

The slide shows that two companies will be required to surrender extra allowances equivalent to the amount the Ohio exceeded its budget.

Certainly this is far more complicated than the original CAIR rule struck down by the Courts.  Let's hope the Transport Rule can withstand legal challenges. Otherwise, States will face a complex mess in trying to meet federal air quality standards.  Also, utilities will face tremendous uncertainty preventing them from making long term choices.

Has EPA left a window open for environmental groups who may not like the Transport Rule to successfully challenge the rule?  In essence, EPA is penalizing companies who caused the state to exceed its budget (which represents it significant contribution to downwind states). 

Will the courts deem this adequate to meeting the Clean Air Act obligation to eliminate actual significant contribution?  Or will the courts still maintain the view that the utilities will be able to meet their obligations through purchasing allowances and not by actual reductions?  In other words, what is the assurance each state's significant contribution will be actually eliminated?