Supreme Court Bars Federal Nuisance Climate Change Suit

Today, the U.S. Supreme Court released their opinion in AEP v. Connecticut  in which the Court held that the Clean Air Act ("CAA") and the EPA actions on regulating greenhouse gas emissions displaced any federal common-law right to seek greenhouse gas emission reductions.  The suit was filed by Eastern States and non-profit land groups against coal-fired power plants in an attempt to have court order emission reductions. Businesses were deeply concerned that if the Court allowed the nuisance case to proceed, the courts would be flooded with climate change litigation.

Legal Ruling

The States had argued their nuisance claims were not displaced because EPA had not yet established final emission standards.  The Court stated the displacement test is simply "whether the statute speaks directly to the question at issue." In other words, if the statute give authority to act that is enough to displace federal common law.

The Court noted that in  Massachusetts v. EPA it had previously held:

  • Emissions of carbon dioxide qualify as air pollution subject to the CAA. 
  • CAA Section 111 gives authority to EPA to list categories of stationary sources that cause or contribute significantly to air pollution that "endangers public health and welfare"  (categories would include coal-fired power plants)
  • Once a category is listed under Section 111, EPA must establish performance standards for new or modified sources within that category
  • CAA also will require regulation of existing sources in the category
  • If EPA fails to act in setting standards, States and private parties may petition for a rulemaking on the matter, and EPA’s response will be reviewable in federal court.

For these reasons, the Court held it was clear the CAA "speaks directly" to the emission of carbon dioxide from the defendant's coal-fired power plants.

Implications of Today's Ruling

  1. Prevents "Flood" of Federal Nuisance Claims- Obviously today's ruling is very good news for those who feared the courts could be flooded with climate change litigation under federal common law. 
  2. Possible State Nuisance Claims-  The Court notes that the issue before them was limited to actions under federal nuisance, it does not address nuisance claims based upon state law.  The Supreme Court sent the case back to the Second Circuit to determine if state nuisance claims are pre-empted by the CAA.  This leaves open a huge issue that could likely result in yet another Supreme Court ruling.
  3. EPA v. Courts-  In its opinion the Supreme Court stated its preference for EPA to decide appropriate emission reductions, not the courts.   The Court said EPA, with all its expertise, is in a better position to balance competing interests and establish standards. 
  4. Tacit Endorsement of EPA Regulatory Authority- The key battle right now are EPA's regulatory actions to move forward with emission standards for greenhouse gases.  Some have asserted EPA's actions demonstrate the Agency is "out of control."  The Supreme Court's decision makes clear, once again, EPA has the authority to regulate greenhouse gases.  Also, the Court notes repeatedly, if EPA fails to act in establishing those standards it can be compelled to act by private parties. 

 

Quick Hits: Boiler MACT Delayed; S.C. to Hear Climate Change Nuisance Case

Boiler MACT Rules-  On December 7th, EPA filed a motion with the Court requesting more time in order to re-propose the Boiler MACT rules and allow for public comment.  In EPA's motion to the Court, EPA sets forth following timetable if its motion is granted to move impending January deadline is moved to April: it will publish revised proposals no later than June 1, 2011, and promulgate the final emission standards no later than April 13, 2002. 

EPA states that more time is needed because significant issues with the proposed standards were raised in the public comment period and it needs more time to evaluate the technical merits of those comments.  This from EPA's motion:

As evidenced by the number of comments, which include a substantial amount of
additional new data, the major source boilers, area source boilers, and CISWI rules will have far reaching effects. Estimates of the monetized value of the public health benefits for all three rules combined range from $18 billion and $44 billion. The economic impacts of implementation of these standards will also be significant and vary by rule. For example, the nation-wide capital cost for the proposed major source boilers rule was estimated to be $9.5 billion in the year 2013, with a total national annual cost of $2.9 billion in the year 2013. The major source and area source boilers rules are expected to apply at almost 200,000 boilers at over 90,000 facilities. On balance, given the broad impact these rules will have, EPA believes that the overall public interest is best served by allowing EPA to re-propose the rules so that the Agency will be able to issue emission standards that are based upon a thorough consideration of all available data and reduce potential litigation risks
.

Many are very relieved that EPA has decided to take a second look at its proposed standards.  The rules have wide ranging applicability and huge costs associated with them.

U.S. Supreme Court to Hear Climate Change Nuisance Case-  The Supreme Court has agreed to hear an appeal of Second Circuit's decision in American Electric Power v. Connecticut.  The lower court allowed several states, municipalities, and environmental groups to pursue a federal public nuisance action against a group of electric power producers for their emissions of greenhouse gases (GHGs). 

The issue of GHG emission contributing to climate change is global issue with millions of sources contributing.  The Court will examine how much a single subset of sources should be exposed to liability for their contribution to the issue.  

The lower court found the Plaintiffs showed the requisite grounds to bring the suit.  The Court found plaintiffs properly identified an injury, presented causation and redressability that should allow the suit to go forward.   The Supreme Court granted the petition to hear the appeal to review this determination.

Also at issue is whether federal nuisance actions have been displaced by U.S. EPA's recent promulgation of climate change regulations (monitoring, Endangerment Finding, Light-Duty Vehicle Rule, Tailoring Rule).  Federal nuisance actions are no longer available if it is determined that their is sufficient federal action to address the issue. 

If the Court finds federal nuisance action has been displaced by EPA's regulations, this may prove to by a phyrric victory for some.  Presumably, federal nuisance is only displaced so long as those regulation remain in place.  What should happen if congressional action delays implementation or litigation successfully overturns the Endangerment Finding?

Regardless, this will be a fascinating case to follow next year.

Target Date of Climate Legislation- 2014?

While the political and policy focus is clearly on the Country's struggling economy, caught within that debate is U.S. policy on climate change.  As the economy continued to languish this summer, any hope of a cap and trade bill emerging from Congress died. 

The bill was a victim of a Congress that created a Christmas tree of regulation out of a basic market-based concept.    In the end the bill was labeled  "cap and tax."  And who raises taxes during the middle of a recession?

In fact, who passes any major piece of environmental legislation during a bad economy?  While I don't subscribe to all the viewpoints of the organization, a fascinating chart featured in an article by Daniel Weiss appearing on the Center for American Progress website paints a vivid historical picture that ties the state of the economy to the prospects for passage of major environmental legislation. 

This from the article:

"The first Clean Air Act, Clean Water Act, Endangered Species Act, and Resource Conservation and Recovery Act (hazardous waste disposal) were all enacted when unemployment was 6 percent or lower. Unemployment is 50 percent higher now. Only four major environmental laws were enacted with annual unemployment over 7 percent, and none with unemployment greater than 7.5 percent. Unemployment averaged 9.3 percent in 2009 and 9.7 through September 2010."

The Congressional Budget Office provided testimony in August 2010 that the economy faces a slow recovery.  Some have coined the phrase a "jobless recovery."  The CBO says the unemployment rate, currently at 9.5 percent, will not fall to around 5 percent until 2014.

Coupling the CBO forecast with the historical track record on passing environmental legislation, climate change legislation may not have a serious hope of passing until 2014 or later. 

With no legislative alternative, EPA will continue move its climate regulatory agenda forward.  Environmentalists will continue to push nuisance claims in the courts.  Unfortunately, the inefficiencies of "command and control" regulation and litigation will be the U.S. policy on climate change for the foreseeable future.

[Note:  The New Yorker's, Ryan Lizza, has an very interesting article on the inside the beltway politics regarding cap and trade legislation.  A grand bargain between environmental groups and industry was scuttled by poor timing, unfortunate events and political infighting] 

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?

Last Ditch Effort for a Climate Bill Before the Midterm Election

President Obama is convening a meeting tomorrow to explore all possible alternatives that would lead to passage of a climate bill before the midterm elections.  The most likely alternative that will receive consideration is a much narrower cap that would only be applied to utilities.  Under this approach, the provisions covering large industrial emitters and the transportation sector set forth in Senator Kerry's American Power Act would be cut out.  This from Climatewire:

"I think the chances of a comprehensive bill are abysmal," Eileen Claussen, president of the Pew Center on Global Climate Change, said in an interview last week, referring to legislation offered by Sens. John Kerry (D-Mass.) and Joe Lieberman (I-Conn.).

"Do I think there is a chance of something that is narrower for carbon, like the pricing of utilities? I think that's possible," she added. "If all we can get is utilities, it's not bad."

A handful of crucial senators are planning to attend, including Richard Lugar (Ind.), Judd Gregg (N.H.), Susan Collins (Maine) and Lisa Murkowski (Alaska), all Republicans whose support Obama will seek to eventually secure. Democrat Sherrod Brown (Ohio), another undecided senator, will also be there, according to a survey of offices by E&E.

A deal on just utilities looks unlikely.  However, it has the best chance of any current proposal.  The key will be whether utilities will view this as an opportunity to secure "certainty" with regarding to the greenhouse gas requirements.  The ability to establish the regulatory landscape does have major benefits in making big capital investments associated with large scale facilities.

An interesting bargaining chip will be EPA's authority to regulate all sources of greenhouse gases under the Clean Air Act.  The Senators attending, especially Murkowski, are highly motivated to block EPA regulatory program.  Would the President be willing to foreclose or delay EPA regulations in exchange for a bill?

 

Another New Source Review Decision Highlights Inconsistencies

On March 31st, a Federal District Court in Tennessee (6th Circuit) issued the latest decision in relation to litigation stemming from New Source Review (NSR) enforcement actions against electric coal fired utilities.  The TVA Bull Run decision is another example of the inconsistent application of the test for determining when projects trigger NSR.

The NSR regulatory program continues to serve as the best example of poorly drafted or applied environmental regulations that has major implications for business and industry.  Clear standards and well drafted rulemaking should always be the highest priority for EPA.  Otherwise, businesses are treated in an inconsistent manner and EPA simply looks bad.

Similar to other NSR enforcement actions against coal-fired utilities, the TVA case turned on whether the Routine Maintenance, Repair and Replacement (RMRR) exception covered the projects at issue.  Simply put, if the projects are viewed as routine, the RMRR exception applies and NSR will not be triggered.

The two main projects at issue were:

  1. Replacement of an economizer to reduce forced outages related to tube leaks
  2. Replacement and repair related to tubing associated with the superheater which super heats steam at the plant

What makes this case interesting is that its not the first time these types of projects have been evaluated by the federal courts in determining whether RMRR applies.  In evaluating these projects under the NSR test, Courts have reached opposite conclusions.  A finding NSR is triggered can subject a utility to billions in pollution equipment upgrades and penalties, so you would think consistency would be very important.

Determining whether RMRR exception applies, involves analysis of the following factors:

  • Nature and extent of project
  • Purpose
  • Frequency of these types of repairs (is it routine)
  • Cost of the project

Whether the RMRR exception covers a project has turned on whether the Court hearing the case applies the factors above relative to the specific emission unit or the industry as a whole.  For example, application of the factor known as frequency of repair- should the factor be viewed as how frequently the repair occurred on the specific unit or the frequency it occurred on similar units throughout industry?

The significant differences in opinion over the basic application of the test for RMRR has led to completely inconsistent holdings.  While TVA found RMRR covered the projects, two other federal courts (Ohio Edison and Sierra Club v. Morgan) have found similar projects, including economizer replacement projects, did not fall within RMRR.

The inconsistent rulings have created a significant competitive advantage to those businesses that find themselves lucky enough to operate in a jurisdiction where Courts take a broader view of RMRR.  How can such a major split in the federal case law persist? And more importantly, how can the NSR federal regulations be deemed clear when multiple federal courts have reached opposite conclusions?

 

Cleaning Up Midwest Fine Particulate Pollution- Reliance on CAIR Misplaced

A new report regarding fine particulate pollution in the Midwest shows that achieving compliance with federal air quality standards is linked to U.S. EPA's fix for the Clean Air Interstate Rule (CAIR).  The Lake Michigan Air Director's Consortium (LADCO) released its white paper discussing recommendation on addressing fine particulate (p.m. 2.5) pollution in the Midwest.  The white paper includes these major findings:

The air quality studies demonstrated that high daily PM2.5 concentrations occur year-round, but are more likely in the winter and summer months, and are associated with elevated concentrations of particulate sulfate (especially in the summer), particulate nitrate (in the winter), and organic carbon (OC). Effective control programs for these PM species include:

  • Regional reductions in sulfur dioxide (SO2) emissions from EGUs and large non-EGUs
  • Reductions in ammonia (NH3) emissions from agricultural operations, especially in winter
  • Regional reductions in oxides of nitrogen (NOx) emission reductions
  • Urban-scale reductions in OC primary emissions from residential wood combustion and mobile sources, and VOC emissions from anthropogenic sources

The report notes that, beside power plant sulfate emissions, PM levels are attributable to agricultural emissions, smoking cars and outdoor wood fireplaces.  However, these types of sources are much more difficult to control. 

In contrast there has been a long track record for regulating power plant emissions.  Starting with the acid rain program, then the NOx SIP call and finally CAIR- there have been three different cap and trade programs set up for reducing emissions.  CAIR is critical because power plants are the largest source of SO2 emissions. (See post, CAIR Impact on Air Quality)  The table below was taken from the report (EGU = Electric Generating Units). 

 

Table 1. Annual SO2 Emissions in LADCO Region (1000 TPY)

   

2005

2012

2018

Point-EGU

 

2,826 (83%)

1,665 (77%)

1,468 (76%)

Point-NonEGU

470 (14%)

423 (20%)

393 (20%)

Area

 

47 (1%)

44 (2%)

42 (2%)

Nonroad

 

61 (2%)

16 (1%)

11 (1%)

On-road

 

20 (1%)

5 (--)

4 (--)

   

3,425

2,155

1,919

CAIR, under a cap and trade program, would dramatically reduce SO2 power plant emission in two phases- 2010 requires 50% reduction and 2015 requires 65% reduction.  States are counting on the continued existence of CAIR to meet PM air quality standards.  However, the D.C. Circuit Court tossed out CAIR as "fatally flawed."  U.S. EPA is currently working on a "CAIR fix" to address the issues raised in the Court's decision. 

LADCO's white paper makes it clear little thought is being given to what will happen if CAIR cannot be fixed.  A review of the legal issues with CAIR shows the State's better start considering that possibility.

The fact State's have incorporated CAIR into the air quality planning is the main reason the Court allowed CAIR to remain while U.S. EPA worked on its CAIR fix.  But there is no guarantee U.S. EPA is going to find a legally valid way to preserve CAIR.  The Court found many "fatal flaws" but two of those flaws go to the heart of the cap and trade program:

  • One of the central problems the Court noted with CAIR was its method for reducing the cap on SO2 emissions.  The Clean Air Act establishes a value for acid rain allowances- one allowance is the right to emit one ton of SO2.  CAIR attempted to reduce the cap by cutting the value of an acid rain allowance in half in 2010. The Court found this to be problematic because the value of acid rain allowances is set forth the Clean Air Act.  The Court said:

Lest EPA forget, it is “a creature of statute,”
and has “only those authorities conferred upon it by Congress”;
“if there is no statute conferring authority, a federal agency has
none.”

CAIR, as program created by rule, cannot trump a statute.  How U.S. EPA can possibly get around the Clean Air Act establishment of acid rain allowance to preserve CAIR reductions is perplexing.

  • The Court also questioned the fundamental basis of EPA's cap and trade program that it was not required to eliminate one state's contribution to another state's non-attainment problem.  The Court said:

"Theoretically, sources in Alabama could purchase enough NOx and SO2 allowances to cover all their current emissions, resulting in no change in Alabama's contribution to Davidson County, North Carolina's non-attainment." 

How U.S. EPA can legally show CAIR will address contribution from one state to another while at the same time preserving the cap and trade concept is also perplexing.

While States are counting on preservation of CAIR reductions to meet air quality standards, their faith in U.S. EPA to develop a legally defensible CAIR fix may be misplaced.  Senator Carper has pushed hard to incorporate a new, stronger CAIR-like program in the Senate climate change legislation.  However, this move has not been all that popular as it is seen to slow down progress on climate change.

What will be left if CAIR cannot be repaired is a mess in terms of air quality planning.  It will also make the mountain that much higher to climb for areas recently designated nonattainment by U.S. EPA.

 

Grim News Follows Good News For Northeast Ohio on Ozone

The Obama Administration announced it would review the revised ozone standard of .75 ppb that was previously established by the Bush Administration.   The Obama Administration has said if they decide to revise the ozone standard below .75 ppb they will announce it by December of 2009 and finalize the standard by August 2010. 

As reported in the article, other actions make it appear almost certain that U.S. EPA will revise the standard lower. 

The Justice Department, in a brief filed Wednesday in a federal appeals court, went further, saying that the EPA believes the revision made by the Bush administration does not adhere to federal air pollution law. The brief is part of a lawsuit by environmental groups against the Bush-era rule.

The news of a much tighter ozone standard follows great news for Northeast Ohio that it had achieved the original 8-hour standard of .85 ppb (see, Improving Air Quality Great News for Cleveland Business)  This past week U.S. EPA announced it was granting Ohio's request to redesignate Northeast Ohio Counties (Ashtabula, Cuyahoga, Geauga, Lake, Lorain, Medina, Portage and Summit) attainment . 

An "attainment" status has significant benefits to a community trying to re-build its economy.   It is much easier for businesses looking to relocate or expand to obtain the air permits they will need. Unfortunately, if the standard is reset to something like .70 ppb, Northeast Ohio brief attainment window will close and it will be facing a tremendous obstacle to see an "attainment" status anytime in the near future. 

The above chart is the monitoring data from Ohio EPA's air pollution control plan submitted to U.S. EPA.  It shows the Ashtabula monitor is averaging 84.3 ppb, just slightly below the .85 ppb current standard.  But very, very far away from a possible .70 ppb.  As the Ashtabula monitor goes, so does all the counties in Northeast Ohio.  All eight counties will be in non-attainment if the Ashtabula monitor is not below .70 ppb.

Rather than focus on the economic costs of a revised standard or the difficulty of obtaining that standard, the Cleveland Plain Dealer focused on the future of E-check:

But it doesn't mean that you won't have to E-check your car anymore. Ohio has renewed its contract with Envirotest Systems to conduct the unpopular - though free to drivers - emission tests through June 2011.
 

Such a limited focus fails to recognize the wider implications of the tighter ozone standard.  Businesses that are located outside "non-attainment counties" should pay attention as well. In what has become a re-occurring theme on this blog, tighter ozone standards will have a dramatic impact on the cost of electricity for coal dependent states. 

Roughly 1/3 of all ozone causing pollutants are attributable to coal-fired power plants.  In fact, the progress in achieving the old standard was in large part attributable to federal control programs requiring reductions of these pollutants (NOx SIP Call and CAIR).  To achieve much tighter ozone standards, U.S. EPA will be forced once again to look to tightening emission requirements for coal plants.  Tighter emission requirements translates to higher compliance costs passed on to utility customers.

Ohio really needs to focusing intently on diversifying its energy portfolio to mitigate these increases.  Otherwise, businesses will be looking toward escalating operating costs making Ohio businesses non-competitive.  If you are a business who has opportunities to generate your own power, it would be a strategic advantage to give serious consideration to those plans.

 

Cap and Trade: Job Killer or Call to Action for Coal Dependent States

Ohio faces a two headed hydra when it comes to the impact of the proposed cap-and-trade bill in Congress- the American Clean Energy and Security Act of 2009 (ACES):

  1. Ohio generates almost 90% of its energy from coal;
  2. Manufacturing represents one the largest employment sectors in Ohio (ranking 3rd nationally with 1.1 million workers as of 2006)

These two factors combine to raise the stakes significantly if a price is placed on carbon as a result of the cap-and-trade ACES proposal.  Coal-fired power plants are the largest source of greenhouse gases (GHGs).  Any regulatory approach that puts a price on GHGs will result in higher energy prices. 

Most manufacturers are not even covered under ACES because only the largest industrial sources are capped (25,000 metric tons or more).  However, the secondary effect of ACES- rising energy prices-could mean significant job losses in the manufacturing sector which is heavy user of power 

Potential Job Loses from Cap-and-Trade

A report released last week by the National Association of Manufacturers (NAM) projected that Ohio could lose from 80,000 to 108,000 jobs by 2030 if ACES passes. The job losses are directly attributable to rising energy prices. The NAM cap-and-trade report projects the following increases in commodities or electricity:

  • 26% increase in gasoline prices
  • 60% increase in electricity prices
  • 79% increase in natural gas prices

The 60% increase is actually conservative when compared to other studies.  Some have said total increases could be as high as 112% by 2030.  Such large price increases raise operating costs for many small and medium manufacturers.  Those cost increases will make many business unprofitable forcing them to close their doors, so the argument goes.

Is this really a complete analysis? Also, is opposition to ACES really the correct strategy?

A Call to Action- Diversity in Generation Key for Coal Dependent States

Based on my last two posts you may be expecting me argue that growth in green jobs attributable renewable energy development will significantly offset the manufacturing job loses.  For example, in 2008 there was a 70% increase in wind turbine related jobs nationally. 

While green jobs are important, a more fundamental issue presents itself- When it comes to preserving manufacturing jobs, reliance on coal power is unsustainable. 

The cost of energy produced from coal is going to dramatically increase regardless of whether climate change legislation passes.  A complex web of regulatory forces are at work driving coal energy prices higher over the next decade and into the future.  A honest assessment of these factors should serve as call to action- diversification.

An honest assessment of the forces at play demonstrates that coal reliant states are fighting a losing battle against energy price increases.  States must diversify their generation portfolios in order to become less sensitive to these forthcoming price shocks.  This means development of biomass, nuclear, wind, solar and other forms of electric generation.   

Analysis of Five Factors Driving Future Coal Power Energy Prices Higher

  1. New Source Review Enforcement Cases
  2. The fix for the Clean Air Interstate Rule or Multi-Pollutant Legislation 
  3. Mercury controls
  4. Ever tightening ozone and fine particle federal air standards (NAAQS)
  5. Massachusetts v. U.S. = regulation of greenhouse gases in some fashion

New Source Review (NSR) Enforcement Cases

Manufacturers and other businesses in the Ohio and throughout the Midwest have yet to see the full impact of the NSR enforcement cases on the price of energy.  The settlement with American Electric Power impacts sixteen (16) coal plants and is estimated to cost $4.6 billion.  Ohio Edison, subsidiary of FirstEnergy Corp., settled its NSR case in 2005.   The settlement is projected to cost $1.1 billion to retrofit the Sammis Station.  The litigation has yet to fully conclude in the Duke Energy case and while the verdict was mixed, the case will still result in significant compliance costs. 

Also, a New Source Review regulatory fix seems unrealistic in the near term.  Therefore, future projects that could improve plant efficiency may be avoided out of fear of triggering NSR.

Bottom line:  Billions in new compliance costs for coal fired power plants over the next several years and an uncertain regulatory structure.

CAIR or Multi-Pollutant Legislation

The Clean Air Interstate Rule (CAIR) was a cap-and-trade regulation directed at coal-fired power plant emission of SO2 and NOx.  On July 11, 2008, a federal court found CAIR to be inconsistent with the Clean Air Act.  While the rule remains in place while U.S. EPA develops a fix, U.S. EPA has put a CAIR-fix on the fast track.   It is uncertain what the "new-CAIR" program will look like, but there is little doubt it will result in a more expensive regulation. 

As an alternative to CAIR,  members of Congress have proposed multi-pollutant cap-and-trade legislation for coal fired power plants.  Regardless of whether CAIR remains as regulatory based or converts to legislation the consensus among Democrats was the Bush Administration rule did not require steep enough cuts from coal-fired power plants. 

Bottom line:  Either the CAIR fix or multi-pollutant legislation will raise compliance costs for coal-fired utilities

Mercury Controls

Based upon cost concerns, the Bush Administration rejected facility specific regulation of mercury emissions from coal-fired power plants.  Instead, the Administration proposed a new cap-and-trade program called the Clean Air Mercury Rule (CAMR).  A federal court ruled that mercury as a pollutant could not be regulated through a cap-and-trade mechanism.  On February 6, 2009, the Department of Justice (on behalf of the Obama Administration) dismissed its appeal to the U.S. Supreme Court.  U.S. EPA is currently developing regulations under Section 112 of the Clean Air Act that will require every coal-fired power plant to control mercury emissions.  

Bottom line:  All facilities may be required to reduce mercury emissions through carbon absorption or implementation of other technologies.  Under CAMR, utilities were hoping to avoid controls on some of the older less efficient plants.  The rejection of CAMR will drive compliance costs higher.

Ozone and Fine Particle Air Quality Standards

Coal-fired power plant contribute roughly one-third (1/3) of ozone causing pollutants and particulate matter pollution.  As U.S. EPA tightens the ozone and fine particle National Ambient Air Quality Standards (NAAQS), coal-fired power plants will remain a major target of tighter regulation. 

Bottom line:  States pass new regulations to meet tighter federal air quality standards.  There is lag time between development of new federal standards and implementation of these new state regulations.  States will be forced to contemplate even stricter regulation of coal-fired power plants as a result of tighter federal standards.

Massachusetts v. EPA-  Greenhouse Regulation is Inevitable

In 2007, the U.S. Supreme Court declared CO2 and other greenhouse gases a "pollutant" under the Clean Air Act.  This landmark decision has set in motion a series of proposed actions by U.S. EPA to regulate greenhouse gases under the existing framework of the Clean Air Act. Regulation under the Act will be much more costly than the proposed cap-and-trade legislation. 

Bottom line:  The debate cannot be framed as pass cap-and-trade or have no climate change regulations.  Regulation is inevitable and most agree cap-and-trade is much more cost effective than regulation under the Clean Air Act.

Climate Change Legislation Moves Forward, But Major Issues Remain

The American Clean Energy and Security (ACES) Act of 2009 has cleared one hurdle through passage by the House Energy and Commerce Committee.  The bill now makes its way through at least two more House Committees before a floor vote will occur.  The House leadership has set an aggressive time frame for passage, Speaker Pelosi has said the remaining Committees must finish their work by June 19th.  This leads to the possibility of a  floor vote no later than the end of the month or early July. 

(World Resources Institute- Graph on anticipated reductions from ACES- click on chart to enlarge)

While the ACES legislation appears to be moving quickly, major issues remain with the structure of the legislation as well as its timing.  The Senate does not have a companion bill and many speculate the Senate will be unwilling to simply take of the Waxman-Markey Bill.  Therefore, a tremendous amount of uncertainty remains as to the approach the Senate will use to take up climate change legislation.

What are the possible issues that will be debated in House Committee hearings and in the Senate?  Some will include the following:

  1. 5 year Phase Out of Allocations-  The mark up version of the ACES legislation saw a significant compromise  on the auction v. allocation debate.  Whereas, the President had proposed a 100% auction, ACES only calls for a 35% auction in the early years.  However, the bill still proposes an aggressive phase out of allocations for the energy sector. (See Pew Chart to Left that show dramatic shift downward in allocations during 2025-2030 - click on chart to enlarge) While it may seem like a long way off, in a five year period stretching from 2025-2030 the legislation phases out allocations moving to 90% auction of allowances.  Industry is concerned that this aggressive phase out period will lead to price spikes in utility costs.
  2. 2020 Emission CAP- Emission reductions called for in the initial years was reduced.  The first major milestone of the cap is seen as 2020.  The original bill called for a 20% reduction below 2005 levels.  The mark up reduced that to a 17% reduction by 2020.  However, some forget that President Obama had called for a 14% reduction by 2020.  There are many industry representatives who believe the early reductions still need to be softened to make the bill workable.  There may be a renewed push to bring the 2020 cap down to the 14% reduction.
  3. 2012 Start Date-  The Legislation calls for a modest 3% reduction in 2012.  However, some in industry believe 2012 is too early and does not give adequate lead time to prepare for the cap.  During an EMA presentation, Bruce Braine, Vice President of AEP, commented that the 2012 time frame may force switching to natural gas that will result in price spikes in the first year the cap is effective.
  4. International Offsets-  In the face of widespread controversy regarding the European Trading Scheme (ETS) use of offsets, the bill includes many limitations on use of international offsets.  Beginning in 2018, there is an automatic 20% discount in the value of international offsets.  The bill limits use of international offsets to those categories of projects that have received approval by U.S. EPA.  In addition, there is a sector limitation on use.  Sectors in various countries will be identified where offsets are deemed appropriate (factors includes GDP and receiving equal treatment in project host country).  Finally, there must a an applicable bi-national or multi-national treaty in effect with the Country. Industry is concerned that these requirements will reduce the availability of international offsets thereby driving up the cost of compliance.
  5. Environmentalist Perspective-  The consensus among the environmental community appears to be that the "watering down" of the ACES legislation was necessary to secure passage.  Therefore, even with the dramatic shift away from auction of allowances, most groups still support the Legislation.  The key issue from an environmentalist perspective is the proverbial "line in the sand" to prevent additional changes, including concessions to industry on the issues mentioned above in the Senate.
  6. Ideology v. Realism-  Republicans who have uniformly opposed the carbon cap and trade legislation.  Even though industry support for the Legislation has grown, many Republicans have had success describing the Legislation as a large tax increase during a down economy.  This message plays well even with some Democrats from the Midwest and Southern States that face the greatest impacts from climate change legislation.  The "realism" aspect is that regulation of greenhouse gases appears inevitable.  A market based solution is clearly a better alternative to command and control regulation under the Clean Air Act.  However, are some members of Congress in denial that regulation is inevitable?

Obviously, ACES went through a dramatic transformation to gain passage from the House Energy and Commerce Committee.  The overwhelming majority of changes were to address industry concerns with the Legislation.  The most important changes were the shift away from auction of allowances and reduced reduction targets in the early years of the cap. 

Additional battles may be looming in the House over the issues identified above and others.  However, the most important battle ground remains the U.S. Senate where the future is less certain.

 

Remedy in Cinergy NSR Case Forces Shut Down of Units

As an indication the New Source Review (NSR) enforcement actions are alive and well, today an Indiana federal court has ordered the shut down of units that triggered NSR and failed to install controls.  In addition, the Court required Cinergy to surrender allowances to compensate for "irreparable harm" caused by the operation of the units in violation of the Clean Air Act

The Federal District Court in Indiana issued its decision in the remedy phase of the New Source Review (NSR) enforcement action against Cinergy Corporation's Beckjord, Ohio plant.  A jury trial was held in May of 2008 to determine whether certain projects triggered NSR.  The jury found that four projects performed at the facility "a reasonable power plant owner or operator would have expected a new increase of 40 tons of SO2 and/or NOx "(NSR major modification trigger levels).  Following the jury's verdict, the Court moved into the remedy stage to determine what relief to grant the plaintiffs for the violations.

The Courts decision is an interesting exercise of looking its crystal ball.  Based on calculations of emissions and modeling, the Court projected environmental harm caused by failure to comply with NSR. 

To determine harm, the Court first determined the type of pollution controls that would have been installed had Cinergy complied with NSR requirements (BACT/LAER).  Those controls established the baseline emissions that should have been emitted since the projects were completed.  All emissions above the baseline were considered  "excess emissions" that resulted in environmental harm and potential health impacts.

It was pretty evident which direction the Court was heading when it included the following statement in its order:

With respect to SO2 emissions, Dr. Fox testified that the annual excess emissions of SO2 is approximately 23,000 tons...Putting this into perspective, this rate is approximately equivalent to the amount of SO2 emitted by 324,000 heavy-duty diesel trucks, which is the total number of trucks registered in Indiana, Ohio and Kentucky.

The analysis of environmental harm and potential health impacts was very similar to the exercise undertaken by the North Carolina Court in the nuisance claims against coal fired power plants (see post, "Nuisance Finding Gives Downwind States New Ammo in Long Cross-Border Pollution War").  Here is what the Court examined to gage harm caused by "excess emissions":

  • How did the SO2 and Nox emission impact pm 2.5 and ozone attainment
  • What were mercury emission impacts
  • Potential health impacts from fine particle pollution
  • Damage to the environment from acid rain

After finding irreparable harm from these impacts the Court ordered:

  1. Shut down of three units by Sept. 2009
  2. Until Sept. 2009, the three units must be run so as not to exceed baseline levels that are based BACT/LAER controls
  3. Permanently surrender SO2 allowances in an amount equal to total SO2 emissions from May 22, 2008 until September 30, 2009

For those who though the NSR consent decrees carried with them pretty dramatic remedies, this decision shows you take an equivalent risk by going to trial. 

 (Photo: DanieVDM/everystockphoto.com)

Riverkeepers: Is Weighing the Cost and Benefits of Environmental Regulations Really "Back On The Table"

On April 1st, the U.S. Supreme Court issued its decision in Entergy v. Riverkeepers which examined whether a cost benefit analysis is appropriate under certain provisions of the Clean Water Act, specifically Section 316(b) of the Act. As detailed below, there has been wide ranging debate over the significance of the decision.

At issue are large power plant cooling water intakes.  In the course of operation of these intakes large amounts of fish are pinned against the screens (called "impingement") or sucked into the plant (called "entrainment").  Due to the harmful effect to aquatic ecosystems, the intakes are subject to EPA regulations.  The CWA requires the location, design, construction, and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impact. 

EPA adopted regulations applicable to existing plants.  The regulations included the option for plants to obtain a variance from the requirement to install specified technology.  To obtain a variance the plant would need to demonstrate:

  1. costs of compliance are “significantly greater than” the costs considered by the agency in setting the standards, 40 CFR §125.94(a)(5)(i), or
  2. costs of compliance “would be significantly greater than the benefits of complying with the applicable performance standards,” §125.94(a)(5)(ii).

Where a variance is warranted, the permit-issuing authority must impose remedial measures that yield results “as close as practicable to the applicable performance standards.” 

Environmental groups challenged the ability to obtain a variance after performing a cost-benefit analysis.  The groups challenging EPA's rule argued that Section 316(b) is silent on the use of cost as a factor in setting forth the "best technology available" standard.  Because the statute is silent, the groups challenging the regulation argued the variance provision was illegal. 

Justice Scalia wrote the opinion for the Court which rejected the argument that 316(b)'s  silence means costs cannot be considered.  However, Justice Scalia did point to other language in the statute that the Court believed indicates costs could be considered.

the statute's use of the less ambitious goal of “minimizing adverse environmental impact” suggests, we think, that the agency retains some discretion to determine the extent of reduction that is warranted under the circumstances. That determination could plausibly involve a consideration of the benefits derived from reductions and the costs of achieving them.

There has been significant debate over the importance of the ruling.  (See New York Time- Groups Debate Supreme Court's Power Plant Ruling.  In the NYT's article, some argue the door is now open to increased use of cost-benefit analysis in environmental regulatory decision-making:

"While the Entergy decision rests on close analysis of the statutory language of a particular Clean Water Act provision, it is likely to be highly influential in granting EPA discretion to use cost-benefit analysis more generally when statutory language does not preclude it," said Tim Bishop, a partner in the Supreme Court and appellate practice at Mayer Brown.

The Wall Street Journal comments that the decision will have significant impact on future regulations:

The ruling addresses a huge question in the energy and environment battle raging right now—namely, how to strike the balance between environmental protections and safeguarding the economy. It also brings the field of cost-benefit analysis squarely back into the environmental debate.

The statements appearing in the Wall Street Journal dramatically overstate the impact of the decision.  The decision was based upon a very close analysis of the language in one specific provision of the Clean Water Act.  The Court avoided wide pronouncements regarding the use of cost benefit analysis in environmental decision making.

Even more importantly, silence alone was not enough.  Justice Scalia found other language in the statute- "minimizing"- as suggesting Congress intended costs to be considered. There are plenty of instances where environmental statutes strictly forbid considerations of costs.  In fact, Justice Scalia in his opinion cites to several other Clean Water Act sections that he deems to prohibit cost considerations. 

For cost-benefit analysis to really become a major factor in environmental policy, Congress will have to insert affirmative language into environmental statutes to allow for costs to be considered.  Something that appears unlikely given the current make up of Congress.

 (Photo: flickr mcgervey)

House Begins the Debate on Cap and Trade

House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) and Chairman of the Energy and Environment Subcommittee Edward J. Markey (D-Mass.) introduced the “The American Clean Energy and Security Act” as the opening salvo in a contentious and complex debate over a greenhouse cap and trade program.  The bill links two major and independently controversial proposals:  1) a nationwide cap on greenhouse gases (GHGs); and 2) a national renewable standard and energy efficiency. 

The bill would:

  • Cut national greenhouse gas emissions 20 percent from 2005 levels by 2020-this is slightly more aggressive than similar measures pushed by the Obama Administration.  Overall the goal is to cut GHG emissions by 85% by 2050 when compared to 2005 levels
  • Reduce electricity demand by 15% by 2020
  • Nationwide renewable energy standard which requires 25 percent of the Country's energy generation be met through wind, solar and other renewables.

The bill forms a skeletal framework, but leaves major controversial components open to debate.  (See summary of the American Clean Energy and Security Act) For example, the bill does not address whether pollution allowances under the cap and trade program would be 100% auctioned or 100% allocated to industry or somewhere in between.  The fact the bill does not even make a proposal on this component suggest the drafters understand a deal will need to be struck to give a chance for the bill to pass. 

US Climate Action Partnership -- a coalition of businesses and environmental groups -- called the bill a good starting point.  The bill makes several key concessions to Industry:  a)  allowing domestic and international offsets; b)  provides C02 and other GHGs cannot be regulated as criteria pollutants or hazardous air pollutants under the Clean Air Act; c) creates a strategic reserve of allowance in the event allowance prices are too high; and d) allows unlimited banking of allowances.

However, the bill also includes proposals that will raise concerns with Industry beyond the major concern-should the U.S. have a cap and trade system to control GHGs?  While the bill essentially exempts GHGs from traditional regulation under the Clean Air Act (a major advantage of legislation), it directs EPA to set up a new regulatory program to curb GHG emission by sources that are not covered by the Cap.  The bill also does not create any kind of so called "safety valve" which is a limit on the price of allowances.  While the strategic reserve concept allows some cushion, it only provides for release of more allowances into the pool it does not set a ceiling on the price of an allowance.

As reported in the Boston Globe, the House Committee's goal is complete debate on the bill by Memorial Day.  Here is the tentative schedule:

  • Week of April 20:  Energy and Environment Subcommittee Hearings
  • Week of April 27:  Energy and Environment Subcommittee Markup Period Begins
  • Week of May 11: Full Energy and Commerce Committee Markup Period Begins

This appears to be a highly ambitious schedule given the level of controversy and major components of the bill open to debate.  Passage will be still very questionable.  You will have virtually no support among Republicans. You will have Democrats in coal states worried about the cost impacts of cap and trade on utilities.  You will have Democrats and Republicans in Southern states very concerned about the national renewable energy standard. 

For the bill to pass, major components will likely have to be restructured.  I am certain there will be plenty to write about regarding the bill in the coming weeks and months. 

 

In a Major Reversal, Obama Administration Restarts NSR Enforcement Initiative

In a dramatic reversal from the Bush Administration, the Department of Justice and U.S. EPA are renewing their New Source Review enforcement efforts against coal-fired power plants.  The NSR lawsuits originally commenced during the Clinton years have resulted in billions of dollars in new controls and hundreds of millions in civil penalties. 

The industry had breathed a sigh of relief when the Bush EPA announced they were not going to pursue additional cases.  Now the industry faces the prospect of a new round of very costly litigation, controls and penalties.

U.S. EPA issued a press release announcing the first new NSR complaint:

Coal-fired power plants collectively produce more pollution than any other industry in the United States. They account for nearly 70 percent of sulfur dioxide emissions each year and 20 percent of nitrogen oxides emissions. Emissions from coal-fired power plants have detrimental health effects on asthma sufferers, the elderly and children. Additionally, these emissions have been linked to forest degradation, waterway damage, reservoir contamination and deterioration of stone and copper in buildings.

To combat these adverse effects, the EPA and the Justice Department are pursuing a national initiative, targeting electric utilities whose coal-fired power plants violate the law.

The suits reverse the Bush Administration decision to only conclude the Clinton era NSR lawsuits and to not pursue new cases unless the involve violations of the Bush era  NSR regulations. In 2006, former EPA enforcement chief Grant Nakayama told Congress he would pursue investigations of coal-fired power plants only if they appeared to fall out of step with the administration's series of proposed and final changes to the NSR program .  On October 13, 2005 Marcus Peabody, Assistant Administrator, issued a memorandum to U.S. EPA's Office of Enforcement Compliance Assurance directing the office to pursue only cases involving violation of the Bush era NSR rules. 

The NSR directive is just one of many Bush evironmental policy and regulatory decisions that the Obama Administration has reversed.  Utility representatives said the Obama administration's efforts to ramp up NSR enforcement came as no surprise.

On February 25th, the Department of Justice has sued Louisiana Generating, alleging that the NRG Energy subsidiary violated New Source Review requirements by operating the Big Cajun 2 Power Plant without also installing and operating modern pollution control equipment after the generating units had undergone major “modifications.”(DOJ Press Release)

This follows a similar lawsuit filed earlier in February against Westar Energy, Inc for failing to install Best Available Control Technology (BACT) at one or more of its coal-fired power plants.  The complaint alleges that for more than a decade, the Jeffrey Energy Center has operated without the best available emissions-control technology required by the New Source Review provisions of the Clean Air Act to control emissions of sulfur dioxide, nitrogen oxide and particulate matter, contributing to formation of fine particulate matter, smog and acid rain.
 

New Environmental Board Ruling Ignores Johnson CO2 Memo

On February 18th another permit, Northern Michigan University Ripley Heating Plant, for a new coal facility was remanded by U.S. EPA's Environmental Board of Review.  The Board remanded the permit because the State (the Michigan Department of Environmental Quality), in issuing the permit, failed to address whether CO2 was a regulated pollutant under the Clean Air Act.  The most interesting aspect of the decision is that the Board apparently gave absolutely no weight to former EPA Administrator Johnson's Memo which said CO2 was not a "regulated pollutant" and therefore new permits need not consider BACT controls for CO2.  Here is what the Board said on the issue:

 

For the reasons set forth in that decision (Deseret Power), we similarly remand the CO issue here, directing MDEQ, guided by our findings in Deseret, to undertake the same consideration whether the CAA’s “pollutant subject to regulation” language requires application of a BACT limit to CO emissions.

The Board does not elaborate or even address the Johnson memo.  Therefore, it is impossible to know whether new EPA Administrator Jackson's grant of the Sierra Club's petition for reconsideration rendered the Johnson Memo meaningless.  That seems like a difficult legal conclusion to reach given the fact Jackson's action specifically did not block the effectiveness of the Johnson memo while it was undergoing review.

The permit had authorized Northern Michigan University (NMU) to construct a new circulating fluidized bed (“CFB”) boiler at the Ripley Heating Plant on its campus in Marquette, Michigan. As permitted, the CFB boiler will function as a cogeneration unit that provides both electrical power and heat to NMU’s facilities through the burning of wood, coal, and natural gas

Another interesting aspect of the decision was the Board also remanded the BACT analysis for the SO2 limit.  The permit called for a mix of fuels- mainly wood and coal.  The Board found there was not enough information provided to justify the limited amount of wood which would lower SO2 emissions.  The Board also questioned the fuel choice relative to coal.  It said the MDEQ needed to provide more information as to why lower sulfur coal was not required to lower SO2 emissions.

The BACT requirements for fuel choice are interesting.  For instance, once (not if) CO2 is regulated would BACT require a coal and biomass mix which can lower emissions of CO2?  This could be very good news for biomass producers who blend biomass with coal to form briquettes or pellets. 

Major Development Regarding CO2 Emissions from Coal Plants

May you live in interesting times....Yesterday EPA Administrator Jackson issued a letter granting the Sierra Club's petition for reconsideration of a Deseret Power memo issued by former EPA Administrator Johnson.  The Petition seeks reconsideration of the Johnson memo which interpreted EPA regulations defining the pollutants covered by federal permitting under the Clean Air Act.  The Johnson memo said that CO2 was not a regulated pollutant under the Clean Air Act (CAA) for purposes of permitting. 

The memo was issued following the decision by the EPA's Environmental Board of Review in the Deseret Power case concluding the CAA was ambiguous and that EPA had discretion to determine whether CO2 was a pollutant subject to regulation.  Johnson, in one of his last acts before leaving office, tried to fill the void by issuing an interpretive memo determining CO2 was not a regulated pollutant.

There was tremendous pressure on new EPA Administrator Jackson to revoke, stay or invalidate the memo.  Such action would have effectively put on hold about a 100 pending permits for coal fired power plants.  In a prior post, I predicted that despite the pressure Jackson would take a more deliberate approach.  She has done exactly that by not issuing a stay and announcing EPA will embark on a formal rulemaking process.  (even I get one right now and then)

While Jackson has chosen to address the issue slowly, she did include language in her letter that cast a great deal of uncertainty regarding pending permits:

In the meantime, the Agency emphasizes a point noted in the memorandum itself: the memorandum does not bind States issuing permits under their own State Implementation Plans.  In addition, given the Agency's decision to grant reconsideration of the memorandum, other PSD permitting authorities should not assume that the memorandum is the final word on the appropriate interpretation of Clean Air Act requirements.

While this statement casts some uncertainty, the Johnson memo is still legally effective.  Unlike others in the blogosphere predicting stoppage of all permitting for new coal plants,  I believe permits will still move forward in State's willing to issue them. 

Yesterday, EPA Administrator Jackson also issued a statement regarding her decision to grant reconsideration:

“I am granting this petition because we must learn more about how this memo affects all relevant stakeholders impacted by its provisions,” said EPA Administrator Lisa P. Jackson “This will be a fair, impartial and open process that will allow the American public and key stakeholders to review this memorandum and to comment on its potential effects on communities across the country. EPA’s fundamental mission is to protect human health and the environment and we intend to do just that.”

My take on the statement is: a) EPA intends to move through a slow rulemaking process; and b) once EPA completes the rulemaking process you can pretty much count on the fact CO2 emissions will be regulated. 

 

Nuisance Finding Gives Downwind States New Ammo in the Long Cross-Border Pollution War

On January 13, 2009, Judge Lacy Thornburg of the District Court for the Western District of North Carolina issued a major decision in case of North Carolina v. TVA.  When filed, this case was seen as another chapter in the on-going battle between downwind and upwind states over cross-border pollution. 

However, the decision and implications are somewhat surprising.  The Court declared that emissions from four of eleven TVA power plants in upwind states created a public nuisance in the State of North Carolina.  Even though these sources apparently comply with environmental permits and regulations, the Court ordered hundreds of millions of dollars in new pollution control equipment on those plants.

Downwind states suing upwind states over coal power plant pollution is nothing new.  The Northeastern and Mid-Atlantic States have sued Midwestern and Southern States over pollution under a number of theories. 

  • They successfully participated in New Source Review enforcement cases with U.S. EPA. 
  • They filed Section 126 petitions under the Clean Air Act. Those petitions were later resolved by U.S. EPA by creating the Clean Air Interstate Rule (CAIR)- a cap and trade pollution control program. 
  • They have sought new federal legislation tightening emission standards on coal-fired power plants

What makes this suit so different is that the State of North Carolina went outside the typical Clean Air Act tool box in asserting its claims.  Instead the State relied upon common law theories.  The decision will certainly bring a waive of new rounds of litigation.  Especially with the remand of CAIR after the successful challenge by North Carolina. 

Here are some of the significant implications of this decision. 

1. The Court found that significant health effects occur as a result of exposure to pollution at levels even below the National Ambient Air Quality Standards (NAAQS) for PM 2.5 and Ozone. The Courts said:


"After reviewing the totality of evidence, the Court is convinced that exposure to PM 2.5-even at or below the NAAQS of 15 ug/m3- results in adverse cardiopulmonary effects, including increased or exacerbated asthma and chronic bronchitis...these negative but non-fatal health effects result in numerous social and economic harms to North Carolinians, including lost school and work days..."


2. The Court found that sources in upwind states can still have significant impacts on a downwind state’s air quality. However, in this case, the Court drew the line at distance of 100 miles. TVA plants within 100 miles (4 plants) were deemed a nuisance and plants outside 100 miles (7 plants) were not.

3. The Court created a new definition of “significant contribution.” TVA plants that were contributing 3% of the emission responsible for PM 2.5 pollution in North Carolina and roughly 5% of the ozone problem were deemed to significantly contributing. On that basis, these plants (ones roughly within 100 miles) were deemed a nuisance.  Sources that contributed less than 1% were deemed not a nuisance. 

4. The Court required installation of SCRs and scrubbers on a number of units because those units were contributing to the nuisance.

5.  Even though these plants were apparently in compliance with all federal and state environmental permits and regulations, they will be putting on additional controls.

6. The Court included emission rates for each plant in a spreadsheet in the opinion. However, the decision is somewhat vague as to whether these are simply expected emissions post controls or in fact legally enforceable limits.

7. From a legal perspective, I found it interesting that a federal judge in North Carolina found sources in other states to be causing a nuisance by applying the State nuisance law from Alabama, Kentucky and Tennessee where the sources are located.

 

Court Saves CAIR, Remands to EPA

The D.C. Circuit Court of Appeals issued its much anticipated decision in response to U.S. EPA's request for reconsideration of the decision vacating the CAIR program.  The decision marks an important victory for U.S. EPA, the State and provides some level of certainty for utilities.

The Court decided to remand the rule to U.S. EPA so it can fix the rules "fatal flaws" identified in its earlier decision.  This decision has the effect of preserving the CAIR rule in the interim while EPA overhauls the rule.  The Court also rejected the request by some to establish a firm deadline by which EPA must re-issue the rule. 

Here is how the Court explained the rationale for its decision:

Here, we are convinced that, notwithstanding the relative
flaws of CAIR, allowing CAIR to remain in effect until it is
replaced by a rule consistent with our opinion would at least
temporarily preserve the environmental values covered by
CAIR. Accordingly, a remand without vacatur is appropriate in
this case...

We explained that vacatur was appropriate
because of the depth of CAIR’s flaws, the integral nature of the
rule, and because other statutory and regulatory measures would
mitigate the disruption caused by vacating the rule. Id.
However, on rehearing, EPA, petitioners, and amici states point
to serious implications that our previous remedy analysis,
including our consideration of mitigation measures, did not
adequately take into account. The parties’ persuasive
demonstration, extending beyond short-term health benefits to
impacts on planning by states and industry with respect to
interference with the states’ ability to meet deadlines for
attaining national ambient air quality standards for PM2.5 and
8-hour ozone, shows that the rule has become so intertwined
with the regulatory scheme that its vacatur would sacrifice clear
benefits to public health and the environment
while EPA fixes
the rule.

While not addressing the issue, the Court rejected its request for reconsideration of what EPA identified as key issues.  One such issue was whether EPA has the authority to adjust the value of Acid Rain allowances under CAIR. 

While this decision is very good news for EPA and the States who are trying to plan for meeting air quality standards, it still leave a tremendous amount of uncertainty.  The Court is not reconsidering any of the "fatal flaws" it identified with CAIR, which were numerous.  The rule that will emerge after being fixed by EPA will look vastly different than before.

Now utilities will be left with making key decisions about the use of allowances and construction of new controls without the benefit of knowing what the new CAIR rule will look like.  While the picture got a little clearer today, there is still a whole bunch of uncertainty.

 

Control of Hazardous Air Pollutants from Coal Plants

All the recent climate change related litigation has overshadowed major activity around control of hazardous air pollutants (HAPs) from coal plants.  Mercury is one such HAP.  Back in February 8, 2008  in New Jersey v. EPA, the D.C. Circuit Court of Appeals threw out U.S. EPA's cap and trade program for mercury, known as the Clean Air Mercury Rule (CAMR).  

EPA's decision to create a cap and trade program for mercury was very controversial.  Those opposed said cap and trade was not meant to control toxic pollutants like mercury.  In response, a number of states rejected the CAMR rule and adopted state programs that established control requirements for every coal plant within their borders.

While the federal court declared CAMR illegal, it also made an important determination as it relates to control of HAPs from coal plants.  In order to create the cap and trade program, the Bush Administration had to undue the efforts of the Clinton Administration to establish facility specific control standards for coal plants under Section 112 of the Clean Air Act. 

In December 2000, the Clinton EPA decided to list electric generating units (EGUs) under section 112.  By listing this source category under Section 112, all existing and new plants must meet Maximum Available Control Technology Standards (MACT) for controlling emissions of HAPs.  MACT is emission controls equal to the "average emission limitation achieved by the best performing 12 percent of the existing sources."

In order to create its cap and trade program, the Bush Administration tried to de-list EGUs as a source category regulated under Section 112.  The federal court in New Jersey v. EPA found this action to be illegal.  This means that EPA must move forward with rules establishing a MACT standard for EGUs.  To date, EPA has failed to take such action.  As reported in the Charleston Gazette this week, groups have sued EPA to compel such action

A coalition of environmental groups has filed a lawsuit trying to force the federal government to comply with a 6-year-old mandate to reduce toxic chemical emissions from coal-fired power plants.

The suit, filed Thursday in federal court in Washington, asks for a court order requiring the U.S. Environmental Protection Agency to set limits for mercury and dozens of other hazardous air pollutants.

The new lawsuit follows a major decision by a federal court in North Carolina (Southern Alliance for Clean Energy v. Duke) that invalidated a permit for construction of a new coal plant because the permit failed to show compliance with MACT for HAPs.  The main issue in the case was whether the MACT standards apply to the on-going construction of a coal plant following the New Jersey decision.  Notably, the Court ruled that MACT did apply even though the permit was issued and construction had already began on the new source.

While mercury and other HAPs won't be controlled from existing plants until EPA finalizes its MACT standards for EGUs, at least one federal court has said new plants must meet the yet to be established standard.  This presents another avenue for environmentalists to challenge air permits for coal plants, even permits issued prior to the February 8, 2008 decision.

CAIR Update- Court Considers a Stay Allowing EPA to Fix the Cap and Trade Program

Is the Court showing signs that it may have gone too far is throwing out CAIR?  After EPA filed a request for rehearing, a hopeful sign emerged last month when the Court asked the parties challenging CAIR to respond to two questions:

  1. Does any party really want the entire rule thrown out (vacatur)?
  2. Should the Court stay the effectiveness of its decision to throw out the rule until EPA fixes and re-issues a new rule addressing the Court's issues?

In response, twenty-two (22) states, including North Carolina, told the Court they don't want the rule thrown out.  The States requested the Court to stay the effectiveness of its decision to allow EPA to fix the rule.  However, North Carolina was concerned with how much time EPA would have to fix the rule-it opposed an indefinite stay.  Rather, N.C. proposed a deadline of July 2009 after which the stay would end. 

The Utilities were split on the issue.  Some asked for the rule to be thrown out, while others preferred remand.  The argument in support of throwing out CAIR can be summed up by this quote from the brief filed by the Florida Association of Electric Utilities:

Regulatory certainty is critically important, and granting rehearing or staying the mandate would require CAIR states to immediately implement, and affected sources to immediately comply with a rule the Court has declared contains "more than several fatal flaws."

The Utilities opposing remand or a stay ask a valid question- What portion of a "fundamentally flawed" program are going to remain after EPA fixes the rule.  EPA has said it will take 2-3 years to fix CAIR.  The Utilities argue why should they be forced to comply with provisions of the rule that Court has said are fundamentally flawed for the next several years.

U.S. EPA also filed a brief in response to the two questions posed by the Court.  EPA says it prefers a stay of effectiveness of the vacatur decision while it fixes the program.  However, it also says it must have rehearing on certain critical issues or CAIR will be ineffectual at reducing pollution even if the Court grants a stay.

Principally, U.S. EPA wants rehearing on the Court's decision that EPA does not have the authority to adjust Title IV (acid rain) allowance under the CAIR program.  Without the authority, EPA argues it cannot create a program that will impose greater reductions of SO2 emissions. This would mean the less stringent caps under the old Acid Rain Program will remain.

EPA says this will also impact the emission reductions achieved during a potential stay.  Without clear authority to adjust Acid Rain caps and allowances, Utilities will have no incentive to hold banked allowances for future compliance.  This is because Utilities will not anticipate a stronger program will emerge after EPA fixes the rule.  Rather, Utilities will simply use up the allowances during the stay and emission reductions will not occur.

EPA raises an interesting issue-  Even if a stay is granted there will be tremendous uncertainty as to what the Utilities will do with allowances during the stay.  While EPA makes a valid point, they may have ended the possibility of a stay if the Court is unwilling to reconsider its position that the rule is fundamentally flawed. 

Given all the posturing by the Parties, it will be interesting to see what course of action the Court takes in response.

There appears to be growing awareness that the CAIR decision has major implications beyond just the Utilities. For instance, what about upcoming deadlines for attaining federal air quality standards (NAAQS)?  Without the CAIR SO2 reductions States will likely not be able to comply in time.  Should the State's be punished for EPA's failure to develop a legally enforceable program?

In yesterday's U.S. News and World Report  there was an article covering the uncertainty that swirls around the future of clean air post CAIR.  

Five months after a federal court struck down the Bush administration's top program aimed at curbing air pollution, the fate of air quality regulation—and, therefore, air quality—in much of the country is increasingly uncertain, if not imperiled.

I was interviewed for the story and was able to point out that the States can't fix air quality issues on their own.  Federal help through programs like CAIR is needed to address what is a regional issue, not a local issue.

"In the case of fine-particulate pollution, there is a huge regional soup of it," says Joseph Koncelik, an Ohio-based environmental lawyer and the former Ohio EPA director. "So, it's somewhat ineffective if states are working on their own, just trying to control a few factories in their jurisdiction."

If the Court doesn't grant the stay and issues its mandate effectively throwing out CAIR, will EPA  still hold the States accountable for the 2010 deadline to meet the fine particle standard (PM 2.5)?

CAIR Update: Court Asks Utilities Whether To Throw Out the Program

As reported by Platts, on October 21st the D.C. Circuit Court of Appeals asked whether the parties involved in the lawsuits that led to vacatur of the Clean Air Interstate Rule (CAIR) want the entire rule to be thrown out or to be kept in place until U.S. EPA revises the rule. 

The US Court of Appeals for the District of Columbia Circuit on Tuesday
ordered petitioners -- which include utilities Duke Energy and Entergy -- to
respond within 15 days to its inquiry.

It is a move CAIR supporters see as a hopeful sign.

"We see it as a sign that [the court is] working through the reasoning of
our position and, hopefully, will make the right decision" and keep CAIR in
place, said EPA spokesman Jonathan Shradar.

Asking the petitioners whether they want the entire rule thrown out or a
stay of the court mandate indicates the DC Circuit is "taking our petition
seriously," he added.

If the DC Circuit stays its mandate, CAIR could stay in place until EPA
puts in place a revised rule.

This puts the Utilities in an interesting position.  EPA has indicated that CAIR would need a significant rewrite which would include weakening protections that were provided to the Utilities under the original rule.  The weakening would likely include removal of the shield that EPA constructed that protected the Utilities from claims that interstate transport of pollution was not adequately addressed by CAIR.

Given the 15 day deadline, the briefs should have been filed.  It will be very interesting to how the Utilities like to gamble.  Would they prefer the rule to be thrown out and take their chances a new program is developed that is stronger?  Would the prefer maintaining at least the first phase of CAIR to give them some certainty in the allowance markets and be able to plan for new pollution controls?

 

Impact on Air Quality Without CAIR

I mentioned in my post discussing LADCO air quality meeting that I would put up the most relevant slides or graphics from all the presentation over the two days in Chicago.  I think I can pretty much boil it down to two slides.

This slide was put together by U.S. EPA when meeting to discuss their support of a Legislative fix to reinstate CAIR.  As discussed, no legislative fix appears possible at least in the short run. 

The bar chart shows the reductions of existing SO2 emissions based up various legislative fixes. The bar to the far left is emissions in 2005.  The short series of bars represents full reinstatement of Phase I (2009) and Phase II (2015) of CAIR.  Then we go through no fix, 2 year temporary  fix, 4 year temporary fix, and permanent reinstatement of only Phase I. 

Okay, so this is a great visual for the massive reductions in SO2 expected as a result of CAIR.  With no legislative fix and successful appeal of the Court's decision vacating CAIR unlikely, looks like we are at the "no fix" point on the graph. 

But what does this mean to air quality?  While the presentations from the States all indicate attainment of the 1997 ozone standard (.85 ppm) appears likely, its a much different story for P.M. 2.5 (fine particles).

This is the latest modeling of air quality in the Midwest without CAIR.  The map on the right shows no CAIR. The map on the left with CAIR.  The more color dots the more area not meeting U.S. EPA's PM 2.5 standard.

The chart below provides the overall scorecard.  We go from only 3 areas in the Midwest not meeting the standards, to a total of 20 area. 

Furthermore, all of the presentations discussed that PM 2.5 (fine particle) pollution is regional in nature.  Which means the states will find it probably impossible to attain the standard without regional reductions similar to CAIR's reductions from power plants. 

With more areas not attaining, more states will be forced to consider much costly controls on existing businesses.  In addition, areas that don't meet U.S. EPA's air quality standard find it more difficult to attract new business or plant expansions in their areas.  Not good news for the Midwest during these tough economic times. 

CAIR: EPA's Path Forward Slow and Unclear

I participated today in a Midwest Air Quality Workshop in Chicago. At the workshop, Bill Harnett from U.S. EPA's Office of Air Quality Planning and Strategy (OAQPS) gave an interesting presentation regarding U.S. EPA's reaction to the vacatur of CAIR by the D.C. Circuit Court of Appeals. Here are a couple of the key issues discussed or observations made:

Chances of Rehearing Appear Slim- U.S. EPA is not very optimistic about their chances to get rehearing from the D.C. Circuit. Apparently only 5 of the 10 justices who sit on the Court do not recuse themselves from U.S. EPA's cases involving the utilities. This means that instead of a full panel of justices, U.S. EPA is requesting reconsideration to only five justices, three of which decided to vacate CAIR already. This means U.S. EPA will have to get one of the Justices to change their previous opinion just to get rehearing...an outcome that does not appear likely.

Even if Rehearing is Granted the Best Hope is Restoring Only a Portion of CAIR- As discussed in my prior post on the brief U.S. EPA filed for rehearing, U.S. EPA seems to have thrown in the towel already on getting all of CAIR restored- meaning the second phase of reductions in 2015 are out of the picture. Even if U.S. EPA gets a rehearing it is already saying the best possible outcome will be to restore the first phase (2009) of CAIR reductions.

No Short Term Legislative Fix- This was apparent with Congress going into recess for the elections. Time simply ran out on a quick fix that could have restored the first phase of the CAIR reductions in 2009. The ramifications are significant because, as discussed below, any path forward will involve at least a two or three year process.

A Fix is at least 2-3 Years Away- While U.S. EPA is already evaluating options for a new federal rule and also hoping for legislation, either approach will be lengthy. U.S. EPA is going to have to wait until a new administration comes into office. Appointments won't happen until at least the Spring. This means a new rule proposal or even rules following legislation won't happen until the summer of 2009 at the earliest. However, even after the rule is proposed this just starts the long rulemaking process. Therefore, U.S. EPA is saying a final rule is 2-3 years away and reductions may be 4-5 years away.

U.S. EPA Wants to Develop a "Safe" or "Bullet Proof" Rule- It is clear U.S. EPA does not want to risk losing the entire CAIR program a second time. To try an ensure that won't happen, U.S. EPA says they will push for a rule that addresses the issues raised by the Court. What this means exactly is unclear, but I doubt the utilities will be happy with the outcome. One option discussed was to craft a federal rule that does not "address" interstate transport, but only "reduces" transport. Under CAIR, U.S. EPA said the states didn't have to do anything more to "address" transport because CAIR solved interstate transport issues. In a new rule, U.S. EPA says they won't go that far leaving additional reductions to solve interstate transport up to the States.

How? U.S. EPA would leave it up to the states to certify in the State Implementation Plans (SIPs) that they have reduced emissions from sources in the State to such a degree they addressed all transport issues. This helps U.S. EPA because if one State's finding that they addressed interstate transport is overturned by the Courts the whole federal rule does not crumble.

For Trading to Survive U.S. EPA Can't Solve Transport, Some Reductions Will Come From the States- This builds upon the notion U.S. EPA will only strive to "reduce" transport and not "address" it . A federal rule that solves interstate transport could not include a cap and trade component. A principle reason the Court vacated CAIR was because with a cap and trade program there were no assurance reductions would occur in any given state. All the sources in a state could satisfy their obligations by purchasing allowances and avoiding controls. As a result, the Court said U.S. EPA illegally concluded in the CAIR rulemaking that it solved interstate transport of emissions from power plants.

Without CAIR State's will attain Ozone but not PM 2.5 - Each of the five LADCO States (Ohio, Indiana, Illinois, Wisconsin and Michigan) gave presentations on their air quality plans. All of the State's a planning to restore the NOx SIP Call in response to the CAIR decision. From the reductions under the NOx SIP Call all the states said they can attain the 1997 ozone standard.

However, without CAIR, attaining the fine particulate (PM 2.5) standard is nearly impossible. CAIR brought huge reductions in SO2 that will be lost without CAIR. LADCO modeling shows we go from 3 to 20 monitors in the Midwest reading nonattainment with the P.M. 2.5 standard without CAIR by 2009. Unless the States get very aggressive and proceed with old command and control enforcement/permitting against these sources it appears unlikely they can get enough reductions to attain the P.M 2.5 standard by their 2010 deadline.

(Note: Once the visuals from the various presentations are available next week I will post the best illustrations of the issues I have discussed above)

 

Utah Supreme Court Allows Citizens to Vote on New Coal Plant

The creativity of those opposed to new coal plants seems to have no bounds.  The most recent effort is to place a referendum on the ballot to allow citizens to vote whether a permit should be issued for a new coal plant in Utah. The referendum would amend the county's conditional-use permit ordinance to require voter approval prior to issuing permits for coal-fired power plants.

In a effort to block this type of referendum effort, the Utah Legislature passed H.B. 53 which says that the voters of any county, city or town may not initiate a land use ordinance or a change in a land use ordinance.  The Legislature also said that the people may not require a land use ordinance passed by the local legislative body (city council or county commission) to be submitted to the voters for approval before it can take effect (i.e. a referendum).

A lower court blocked the referendum, but the Supreme Court of Utah said it should be placed on the ballot.   Here is my favorite observation... a company representative said that getting a permit for a coal-fired power plant these days "is not for the faint of heart."

As I have commented in prior posts, a top priority of those concerned with climate change is to stop construction of new coal fired power plants, almost through any means necessary.  We have seen a call for citizen protests, various lawsuits filed, appeals of permits, legislation and now a proposal to let citizens vote on whether a permit should be issued. 

(Photo: Flickr Jeffreyd00)

Gore Calls For Protests to Stop New Coal Plants Over Global Warming

Al Gore, speaking at the annual meeting of the Clinton Global Initiative, called for young people to perform acts of civil disobedience to stop construction of new coal plants.  He also has called for State Attorney Generals to review whether utilities are committing stock fraud by discounting the threat of global warming. 

I put this post up after writing yesterday about the Arkansas proposal to pass legislation prohibiting construction of new coal plants.  Preventing construction of new coal plants that do not use carbon sequestration appears to be the number one strategy of green groups and those concerned with global warming. 

Ohio could soon be a major battle ground.  While the AMP Ohio facility has received its permit for construction of its new baseload coal power plant, it should be bracing itself for challenges on all fronts. During the public comment period on the new period concern was expressed that the facility would emit 7.3 million tons of CO2 per year.  Right now AMP Ohio appears to be the rare coal plant project that is still moving forward having received its authorization to construct from Ohio EPA.

Arkansas Considers Ban on New Coal Plants

 

As reported in the Texarkana Gazette, the Arkansas State Commission on Global Warming is likely to recommend a ban on new coal fired power plants.  The Commission is also proposing construction of a new $1.5 billion dollar plant be delayed until carbon sequestration technology can be added to the plant. 

What is the Arkansas Governor's Commission on Global Warming?  Here is a description taken right from its web page:

With the signing of Act 696 of the Arkansas 86Th General Assembly (HB2460), Governor Mike Beebe established the Governor’s Commission on Global Warming. By design the Commission represents a wide diversity of views and perspectives with members coming from business, industry, environmental groups, and academia.

The Commission is charged with setting a “global warming pollution reduction goal” for Arkansas and a “comprehensive strategic plan for implementation of the global warming pollution reduction goal.” The Act sets several study and evaluation requirements and requires a final report be provided to the Governor by November 1, 2008.
 

The developments in Arkansas represent yet another in a series of legal, legislative and political attacks on new coal fired power plants.  The attacks have been successful, between 2007 and 2008 plans for at least 69 coal plants have been canceled.

In the article a utility representative comments that the decision would force continued use of older less efficient coal fired power plants.  His argument that the decision will be bad overall for the environment. 

While I sympathize with the argument we should not be adding to the problem, what alternatives are being suggested to replace old plants or meet ever increasing demands for electricity?  While renewables are a great solution, there is no denying they do not provide the baseload generation of either a coal or nuclear plant. 

 

CAIR: EPA's Petition for Rehearing Concedes "Major Flaws"

On September 24, 2008 U.S EPA filed its petition to the D.C. Circuit Court of Appeals for rehearing En Banc on the vacatur of the Clean Air Interstate Rule (CAIR).  While focus may be on EPA's request for rehearing, a significant concession was made in EPA's brief that has major implications regardless of whether rehearing is granted. 

EPA Concedes CAIR Phase Two Reductions Are Not Aggressive Enough

EPA elected to not seek review of the Court's holding that the 2015 deadline for Phase II reductions is unlawful because it is inconsistent with the shorter compliance deadlines for ozone and p.m. 2.5 contained in the Clean Air Act.  The Court held EPA must require reductions as "expeditiously as practical" but no later than the deadlines established in the Clean Air Act (typically 2010).  In the Court's words:

EPA did not make any effort to harmonize CAIR's Phase Two deadline for upwind contributors to eliminate their significant contribution with the attainment deadlines for downwind areas North Carolina v. EPA slip op. at 25

EPA's concession on the Phase Two deadline runs counter to the Bush Administration's position that a legislative fix of CAIR must preserve the entire program.  To the extent EPA's concedes this point in its rehearing is somewhat puzzling as it was unnecessary at this stage of legal maneuvering.  Perhaps this concession paves the way for a Congressional compromise over a short term legislative fix that preserves Phase I of the program.   Certainly this concession means a rewrite of CAIR that includes more aggressive reductions seems inevitable.

EPA's Arguments in Support of Rehearing

EPA's brief appears to try and lay a guilt trip on the Court as its justification for a rehearing.  EPA rightfully points out the major benefits of CAIR that will be lost if at least Phase I of the program is not preserved:

Most significantly, vacatur will jeopardize massive emission reductions...and accompanying improvements in public health.  EPA estimated that CAIR would prevent 13,000 deaths annually by 2010 and 17,000 premature deaths annually by 2015.

Vacatur will also destroy or reduce the value of banked allowances that companies generated through early emission reductions...6.9 million tons of banked Title IV allowances have lost over three billion dollars in value [since the Court's decision]

There is no doubt the courts decision to throw out the CAIR program has resulted in chaos both in the trading markets and with State's struggling to reach attainment with federal air quality standards.  We will see if the Court agrees that these dire consequences satisfy the standard for review that the matter involve a question of "exceptional importance." 

As a second basis justifying review of the decision, EPA argues that the Court has been inconsistent in its review of the NOx SIP Call and CAIR.  The EPA argues the Court previously upheld the NOx SIP Call in Michigan v. EPA and CAIR uses the "same fundamental approach approved in Michigan."  Both air pollution control programs use economic factors to determine the amount of contribution to downwind state nonattainment upwind states must eliminate.  The economic factor being "highly cost effective controls."

This is the crux of the legal issue and has significant implications for the design of any cap and trade program to control air pollution.  Does the Clean Air Act call for elimination of contribution to downwind air quality issues based upon cost of controls or does it require reductions based upon a State's actual contribution to downwind nonattainment?  If it is ultimately decided that actual contribution must be eliminated, it may prove very difficult to craft a valid cap and trade program without new legislative authority.

EPA's strategy to argue inconsistency appears pretty risky given the fact the Court raises questions regarding legality of the NOx SIP Call.  Specifically, the Court states:  "In Michigan we never passed on the lawfulness of the NOx SIP Call's trading program."  The Court's decision appears to suggest it would have thrown out the NOx SIP Call as well if proper challenges had been made.  

The EPA appears to face a steep climb to ultimately win its appeal.   The Court was unanimous in its finding that basing required reductions on cost effective controls does not comply with the Clean Air Act.

What's Next For CAIR?

Through legal maneuvering, U.S. EPA can effectively delay the effectiveness of the Court's decision to vacate CAIR.  The rehearing petition will likely delay it for a couple months while the Court considers the petition including allowing comment by other parties.  Even if the rehearing is denied, which appears likely given the original decision was unanimous, U.S. EPA can file a motion to stay the effectiveness of the decision while it seeks appeal to the Supreme Court.  By Court rules a stay, if granted or not challenged by the other parties, is good for 90 days.

While EPA delays the effect of the Court's vacatur of the program, efforts will focus on a legislative fix that can preserve at least the immediate future of the program.  However, time is running out on this "quick fix" option as Congress adjourns for the election.

 

CAIR: A Game of Chicken Over a Quick Fix

As reported on CNN, the Senate is debating how or whether to legislatively restore the CAIR program that was struck down in Court.  EPA still has a week or so to decide whether to appeal, but all bets are that Congress needs to act in order to save the program.

The game of chicken centers around whether the entire program should be restored, meaning reductions in Phase I set to take effect in 2009/2010 and Phase II which is to take effect 2015.  The White House insists on both Phase I and Phase II.  (proposed CAIR legislation) Senate Democrats, who have long been unhappy with the strength of the CAIR program are talking like they are only willing to put in place Phase I and then work on long term legislation for a stronger program.

President George W. Bush is "pushing for a full codification of CAIR," Carper told reporters. "That just ain't gonna happen. I think they may not be able to get what they want, but they can get what we all need."

But the White House has allies in the U.S. Senate. In a sign of the ongoing standoff, Sen. George Voinovich, R-Ohio, and Sen. James Inhofe, R-Okla., introduced a bill Thursday that would restore the full program instead of just the first phase.

"Options to quickly reinstate Phase I CAIR followed by tighter legislation do not save as many lives as the full CAIR fix until eight to 20 years from now; that means 6,500 to 41,000 more lives will be lost mostly in the next three to six years," according to a statement released by the lawmakers.

With only a few week before Congress is set to adjourn, there does not appear to be much time to resolve the drama.  With so much at stake and the chaos that will ensue if no type of fix is adopted, its hard to believe no action will be taken.  But as long as the White House insists on reinstatement of the whole program it appears likely there will be no resolution.  The Eastern State, Democrats, Environmental Groups and even some of the Utilities believe too strongly CAIR is a weak program.  If this was not the case, Congress would have passed Clear Skies-the legislative precursor to CAIR. 

U.S. EPA's Fine Particle Designations Impact County Economic Development Efforts

 Yesterday, U.S. EPA announced its proposed non-attainment designations for counties not meeting the new P.M. 2.5 (fine particle) pollution standardOhio was second only to California in total counties designated non-attainment with 28 total counties

A county's designation as non-attainment makes economic development efforts more difficult and increases competitive pressure on existing businesses.  The designations mean regulatory restrictions on economic growth and increased pollution control compliance costs for existing businesses. 

How is economic growth impacted?  Before a company can build a new factory or expand, if that factory will result in a moderate pollution increase of fine particles it must offset that emission increase.  An offset is achieved through pollution reductions from existing businesses already located in that county.  The offset requirement, as part of U.S. EPA's New Source Review Program, acts as a strong disincentive to locate in non-attainment counties.  The offset requirement only goes away if the county is redesignated attainment.

How does County get out of its non-attainment designation?  Through reductions in fine particle pollution to levels that comply with the federal standards. Reductions are achieved through a combination of federal and state pollution programs.  The State must develop a pollution control plan (SIP) that shows its strategy for achieving the federal air quality standard by the applicable deadline (2012).

What are the largest sources contributing to fine particle pollution?  Transportation, in particular diesel engines and coal-fired power plants.  While, fine particle pollution is more localized than ozone, it still has a regional component.  Therefore, counties must see state and regional reductions in order to achieve the standard. (Note: the recent letter from State EPA heads to U.S. EPA)

How can Ohio and other states effectively achieve reductions from these sources?  While U.S. EPA has adopted tougher standards for diesel engines, the reductions won't come until there is turnover in the fleet.  Therefore, the full benefits may not be seen for 25 years.  That is why programs like DERG that accelerate diesel reductions are so important. (see yesterday's post on Ohio's diesel grant program). 

Furthermore, Ohio and the other state's efforts to meet the fine particle standard are further complicated by the court decision throwing out U.S. EPA's CAIR program.  CAIR, as described by U.S. EPA, was the "linchpin" program designed to help states achieve attainment with ozone and fine particle standards. (see post "CAIR Decision Will Have Many Aftershocks")

Implementation of the new standard: Below is U.S. EPA's implementation schedule for both the old (65 ug/m3)  and new (35 ug/m3) 24-hour fine particle standards.  While Ohio submitted its SIP in July for the old standard it relied heavily upon CAIR.  So, even for the old program Ohio's SIP will need significant revisions.  It is yet to be seen how states can achieve either standard without regional reductions from coal-fired power plants.  Unfortunately, it doesn't appear Congress is going to act quickly to provide relief to the States.

Milestone

1997 PM2.5 Primary NAAQS

2006 PM2.5 Primary NAAQS

Promulgation of Standard

July 1997

Sep. 2006

Effective Date of Standard

Sep. 1997

Dec. 18, 2006

State Recommendations to EPA

Feb. 2004
(based on 2001-2003 monitoring data)

Dec. 18, 2007
(based on 2004-2006 monitoring data)

Final Designations Signature

Dec. 2004

No later than Dec. 18, 2008*

Effective Date of Designations

April 2005

Typically no later than 90 days after publication in the Federal Register

SIPs Due

April 2008

3 years after effective date of designations

Attainment Date

April 2010
(based on 2007-2009 monitoring data)

No later than 5 years after effective date of designations

Attainment Date with Extension

Up to April 2015

No later than 10 years from effective date of designations

 

 


 

CAIR: Summary of Senate Committee Hearing

The U.S. Senate Environment and Public Works Committee held a timely hearing on the effect of the Court of Appeals decision vacating CAIR.  There was testimony from US EPA, State, Utilities and one Environmental Group. 

The Senators and all who testified agreed on certain items:

  • Substantial health benefits will be lost without action to replace CAIR (17,000 fewer premature deaths avoided each year)
  • Tremendous uncertainty exists- the market for trading allowances collapsed following the decision (NOx trading stopped, SO2 allowance prices lost 70% of their value in a day)
  • States air quality compliance is in disarray- All who relied on CAIR must redo their clean air plans (SIPs) and will find it extremely difficult to make up the reductions attributable to CAIR
  • Utilities risk losing billions in investments in new pollution controls and purchases of allowances (one utility declared a $100 million dollar loss due to collapse of the allowance market)

With so much agreement, one would assume that quick legislative action is likely to address the problem.  Not so fast- Don't forget that the CAIR rule came into existence because Congress could not agree on Clear Skies (a cap and trade legislative proposal).  Those same rifts emerged during the Senate hearing.

  • How many P's? (which pollutants should a program cover- NOx, SO2, CO2 or Mercury)
  • How many States should be in? (28 versus a national program)
  • How steep and fast should reductions be? (there is disagreement even for the two pollutants everyone agrees should be covered- NOx and SO2)

This really is going to boil down to a game of chicken.  On the one side (Democrats, downwind-Eastern states and environmental groups) on the other (Republicans, upwind-Midwest states and the utilities). 

Do those advocating for an aggressive four pollutant bill really want to risk achieving no short term benefits in hopes of more aggressive legislation in the future?   Are they willing to withstand the mess that will ensue in their States without at least a stop gap measure?  Is this really the vehicle to adopt climate change legislation?

On the other side....do Utilities want to face this much uncertainty, especially heading into an election cycle?  Are the Midwest states comfortable that CAIR reductions will be sufficient to meet tougher federal air quality standards?  Are they willing to impose even more costly controls on businesses within their State if cap and trade is taken off the table?

It appears this may be the perfect storm that may actually result in something getting done.  Lets hope so.

CAIR III: Creating Key Legal Precedent on Cap and Trade

In my prior posts on CAIR, I analyzed the real world impacts of the Court's decision to vacate the program.  In my final post on CAIR, I highlight some of the legal implications from the Court's decision on business and policy makers.  This is not meant to be a legal brief for lawyers, but rather a quick summary of what matters most from the CAIR decision.

 

 

 

  • Deadlines and Dates-  I had the pleasure of testifying in the U.S. Senate on the issue of ozone/soot deadlines and implementation of federal control programs.  The Court made an astute conclusion in finding that U.S. EPA should have coordinated attainment deadlines for ozone and soot that are applicable to the States with the reductions required under the CAIR program.  The Court held "EPA ignored its statutory mandate to promulgate CAIR consistent with provisions in Title I (of the Clean Air Act) mandating compliance deadlines in downwind state's."  (page 25) 

 

  • Coordination with State Pollution Control Plans- It is illogical to create federal air pollution reduction programs for power plants and vehicles that take 10-25 years to fully implement while requiring States meet federal air quality standards in 3-5 years. Depending on the State, power plants and vehicles make up roughly 30-50% of the ozone problem.  You are handcuffing the State's by designing federal programs that won't assist their efforts to meet federal air quality standards until after applicable deadlines have past.  Especially when much of the ozone and soot problem is regional in nature, not local. (see CAIR II:  Short Term/Long Term Implications)

 

  • Cap and Trade "on the ropes"-  For pollutants with both regional and local consequences it may be enormously challenging to create a valid trading program using the current authority in the Clean Air Act. Both CAIR and CAMR have been vacated by the Courts.  Both represent the newest  cap and trade pollution trading programs developed by U.S. EPA.  Is this the end of cap and trade?    Examine the following quotes from the Court's decision attacking the very foundations of a regional cap and trade program:
    • "Theoretically, sources in Alabama could purchase enough NOx and SO2 allowances to cover all their current emissions, resulting in no change in Alabama's contribution to Davidson County, North Carolina's non-attainment." (page 16)
    • "In Michigan we never passed on the lawfulness of the NOx SIP Call's trading program."  (page 17)  Seems like a less then subtle suggestion the Court may have thrown out the NOx SIP Call if similar challenges were made.
    • "EPA's approach-regionwide caps with no state-specific quantitative contribution determinations or emissions requirements-is fundamentally flawed." (page 59)

 

  • Economics of Compliance, Costs Cannot be the Driver-The Courts have rebuked EPA efforts to increase the relevance of the economic cost of pollution controls.  The CAIR decision once again declares costs secondary to environmental consequence. 
    • "EPA can't just pick a cost for a Region, and deem significant any emissions that sources can eliminate more cheaply." (pg. 37)
    • "EPA's interpretation cannot extend so far as to make one State's significant contribution depend on another state's cost of eliminating emissions." (page 39)
    • The Court strongly criticized EPA's fuel adjustment method of granting more allowances to states with coal burning power plants versus gas or oil.  "The net result will be that states with mainly oil- and gas-fired EGUs (electric generating units) will subsidize reductions in states with mainly coal-fired EGUs...EPA's appraoch contravenes [the Clean Air Act]." (page 41)

 

CAIR Decision Will Have Many Aftershocks

The recent decision issued by the D.C. Circuit Court of Appeal vacating the CAIR rule  has far reaching implications.  It probably justifies at least one more post.  Understandably, reaction has been related to the fact that this major clean air initiative was dismantled with a stroke of a pen.  A fact highlighted by EPA's announcement in 2005 when the CAIR rule was implemented.

“CAIR will result in the largest pollution reductions and health benefits of any air rule in more than a decade. The action we are taking will require all 28 states to be good neighbors, helping states downwind by controlling airborne emissions at their source.”

--Steve Johnson, Acting EPA Adminstrator
3/10/2005

The Court included editorial comments trying to suggest the impact would be minimal.  For instance, the Court points to two power plant pollution control programs (the NOx SIP call and Acid Rain Program) that will still be effective in reducing emissions even after CAIR is gone. The Court also suggests that State's could simply sue one another if more reductions are needed (using its Clean Air Act Section 126 authority).  Litigation is hardly an effective pollution control strategy.

Bottom line, there is simply no way to minimize the impact of its decision or the ramifications for States and US EPA.

 

The map to the left is a good representation of the breadth of the CAIR program.  Each dot represents advanced pollution controls on a power plant. (Click on the map to enlarge the view)  This map shows US EPA's projections as to controls on power plants by 2010 after CAIR and CAMR (power plant mercury control program), both of which have been vacated by the Court.  While some of the dots may remain due to the NOx SIP Call and Acid Rain Program, many will disappear or be on hold. 

How many dots disappear?  US EPA projected that CAIR would result in 116 more units having advanced air pollution controls in 2010.  By 2020, the number was 287 more units. 

While the decision certainly impacts efforts at cleaner air, it also makes a mess of state air pollution control plans (called State Implementation Plans- SIPs) that have been submitted for approval by US EPA.  Most of the SIPs submitted rely on CAIR as a primary control method to achieve federal air quality standards for ozone and soot.  The ruling brings tremendous uncertainty as to how these state plans will be reviewed.

To support CAIR, US EPA provided modeling to show air quality improvement that would result from reductions brought about by the program.  State's relied upon this modeling as part of their air pollution control plans to achieve federal air quality standards.

 

What was the magnitude of air quality improvement that US EPA projected? The Agency showed that in 2005, 104 areas didn't meet ozone standards and 43 areas didn't meet pm 2.5 (soot) standards.  By 2010, EPA projected the number of areas not meeting ozone and soot standards would be reduced to 14 and 20 respectively due in part to CAIR.

 

Now that the State's cannot rely on CAIR as a cornerstone of their air pollution control strategies, those reduction must come from somewhere.  Without these massive reductions State's face missing deadlines to meet federal air quality standards.  Missing the federal deadline can bring sanctions and more rigorous air pollution control requirements on businesses within the state. 

 US EPA has even adopted a tougher ozone standard which is currently being implemented.  The State's face enormous challenges in meeting this new standard if there is no federal air pollution control program applicable to power plants.  From reading the decision, it may be very difficult to craft a legal program using administrative authority.  Congress may have to amend the Clean Air Act to give US EPA the authority, but since 1990 Congress has shown its reluctance to re-open the Clean Air Act.