DRAFT CAIR Replacement Rule Discussions between NGOs and EPA

March 3 1, 2009

I. Introduction On Tuesday , March 31, 2009, EPA held a meeting with nongovernmental organizations (NGOs) concerned with environmental and health issues to discuss the CAIR re placement rule. NGOs at the meeting included the Clean Air Task Force (CATF), Natural Resources Defense Council (NRDC), Sierra Club, National Parks Conservation Association (NPCA), and the American Lung Association. The summary

that follows covers the ke y issues discussed during the call. More detailed notes, including a list of call participants, are being prepared.
II. EPA Opening Comments Sam Napolitano, CAMD, began with a short introduction, explaining that EPA was beginning the process of creating a replacement rule for CAIR

. The Agency is reviewing all options, setting up anal ys e s, and preparing technical models

. The goal is to finalize a replacement rule within two y ears
. The primary

objectives are to help states compl y with the NAAQ S and to reduce interstate transport

. Therefore, EPA has decided that it would be best to start working with states and other stakeholders immediately

. EPA would like to hear from the stakeholders about what ty pe of replacement rule would most help states m eet air qualit y requirements

. Sam stressed that this is the beginning of a dialogue process, and that EPA intends to continue these t ypes of discussions throughout the rule development process

. This is a chance for the NGOs to talk to the key EPA staf f that will actually

develop and write the rules, as well as the OGC attorney s assigned to the rule development

. Sam stressed that EPA is interested in hearing the participants' thoughts and concerns

. Every thing is on the table as EPA puts together ideas for the new Assistant Administrator for Air and Radiation, who should arrive within the next couple of weeks

.

II I. NGO Opening Comments Conrad Schneider, CATF, thanked EPA for the opportunity to share suggestions on how to move forward with a CAIR replacement program. The CATF and other participants look forward to working closely with EPA throughout the rule development process. Conrad began b y suggesting that EPA take a step back from CAIR and rather look at the entire power sector in a hol istic manner given the my riad regulatory

requirements applicable to the sector that are long overdue. The control programs that affect the sector include, but are not limited to: the CAIR replacement rule, the EGU HAP MACT rule, RACT, 110, 126, SO 2 NAAQS, PM NAAQS, CO 2 NSPS, CO 2 NSR, etc. , and several upcoming legal settlements willPage 2

have effects on emissions as well. It is important to approach further EGU control in a coordinated and comprehensive manner. The NGO groups stressed that , in particular , bec ause it is national in scope and likely will require unit

- by

- unit installation of flue gas desulfurization technology , EPA should closely coordinate the formulation of the CAIR replacement rule with the EGU HAP MACT rule development process. EPA should loo k at each requirement in the Clean Air Act individually and make a determination as to what program would satisfy each requirement, rather than trying to see how many requirements one program can satisfy

. Claiming that one program satisfies multiple requi rements has been a legal weakness in the past. The main point that all the NGO participants stressed was coordination. Bey ond simpl y coordinating the program with other EPA programs, the Agency needs to coordinate emission control efforts with other l arger administration efforts to reshape the power industry . Laying out a regulatory

road map early

in the process will allow companies to make comprehensive long term plans.
IV . General Discussion Conrad then invited other NGO participants to share th oughts and concerns. For the most part the discussion focused on macro level ideas and did not delve too deeply into the specific issues related to CAIR that EPA set out in the agenda.
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. Trading The D.C. Circuit Court's decision created a number of problems for the current approach. Thus, a new approach may be required to construct a rule that will stand up to the inevitable legal challenges. Specifically , in reading the court decision, it does not appear that trading is a viable option.
Bruce Nilles, Sierra Club, and Janice Nol e n , American Lung Association noted the negative effect that trading has on residential neighborhoods. Small EGUs, usually located in those neighborhoods, often find it prohibitively expensive to put on controls. Theref ore, those units, which are frequently located in minority

or low

- income neighborhoods, continue polluting and harming public health. Trading exacerbates this situation. There was general agreement in the expression of opposition to trading and that un controlled coal

- fired power plants should no longer be allowed. Plants should be required to put on controls, retire, or re

- power. The public health cost is too high to justify continued uncontrolled operation, and trading makes it possible for many of those plants to continue without controls.
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. Scope The NGO participants all suggested that EPA should widen the scope in an effort to get smaller power plants, which have historicall y avoided putting on controls due to cost, to either shut down or re

- power. The participants felt that EPA has a rare chance to significantl y change the structure of the power generating sector. They also suggested that closing down smaller,Page 3

very dirt y plants and shifting generation to renewable and green sources would c learl y be in

- line with the Obama Administration's priorities. The investment required for these small plants to put on controls is so high that , were the plants required to participate in a control program, most would shut down or re

- power. This would have a large effect on public health because, as noted earlier, many of the smaller plants are located in residential neighborhoods. The NGOs said that an y CAIR replacement program should be national in scope and again emphasized the importance of coo rdination. When expanding the scope of the programs, it is important to create a roadmap of what EPA and the Administration imagine the power sector will look like in the future. It is important to at least consider coordination and the impact of any NO x or SO 2 program on CO 2 emissions. Finally , every one agreed that it was important to consider I CIboilers. Cement kilns were also mentioned as a possible source category . EPA noted that the states had been encouraging EPA to look at a broad set of sourc e categories, which could include area sources, mobile sources, and possibl y consumer products. The NGOs were supportive of considering the wider range of source categories but urged EPA not to get bogged down in considering those sources. The NGOs indic ated that industrial boilers should not be included in a program through a trading mechanism , however. Separate rules may be needed to address other sources. EPA indicated that the states had also emphasized quick, immediate emission s reductions followed by other programs that might look at the wider range of sources. In considering other sectors to control Sam Napolitano shared with the group a set of graphs and data showing that eastern power plants have a fair amount of control especiall y parts of the Midwest. Although there are still some reductions to be gained b y further controlling the power sector, EPA presented the argument that achieving the tighter standards will most likely require controls in other sectors. The NGOs agreed that controllin g other sectors would be an important part of meeting increasingl y strict standards. However, there was also some concern that responsibilities not get shifted because there are clearl y important reductions remaining from the EGU sector t o be achieved fro m, for example, smaller plants near residential areas.
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. Timing With regard to timing, NGOs said that it is understandable that a CAIR replacement rule might take at least two years to develop, and that it is good that EPA understands the urgency and is on an accelerated timetable. However, there is no reason to wait to enforce SIP requirements for haze and BART. Past delay s in rulemaking and enforcement are having a serious public health effect now. Therefore it is critical EPA take any immediat e actions available to reduce emissions, while simultaneously constructing future programs to meet the air quality standards. NGOs stressed the importance of coordinated timing, which would encourage sources to make smart comprehensive investments rath er than the ty pe of serial investments that have been made in response to an ever

- changing regulatory landscape. Man y small units have avoided shutting down or re

- powering and continue to operate because the owners have no clear idea ofPage 4

future operational costs. A comprehensive timeline of regulations and programs that EPA foresees promulgating would drive generation companies to implement comprehensive emission reduction plans. Furthermore, b y outlining upfront the projected compliance costs, EPA could encourage generation companies to make the large investment required for newer, more efficient power plants. Knowing the high cost of compliance might also drive many companies to consider more seriously alternative energy

sources. All of this would be in line with the Obama Administration's publicly stated goals for the next four years. 4
. Standards Janice Nolen noted that the court had sent the 2006 PM standard back to EPA for reconsideration because it had determined that the Agency had not cons idered all the relevant science when making the initial determination. Most observers expect the standards will be tightened; thus, it is important that EPA develop a program that helps states meet tighter standards. Sam Napolitano asked whether the N GOs would rather see EPA develop a rule based on the 1997 standards or the 2006 PM (and possibly even 2008 ozone) standards with the understanding that developing a rule based on the later standards would probably take longer. The NGOs said they

did no t agree that such a trade off was required and suggested that EPA could proceed using, for example, the MACT authority to develop a program. The specifics could be adjusted later to meet the updated ambient standards. Janice pointed out that using the stricter standards would also bring in more units and possibly help expand the scope to include the smaller units that can impact residential areas, as discussed earlier.
5 . Authority and Significant Contribution In response to questions from EPA about authority, the NGOs suggested the Agency move away

from only

considering section 110(a)(2)(D). The NGOs suggested EPA consider section 111 or 112 authority (NSPS and MACT). They suggested that EPA step back from the section 110(a)(2)(D) consideration, which is based on a finding of failure on the states' part to submit implementation plans that demonstrate how each state will address significant contribution. Moving away from the significant contribution requirements will help EPA avoid some of the pitf

alls noted in the court's decision. EPA should look at the Clean Air Act and define the full range of tools available under the Act. Then the Agency should choose which tools best solve each problem. There are often multiple avenues available for deal ing with one issue, for example transport. Whenever possible, EPA should construct a rule that rests on as man y statutory bases as possible. This will also help the rule stand up to legal challenges and ensure that EPA is taking full advantage of the leg al authority granted in the Clean Air Act.Page 5

6 . NGO Final Points The NGOs concluded b y re - emphasizing the importance of a comprehensive approach that takes into consideration the full range of statutory possibilities, along with a broad view of how th e power generation sector should look in the future. A clean environment is interrelated with other Administration priorities, such as clean energy and a green economy . It is important that EPA set out a regulatory roadmap showing how regulations will cl ean up the environment and also help drive the movement towards cleaner energy

. Generation companies must be able to make comprehensive investment and control decisions with a clear understanding of how emission s control regulations fit into a broader vi ew of the future of power generation in America.
V. EPA Response and Conclusion Sam Napolitano indicated that EPA heard the NGOs' concerns, specifically about coordination and taking a broader view. EPA appreciates the NGOs ' willingness to think alo ud and understands that positions and ideas outlined in this discussion may not be each NGO's official position. The states have also been willing to think aloud and outline concerns and suggestions. The process of gathering ideas and hearing concerns is very helpful for the Agency , and it looks forward to working with all stakeholders in the future.Page 6



### APPENDIX: PROGRESS OF ARP, NBP, CAIR through 2008Page 7