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?