RS20553 -- Air Quality and Electricity: Initiatives to Increase Pollution Controls
Updated October 25, 2002

	Background

Since the mid-1990s, the U.S. Environmental Protection Agency (EPA) has initiated actions that have resulted in regulatorymandates and enforcement actions that would, if implemented, substantially reduce air pollutants (particularlynitrogenoxides - NOx) emitted by some electric generating facilities. An Ozone Transport Assessment Group (OTAG),formed byEPA in May 1995, laid the groundwork for the regulatory initiatives; it directly led to the Ozone Transport Rule(also calledthe NOx SIP Call). In a supplementary action, 12 states petitioned EPA under Section 126 of the CAA, concerninginterstate pollution, alleging that NOx originating in upwind states prevented their attainment of ozone standards. An EPAOffice of Enforcement & Compliance Assurance audit of New Source Review (NSR) applications requiredunderprovisions of the Clean Air Act (CAA) that began in late 1996 was the precursor to the enforcement initiative; itled inNovember 1999 to lawsuits against seven utilities in the Midwest and South and an administrative order against theTennessee Valley Authority alleging violations of NSR requirements of the CAA. (1)
The first two initiatives, the Ozone Transport Rule and the Section 126 petitions, are related to each other substantively. (2) These initiatives would further control NOx to assist states in the Northeast in meeting the existing, statutory 1-hourozoneNational Ambient Air Quality Standard (NAAQS). The Ozone Transport Rule includes all or part of 19 easternstates andthe District of Columbia. Based on the eight petitions EPA has ruled on, EPA's Section 126 determinations wouldinvolvea subset of the NOx SIP Call's 19 states - 12 states and the District of Columbia.
The enforcement initiative is not legally or procedurally related to the above initiatives; however, the NSR enforcementaction by EPA has substantive associations with them in that NOx is a primary (but not sole) focus, and many oftheutilities named as defendants in these cases would also have to reduce emissions under the NOx SIP Call andSection 126determinations. Unlike the other actions, the NSR action does not involve new regulatory action, but enforcementofexisting law and regulations. As such, it is handled by the EPA's Office of Enforcement & ComplianceAssurance, not aregulatory office, and involves other pollutants electric generators emit besides NOx (specifically sulfur dioxide(SO 2 ) andparticulates).

	What is the Focus?

The primary focus of the regulatory initiatives and a primary effect of EPA's enforcement action is to reduce NOxemissions in the eastern part of the United States. The environmental purpose for doing so is to reduce the interstatetransportation of this ozone precursor, thus assisting localities along the eastern seaboard in attaining the ozoneNAAQS. The actions would also mitigate acid rain. The initiatives and enforcement action by EPA focus on coal-firedelectricgenerating facilities both because they are major sources of emissions - in 1997 they emitted 24% of the country'sNOx(and also 62% of its SO 2 , 31% of its carbon dioxide (CO 2 ), and approximately one-thirdof the country's mercury (Hg)) -and because they represent the most cost-effective sources of large emission reductions for NOx andSO 2 .
In the case of the Section 126 determinations and the NSR enforcement action, coal-fired powerplants are explicitlytargeted for emissions reductions. In the case of the NOx SIP Call, EPA cannot explicitly target sources (that is theresponsibility of each affected state), but the allocation scheme used by EPA to determine the allowable emissionsbudgetfor individual states is based primarily on substantial reductions from coal-fired powerplants. In general, theinitiativesidentified here would require affected powerplants to reduce their NOx emissions by about 75%-85%. AlthoughtheSection 126 determinations and the NSR enforcement action target individual sources, EPA provides flexibility forutilitiesto achieve the mandated reduction by means other than simply installing NOx control equipment on affected units. Asindicated by EPA's NSR settlement with Tampa Electric discussed later, the consent decree involves severaldifferent NOxcontrol strategies to reduce NOx emissions by over 85%, as well as controls to reduce SO 2 emissionsby almost 80%, by theyear 2010.
Figure 1 indicates the states affected by the initiatives identified here. In line with the initiatives' focus on coal-firedelectric generating facilities, the Midwest is the primary location of affected powerplants. Five states - Indiana,Kentucky,North Carolina, Ohio, and West Virginia - would be affected by all three initiatives. In contrast, Mississippi andFloridahave utilities targeted only under the NSR enforcement initiatives; Missouri, Connecticut, Rhode Island, andMassachusettsare targeted only under the Ozone Transport Rule. The other states have utilities targeted under the Ozone TransportRuleand either a Section 126 determination or NSR enforcement.
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The costs and benefits of these initiatives could be substantial, as indicated by Table 1. The NOx SIP Call is the most wideranging of the initiatives, with estimated costs of $1.7 billion annually and estimated quantifiable benefits of$1.1-$4.2billion annually. Because EPA's methodology uses cost-effectiveness for determining emission budgets, the lion'sshare ofthe costs would be borne by the utility industry. The smaller scope of the Section 126 determinations reducesemissionsabatement and benefits, but also costs. Of course, this scope could increase if additional petitions submitted to EPAresultin more states being implicated as sources of transported ozone. Finally, the evolving scope of EPA's NSR actionmakesestimates of its costs and benefits difficult, if not impossible, at this time.
Table 1. Estimated Costs and Benefits of Initiatives 
n/a = not available
Source: CRS Report 98-236.

	Recent Actions

Since January 2000 significant actions have occurred with all three of the initiatives. The status of these initiatives as ofJanuary 22, 2002, is summarized in Table 2. Perhaps the most significant action has been the decision of a 3-judgepanel ofthe D.C. Circuit Court of Appeals to uphold EPA's Ozone Transport Rule with respect to the 1-hour ozone NAAQS( Michigan v. EPA , No. 98-1497 (D.C. Cir. March 3, 2000)), and to lift the stay on implementation. In upholding EPA'sauthority and methodology in developing the NOx SIP Call, the court did make some modifications; in particular,thatEPA's methodology did not support the inclusion of Wisconsin or all of Missouri and Georgia in the Rule (adecisionreflected in Figure 1). In lifting the stay, the court ordered affected states to submit revised State ImplementationPlans(SIPs) within 4 months of its June 22, 2000, order. In a subsequent ruling issued August 30, 2000, the court orderedEPAto move its original May 2003, compliance deadline to May 31, 2004. In March 2001, the Supreme Court denieda hearingto opponents of the SIP Call, effectively affirming the appeals court decision. In December 2000, EPA declaredthat 11states and the District of Columbia failed to submit revised SIPs by the extended October 30, 2000 deadline. ByNovember2002, all the affected states had submitted revised SIPs except Michigan, which has submitted a draft SIP revision.
None of these proceedings, however, affect the indefinite stay of EPA findings with respect to the 8-hour ozone standard. In February 2001, the Supreme Court ruled that although EPA has the authority to set a new 8-hour ozone standard,itsinterpretation of the relationship between the 1-hour standard's statutory implementation strategy and its new 8-hourstandard implementation strategy was unreasonable and unlawful. The Court left it to EPA to "develop a reasonableinterpretation" of the statutory provisions as they relate to the implementing the new 8-hour standard( Whitman v. AmericanTrucking Associations , 531 U.S. 457 (2001) decided February 27, 2001).
Table 2. Status of Initiatives 
With respect to the Section 126 petitions, EPA announced its 1-hour ozone findings on the 8 original petitions on January18, 2000. (3) EPA granted four of the eight petitionsfor the 1-hour ozone standard: Connecticut, Massachusetts, New York,and Pennsylvania. Petitions from four other states were denied as these states no longer had areas that were not inattainment with the 1-hour standard. The rule specifies NOx allocations for 392 facilities in 12 states and theDistrict ofColumbia, and implemented through a cap-and-trade program. The D.C. Circuit Court of Appeals upheld EPA'sauthorityto issue the rule on May 15, 2001, but ordered EPA to reconsider factors used in setting emission limits( AppalachianPower Co. v. EPA ). EPA responded to the court's order on August 3, 2001. On January 15, 2002, the EPAannounced itwould delay the compliance deadline for the Section 126 rule from May 1, 2003, to May 31, 2004, in line with thedeadlinefor the NOx SIP Call. EPA argues that a court order issued August 24, 2001, had already suspended the compliancedeadline for powerplants, and it would be unfair to make other emission sources meet an earlier deadline. 
In January 2000, EPA decided to indefinitely stay its original final determinations with respect to the 8-hour standard, givenlitigation regarding that standard. It also announced that findings with respect to petitions by the District ofColumbia,Delaware, Maryland, and New Jersey would be determined in the future. 
Since the filing of the NSR lawsuits in November 1999 (and subsequent lawsuits filed in 2000), several significant actionshave occurred. First, in February 2000, EPA announced that it had come to an agreement with Tampa ElectricCompany ona consent decree that will settle the NSR lawsuit against that utility. The agreement will reduce NOx emissions byover85% (and SO 2 emissions by almost 80%) through a combination of fuel switching to natural gas,pollution controlequipment optimization, and other techniques. The estimated $1 billion program is expected by Tampa Electric tohave a"small" impact on its customers' bills. (4)
Second, on November 16, 2000, EPA and Virginia Power announced that an "agreement in principle" had been reach tosettle EPA's NSR suit against Virginia Power. Over 12 years, Virginia will spend $1.2 billion to reduce NOx andSO2emissions by about 70% through a combination of pollution control equipment and fuel switching. Thisannouncement wasfollowed on December 21, 2000 by a similar agreement in principle between EPA and Cinergy involving a $1.4billioninvestment in control technology. 
Third, on January 24, 2002, EPA and the State of New Jersey announced the filing and settlement of an NSR suit againstPSEG Fossil LLC. PSEG agreed to reduce its SO2 emissions by 90% and its NOx emissions by 83% from 2000levels by2012 at an estimated cost of $337 million. In addition, PSEG agreed to reduce CO2 emissions by 15% from 1990levels.
Litigation on these cases has slowed as participants assess the impact of the Bush Administration's June 2002 recommendations to revise the New Source Review process. Of particular interest is an EPA recommendation thata newrulemaking be commenced on the definition of "routine maintenance," a key point of contention in the abovelawsuits. Asof October 2002, no formal rulemaking has been proposed by EPA as the drafting process has not beencompleted. (5)

	Congressional Actions

The continuing difficulties in the Northeast both in meeting the ozone NAAQS and in reducing acid precipitation havefocused attention on emissions from fossil fuel-fired utilities, particularly of NOx - and on the potential costs ofreducingthose emissions. Concerned about the piecemeal nature of these initiatives, some in Congress have been workingoncomprehensive, multi-pollutant alternative strategies to reduce emissions. In June 2002, the Senate EnvironmentandPublic Works Committee reported out S. 556 - a comprehensive, multi-pollutant bill that would incorporatemarket-oriented mechanisms to control NOx, SO2, and CO2, and tonnage limitations on Hg. (6) No floor action has beenscheduled.

Summary:
Since the mid-1990s, EPA has initiated actions resulting in regulatory mandatesand enforcement actions directed primarily at coal-fired electric generating utilities. These actions would, ifimplemented,substantially reduce air pollutants, particularly nitrogen oxides (NOx). These initiatives include the OzoneTransport Rule(also called the NOx SIP Call); a set of "Section 126 petitions" in which 12 states allege under Section 126 of theClean AirAct (CAA) that pollutants originating in upwind states prevent their attainment of clean air standards; and a set ofenforcement actions based on New Source Review (NSR) requirements of the CAA that have resulted in lawsuitsagainstseveral utilities and an administrative order against the Tennessee Valley Authority. Although these are separateinitiatives,they are related in that each ultimately focuses on emissions from utilities in the Midwest and South. As of January22,2001, the EPA has declared 11 states and the District of Columbia as failing to submit revised SIPs required undertheOzone Transport Rule; the EPA has approved four section 126 petitions; and two of the NSR lawsuits have resultedinconsent decrees (Tampa Electric Co. and PSEG), and two others have been settled in principle (Virginia Power andCinergy). In June 2002, the Bush Administration recommended new rulemaking be commenced on the definitionof"routine maintenance": a key point of contention in the lawsuits. Legislative activity focuses on multi-pollutantstrategiesas an alternative to these piecemeal initiatives. In June 2002, the Senate Environment and Public Works Committeereported out S. 556 - a comprehensive, multi-pollutant reduction bill. This report will be updated as eventswarrant.