ATTACHMENT 1 TO DECLARATION OF SAM NAPOLITANO

Ohio Valley Electric Corporation Kyger Creek Station 

Amended New Stack and FGD System Notification


ATTACHMENT 2 TO DECLARATION OF SAM NAPOLITANO

Clean Air Interstate Rule, Acid Rain Program, and Former 

NOx Budget Trading Program 2010 Progress Report
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Clean Air Interstate Rule, Acid Rain Program, and Former NOx

Budget Trading Program 2010 Progress Report

SO2 and NOx Emissions, Compliance, and Market Analyses

Report

CAIR Litigation and the Cross-State Air Pollution Rule | CAIR, ARP, and NBP Affected States and Units |

Emission Reductions | CAIR and ARP Program Compliance | Controls and Monitoring | Market Activity

The Clean Air Interstate Rule (CAIR) and the Acid Rain Program (ARP) are both cap and trade programs

designed to reduce emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from power plants. On July

6, 2011, EPA finalized the Cross-State Air Pollution Rule (CSAPR), which will replace CAIR starting in 2012.

The CSAPR will require 27 states in the eastern half of the U.S. to improve significantly air quality by

reducing power plant emissions of SO2 and NOx that cross state lines and contribute to smog (ground-level

ozone) and soot (fine particle pollution) in other states. The first phase of compliance begins January 1,

2012 for SO2 and annual NOx reductions and May 1, 2012 for ozone season NOx reductions. Additional SO2

reductions are required by sixteen Group 1 states in 2014 to eliminate their contribution to downwind air

quality problems.

CAIR, which will be implemented through 2011, also addresses regional interstate transport of ozone and

fine particle (PM2.5) pollution. CAIR requires certain eastern states to limit annual emissions of NOx and SO2, which contribute to the

formation of ozone and PM2.5. It also requires certain states to limit ozone season NOx emissions, which contribute to the formation of

smog during the summer ozone season (May to September). CAIR includes three separate cap and trade programs to achieve the required

reductions: the CAIR NOx ozone season trading program, the CAIR NOx annual trading program, and the CAIR SO2 annual trading

program. The CAIR NOx ozone season and annual programs began in 2009, while the CAIR SO2 annual program began in 2010. All three

programs will be implemented through the 2011 compliance periods. The CSAPR will replace CAIR starting in 2012. The reduction in ozone

and PM2.5 formation resulting from implementation of CAIR provides health benefits as well as improved visibility in national parks and

improvements in freshwater aquatic ecosystems in the eastern U.S.

The ARP, established under Title IV of the 1990 Clean Air Act (CAA) Amendments, requires major emission reductions of SO2 and NOx, the

primary precursors of acid rain, from the power sector. The SO2 program sets a permanent cap on the total amount of SO2 that may be

emitted by electric generating units (EGUs) in the contiguous United States. The program is phased in, with the final 2010 SO2 cap set at

8.95 million tons, a level of about one-half of the emissions from the power sector in 1980. NOx reductions under the ARP are achieved

through a program that applies to a subset of coal-fired EGUs and is closer to a traditional, rate-based regulatory system. Since the

program began in 1995, the ARP has achieved significant emission reductions.

The NOx Budget Trading Program (NBP) operated from 2003 to 2008. The NBP was a cap and trade

program that required NOx emission reductions from power plants and industrial units in the eastern U.S.

during the summer months.

Figure 1 contains important milestones for CAIR, ARP, CSAPR, and the former NBP.

Figure 1: History of CAIR, ARP, CSAPR, and Former NBP

Source: EPA, 2011

For the first time, EPA is combining emissions and compliance data for both CAIR and the ARP into one report to more holistically show

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reductions in power sector emissions of SO2 and NOx and the collective effect of these regional programs on human health and the

environment. Over the next several months, EPA will release a series of reports summarizing progress in 2010 under both CAIR and the

ARP. This first report presents 2010 data on combined emission reductions and compliance results for CAIR and the ARP. This report also

presents some historic NBP emissions data and evaluates shared progress under these programs in 2010 by analyzing emission reductions

and market activity. A forthcoming report will compare changes in emissions to changes in a variety of human health and environmental

indicators. For more information on the CSAPR, please visit the CSAPR website. For more information on CAIR, please visit the CAIR

website. For more information on the ARP, please visit the ARP website. For more information on the NBP, please visit the NOx Budget

Trading Program/NOx SIP Call website.

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CAIR Litigation and the Cross-State Air Pollution Rule

CAIR was finalized in 2005. However, in July 2008, the U.S. Court of Appeals for the D.C. Circuit granted several petitions for review of

CAIR, finding significant flaws in the rule. Subsequently, in December 2008, the court issued a ruling to keep CAIR and the CAIR Federal

Implementation Plans (FIPs) — including the CAIR trading programs — in place temporarily until EPA issues new rules to replace the CAIR

and the CAIR FIPs.

On July 6, 2011, EPA finalized the Cross-State Air Pollution Rule (CSAPR) to replace CAIR. This rule responds to the court’s concerns and

fulfills the “good neighbor” provision of the Clean Air Act by addressing the problem of air pollution that is transported across state

boundaries.

In a separate but related regulatory action, EPA also issued a supplemental notice of proposed rulemaking (SNPR) to require six states —

Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin — to make summertime NOx reductions under the CSAPR ozone-season

control program. Finalizing this supplemental proposal would bring the total number of covered states under the CSAPR to 28.

Visit the CSAPR website for more information.

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CAIR, ARP, and NBP Affected States and Units

Affected States

The ARP is a nationwide program affecting large fossil fuel-fired power plants across the country. CAIR covers 27 eastern states and the

District of Columbia (D.C.) and requires reductions in annual emissions of SO2 and NOx from 24 states and D.C. (to achieve improvements

in fine particle pollution in downwind areas) and emission reductions of NOx during the ozone season from 25 states and D.C. (to achieve

improvements in ozone pollution in downwind areas). The former NBP affected 20 eastern states and D.C. State coverage for CAIR, ARP,

and NBP is shown in Figure 2.

Figure 2: CAIR, ARP, and NBP States

Note: In November 2009, EPA finalized a rule staying the requirements of CAIR for Minnesota. Minnesota is therefore not currently included in the CAIR annual

SO2 and NOx programs.

Source: EPA, 2011

Affected Units

The CAIR SO2 and NOx annual programs generally apply to large EGUs — boilers, turbines, and combined cycle units that primarily burn
Clean Air Interstate Rule, Acid Rain Program, and Former NOx Budget Trading Program 2010 Progress Report | Progress Reports | Clean Air Markets | Air & Radiation | US EPA

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fossil fuels to generate electricity for sale. The CAIR NOx ozone season program includes EGUs as well as, in some states, large industrial

units that produce electricity or steam primarily for internal use and that have been carried over from the NBP. Examples of these units are

boilers and turbines at heavy manufacturing facilities, such as paper mills, petroleum refineries, and iron and steel production facilities.

These units also include steam plants at institutional settings, such as large universities or hospitals.

In 2010, there were 3,349 affected EGUs at 955 facilities in the CAIR SO2 and NOx annual programs and 3,309 EGUs and industrial facility

units at 953 facilities in the CAIR NOx ozone season program (see Table 1, below). The variation in the number of units covered under the

programs is due to the difference in states that are included in each program (see Figure 2, above). The CAIR programs cover a range of

unit types, including units that operate year round to provide baseload power to the electric grid as well as units that provide power on

peak demand days only and may not operate at all during some years.

The SO2 requirements under the ARP apply to the 3,613 large (greater than 25 megawatts) fossil fuel-fired combustion units that serve a

generator that provides electricity for sale at 1,241 facilities across the country. The vast majority of ARP SO2 emissions result from coalfired EGUs, although the program also applies to oil and gas units. Of the 3,349 units in the CAIR SO2 program, 2,626 (78 percent) were

also covered by the ARP in 2010. The other units are largely fossil fuel generation units that entered SO2 control under the broader

applicability requirements of CAIR.

The ARP also requires NOx emission reductions for older, large coal-fired EGUs by limiting their NOx emission rate (expressed in

lb/mmBtu). The goal of the NOx program is to limit NOx emission levels from the affected coal-fired boilers so that their emissions are at

least two million tons less than the projected level for the year 2000 without implementation of Title IV. In 2010, 956 units at 379 facilities

were subject to the ARP NOx program.

Table 1: Affected Units in CAIR and ARP, 2010

Fuel ARP SO2 Program ARP NOx Program CAIR NOx Ozone 

Season Program

CAIR NOx and SO2

Annual Programs

Coal EGUs 1,055 944 875 922

Gas EGUs 2,333 10 1,657 1,945

Oil EGUs 200 0 555 463

Industrial Units 0 0 203 0

Unclassified EGUs 9 0 1 4

Other Fuel EGUs 16 2 18 15

Total Units 3,613 956 3,309 3,349

Notes:

“Unclassified” units have not submitted a fuel type in their monitoring plan and did not report emissions.

“Other” fuel refers to units that burn waste, wood, petroleum coke, tire-derived fuel, etc.

Source: EPA, 2011

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Emission Reductions

Milestone Years for Measuring Progress under CAIR and ARP

1980: The Clean Air Act specified that annual SO2 emissions be cut to 10 million tons below the

1980 level

1990: Baseline emission levels for the ARP

1995: First year of the ARP (Phase 1)

2000: Phase 2 of the ARP

2005: Baseline emission levels for CAIR

2008: “Training year” for CAIR NOx monitoring. Units participating in the two CAIR NOx trading

programs were required to monitor and report their emissions, but were not required to hold

allowances for compliance

2009: First year of CAIR NOx annual and CAIR NOx ozone season programs (Phase 1). “Training

year” for CAIR SO2 monitoring

2010: First year of CAIR SO2 annual program (Phase 1)

Overall Trends

Table 2, below, shows a large reduction in annual SO2 and NOx emissions from CAIR and ARP sources between 2005 and 2010. Tons of

SO2 emitted fell 49 percent from the 2005 level, and annual NOx emissions dropped 42 percent. During this same period, ozone season

NOx emissions from CAIR sources alone decreased by approximately 27 percent. These reductions occurred while electricity demand

(measured as heat input) remained relatively stable, indicating that the reduction in emissions was not driven by decreased electric

generation. Instead, there was a significant drop in emission rate for sources in all three programs: 49 percent for SO2 sources, 42 percent

for annual NOx sources, and 25 percent for ozone season NOx sources. A drop in emission rate represents an overall increase in the

environmental efficiency of these sources as power generators installed controls, ran their NOx controls year round, switched to different

fuels, or otherwise cut their SO2 and NOx emissions while meeting relatively steady demand for power. Most of the reductions since 2005

are from early reduction incentives and stricter emission limits under CAIR.

Between 2009 and 2010, CAIR and ARP sources continued to reduce their SO2 emissions and emission rate. These reductions occurred

despite an 8 percent increase in demand for electricity. Annual NOx emissions from CAIR and ARP sources, however, rose slightly (4

percent) and in line with a similar increase in heat input (6 percent) during this time. Finally, CAIR sources’ ozone season NO emissions
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x

increased considerably (20 percent) as demand for electricity at these facilities rose substantially (more than 16 percent). Despite these

increases in NOx emissions as sources ran their controls less often, facilities were still below both the CAIR NOx ozone season and CAIR

NOx annual budgets for the year.

Visit EPA’s Quarterly Emissions Tracking site for the most up-to-date emissions and control data for sources in the ARP.

Table 2: Comparison of Emissions, Emission Rates, and Heat Input for CAIR, ARP, and NBP Sources, 2000–

2010

CAIR and ARP Annual SO2 Trends

SO2 Emissions (thousand tons) SO2 Rate (lb/mmBtu) Heat Input (billion mmBtu)

Primary Fuel 2000 2005 2008 2009 2010 2000 2005 2008 2009 2010 2000 2005 2008 2009 2010

Coal 10,707 9,835 7,514 5,653 5,089 1.04 0.95 0.74 0.63 0.53 20.67 20.77 20.25 18.02 19.29

Gas 28 36 10 6 7 0.02 0.01 0.00 0.00 0.00 3.71 5.35 6.22 6.50 7.19

Oil 464 347 83 54 44 0.76 0.71 0.35 0.29 0.21 1.22 0.98 0.47 0.37 0.41

Other 1 4 9 8 26 0.23 0.27 0.28 0.27 0.53 0.01 0.03 0.06 0.06 0.10

Total 11,201 10,223 7,616 5,722 5,166 0.88 0.75 0.56 0.46 0.38 25.61 27.13 27.00 24.95 26.99

CAIR and ARP Annual NOx Trends

NOx Emissions (thousand tons) NOx Rate (lb/mmBtu) Heat Input (billion mmBtu)

Primary Fuel 2000 2005 2008 2009 2010 2000 2005 2008 2009 2010 2000 2005 2008 2009 2010

Coal 4,586 3,356 2,816 1,847 1,922 0.44 0.32 0.28 0.20 0.20 20.67 20.77 20.25 18.27 19.29

Gas 321 142 130 133 139 0.17 0.05 0.04 0.04 0.04 3.71 5.35 6.22 6.71 7.19

Oil 195 129 46 34 34 0.32 0.26 0.19 0.18 0.17 1.22 0.98 0.47 0.38 0.41

Other 2 6 5 5 7 0.26 0.42 0.16 0.12 0.13 0.01 0.03 0.06 0.09 0.10

Total 5,104 3,633 2,996 2,020 2,102 0.40 0.27 0.22 0.16 0.16 25.61 27.13 27.00 25.45 26.99

NBP Ozone Season NOx Trends

NOx Emissions (thousand tons) NOx Rate (lb/mmBtu) Heat Input (billion mmBtu)

Primary Fuel 2000 2005 2008 2000 2005 2008 2000 2005 2008

Coal 1,111 494 456 0.46 0.19 0.19 4.85 5.10 4.93

Gas 15 23 17 0.08 0.05 0.04 0.37 0.85 0.85

Oil 34 32 9 0.21 0.21 0.14 0.32 0.31 0.13

Other 0 0 0 0.74 0.50 0.13 0.00 0.00 0.01

Total 1,160 549 482 0.42 0.18 0.16 5.54 6.27 5.91

CAIR Ozone Season NOx Trends

NOx Emissions (thousand tons) NOx Rate (lb/mmBtu) Heat Input (billion mmBtu)

Primary Fuel 2000 2005 2008 2009 2010 2000 2005 2008 2009 2010 2000 2005 2008 2009 2010

Coal 1,398 695 625 442 527 0.45 0.22 0.20 0.17 0.18 6.19 6.31 6.14 5.21 5.85

Gas 62 43 34 33 42 0.15 0.06 0.05 0.04 0.04 0.84 1.47 1.40 1.53 1.96

Oil 83 72 28 19 22 0.29 0.27 0.20 0.18 0.16 0.57 0.53 0.28 0.21 0.27

Other 1 2 2 2 2 0.15 0.17 0.14 0.14 0.12 0.02 0.02 0.03 0.02 0.04

Total 1,545 812 689 495 594 0.41 0.20 0.18 0.14 0.15 7.62 8.33 7.85 6.97 8.12

Notes:

The data shown here for the annual programs and the NBP reflect totals for those facilities required to comply with each program in each respective year. This

means that CAIR NOx annual program facilities are not included in the annual NOx data for 2005 or 2008, and CAIR SO2 annual program facilities are not

included in the annual SO2 data for 2005, 2008, or 2009.

The CAIR NOx ozone season table includes emissions and heat input data for 2005 that were reported under other programs. For facilities that were not

covered by another program and did not report 2005 emissions, their reported emissions for 2008 were substituted.

2008 was a “training year” for facilities covered by the CAIR NOx annual and ozone season programs.

2009 was a monitoring and reporting “training year” for facilities covered by the CAIR SO2 annual program.

Fuel type represents primary fuel type; units might combust more than one fuel.

Totals may not reflect the sum of individual rows due to rounding.

Each year’s total emission rate does not equal the arithmetic mean of the four fuel-specific rates, as each facility influences the annual emission rate in

proportion to its heat input, and heat input is unevenly distributed across the fuel categories.

EPA data in these tables and used elsewhere in this report are current as of July 2011, and may differ from past or future reports as a result of resubmissions

by sources and ongoing data quality assurance activities.

Source: EPA, 2011

SO2 Emission Reductions
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Figure 3, below, shows that the CAIR SO2 program continues and complements the ARP’s history of SO2 emission reductions. In 2010, the

first year of operation of the CAIR SO2 trading program, sources in both the CAIR SO2 annual program and the ARP together reduced SO2

emissions by over 10 million tons (67 percent) from 1990 levels (before implementation of the ARP), 6 million tons (54 percent) from 2000

levels (ARP Phase 2), and 5 million tons (49 percent) from 2005 levels (before implementation of CAIR). All ARP and CAIR sources together

emitted a total of 5.2 million tons of SO2 in 2010, well below the ARP’s statutory annual cap of 8.95 million tons.

Annual SO2 emissions from sources in the CAIR SO2 program alone fell from 9 million tons in 2005 to 4.4 million tons in 2010, a 51

percent reduction. Between 2009 and 2010, SO2 emissions fell 123,000 tons, or 6 percent. However, the 2010 emissions total is higher

than the CAIR SO2 program’s state budget total of 3.6 million tons, indicating that affected sources used banked allowances carried over

from the ARP for compliance with CAIR (see Table 3, below).

ARP units alone emitted 5.1 million tons of SO2 in 2010, meaning that ARP sources reduced emissions by 10.6 million tons (67 percent)

from 1990 levels and 12.1 milllion tons (70 percent) from 1980 levels.

Figure 3: SO2 Emissions from CAIR SO2 Annual Program and ARP Sources, 1980–2010

Note: For CAIR units not in the ARP, the 2009 annual SO2 emissions were applied retroactively for each pre-CAIR year following the year in which the unit began

operating.

Source: EPA, 2011

The states with the highest emitting sources in 1990 have generally seen the greatest SO2 reductions under the ARP, and this trend

continues under CAIR (see Figure 4, below). Most of these states are upwind of the areas the ARP and CAIR were designed to protect, and

reductions have resulted in important environmental and health benefits over a large region.

From 1990 to 2010, annual SO2 emissions in the nationwide ARP dropped in 40 states and D.C. by a total of approximately 10.5 million

tons. In contrast, annual SO2 emissions increased by a total of only 30,700 tons in eight states (Idaho, Louisiana, Montana, North Dakota,

Nebraska, Oregon, Rhode Island, and Vermont) from 1990 to 2010.

Between 2005 and 2010, annual SO2 emissions fell in all 27 states in the CAIR region with the exception of Arkansas and D.C., which

increased emissions by a total of only 933 tons. Sixteen states and D.C. exceeded their state SO2 emission budgets.

Figure 4: State-by-State Annual SO2 Emission Levels for CAIR and ARP Sources, 1990–2010
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Note: State-level data shown in this map are available for download.

Source: EPA, 2011

Thirty-five ARP units installed SO2 controls in 2010, reducing their collective SO2 emission rate from 1.15 lb/mmBtu in January to 0.10

lb/mmBtu in December. The remaining sources in the ARP reported a steady annual SO2 rate of about 0.41 lb/mmBtu (see Figure 5,

below). Had these newly-controlled units maintained their collective annual 2009 emission rate of 1.20 lb/mmBtu through 2010, their

estimated emissions would have remained around a half million tons. In actuality, the 35 units emitted 64 percent less SO2 in 2010 than in

2009 by adding scrubbers, contributing about half of the total program-wide reduction of 600,000 tons between 2009 and 2010. Because

the new controls were installed at different times throughout 2010, the annual reduction reflects only partial operation, and the overall

benefits of the new systems will be even greater in 2011.

Figure 5: Monthly SO2 Emission Rates, 2010

Source: EPA, 2011

NOx Emission Reductions

Ozone Season NOx Reductions

Figure 6, below, shows ozone season NOx emissions from 1990 to the present for CAIR and NBP sources. In 2010, the second year of the

CAIR NOx ozone season program, sources from both CAIR and the former NBP, together with a small number of sources that were

previously in the NBP but did not enter CAIR, reduced their overall NOx emissions from 816,000 tons in 2005 (before implementation of

CAIR) to 599,000 tons in 2010, a decrease of 27 percent. NOx emissions were nearly 1.5 million tons lower (71 percent) than in 1990 and

860,000 tons lower (59 percent) than in 2000 (before implementation of the NBP).
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Between 2005 and 2010, ozone season NOx emissions from sources in the CAIR program alone have fallen 211,000 tons, a decrease of 22

percent. From 2009 to 2010, however, ozone season NOx emissions from sources in the CAIR NOx ozone season program increased by

99,000 tons (20 percent) as sources operated controls less often and electricity demand rose. Despite the year-over-year increase, ozone

season NOx emissions totaled 594,000 tons in 2010, 5 percent below the 2010 regional emission budget of 624,698 tons.

Figure 6: Ozone Season NOx Emissions from CAIR and NBP Sources, 1990–2010

Note: For CAIR units not in the NBP, the 2008 NOx emissions were applied retroactively to 1990 and 2000 if the unit operated in the previous year’s ozone

season.

Source: EPA, 2011

The average NOx emission rate is a key measure of program effectiveness. While emissions may vary year to year due to changes in

electricity demand the average ozone season NOx emission rate has fallen every year since 2004 — except 2010. The driver of the increase

in rate was coal-fired units with add-on controls. The NOx emission rate at these units, which are historically responsible for the deepest

reductions, increased as a group over 14 percent from 2009 to 2010.

Ozone season NOx mass emissions rose about 99,000 tons between 2009 and 2010. Nearly a third of the increase (28,192 tons) resulted

from fifty coal-fired units with add-on controls that posted significantly poorer performance in 2010. These fifty units “dialed back” control

removal efficiency or even turned installed controls off. At 24 units, the 2010 NOx emission rate was double that of 2009. In an emissions

trading program, operators of plants are assumed to optimize operations by balancing the costs of fuel, allowances, and running controls.

For example, the relatively low cost of gas drove the 35 percent increase in gas-fired generation in 2010. Similarly, the drop in allowance

prices could lead to a higher NOx emission rate. EPA expects the average NOx emission rate to continue to improve in future years under

the regulatory certainty provided by CSAPR. The higher NOx allowance prices that should exist in 2012 under CSAPR would provide

incentive for sources to improve the effectiveness of existing pollution controls.

Between 2005 and 2010, ozone season NOx emissions from CAIR and former NBP sources fell in every state participating in the CAIR NOx

ozone season program except Pennsylvania, Arkansas, Kentucky, and D.C. (see Figure 7, below), where emissions increased by a total of

15,000 tons. In the 2010 ozone season, the total emissions from participating sources were about 31,000 tons below the regional emission

budget. Sixteen states had emissions below their allowance budgets, collectively by about 80,000 tons. Another ten states exceeded their

2010 budgets by a total of about 49,000 tons, indicating that, on an aggregate basis, sources within those states covered a portion of their

emissions with allowances banked from earlier years, transferred from an out-of-state account, or purchased from the market.

Figure 7: State-by-State Ozone Season NOx Emission Levels from CAIR Sources, 2000–2010
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Notes:

State-level data shown in this map is available for download.

The 2000 and 2005 ozone season values reflect data that were reported under other programs (ARP and NBP). For facilities that were not covered by another

program and did not report 2000 or 2005 emissions, their reported emissions for the earliest subsequent year (usually the 2008 training year) were substituted.

Source: EPA, 2011

In addition to the CAIR NOx ozone season program and the former NBP, prior programs such as the Ozone Transport Commission’s (OTC)

NOx Budget Program and current regional and state NOx emission control programs have also contributed significantly to the ozone season

NOx reductions achieved by sources in 2010.

High Electric Demand Days

Ozone season demand for electricity is driven by economic conditions and weather. Figure 8, below, compares 2009 and 2010 ozone

season daily NOx emissions and generation (as measured by gross megawatt hours), and highlights the ten days of each year's peak

generation. Comparing the ten peak generation days in 2009 to 2010, generation increased 14 percent, NOx emissions grew

proportionately (17 percent), while the NOx emission rate increased by less than two percent. The fact that the NOx rate during the ten

days of highest electric demand remained below the ozone season average implies that the increased demand did not result in less

efficient, higher-emitting units being called into service, as had historically been the case.

Figure 8: Ozone Season Daily NOx Emissions and Generation
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Source: EPA, 2011

Annual NOx Reductions

Figure 9, below, shows that from 1990 to 2010, annual NOx emissions from CAIR and ARP units together dropped by about 4.3 million

tons to 2.1 million tons, a decrease of 67 percent. In 2010, the second year of the CAIR NOx annual program, NOx emissions from all ARP

and CAIR units were 1.5 million tons lower (42 percent) than in 2005 and 3 million tons lower (59 percent) than in 2000.

Emissions from CAIR NOx annual program sources alone were 1.43 million tons in 2010, 73,000 tons (5 percent) below the 2010 CAIR NOx

annual program’s regional budget of 1.5 million tons. Annual NOx emissions were 1.2 million tons lower (47 percent) than in 2005, but
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were 115,000 tons (9 percent) higher than in 2009. This recent increase was largely a result of sources not operating NOx controls as often

and increased demand for electricity.

ARP sources emitted 2.1 million tons of NOx in 2010. This level is 6 million tons less than the projected level in 2000 without the ARP, and

triple the Title IV NOx emission reduction objective.

Although the ARP and CAIR NOx programs were responsible for a large portion of these annual NOx reductions, other programs — such as

the NBP, the OTC NOx Budget Program, and other regional and state NOx emission control programs — also contributed significantly to the

annual NOx reductions achieved by sources in 2010.

Figure 9: Annual NOx Emissions from CAIR and ARP Sources, 1990–2010

Note: For CAIR units not in the ARP in 1990, 2000, and 2005, the 2008 annual NOx emissions were applied retroactively for each pre-CAIR year following the

year in which the unit began operating.

Source: EPA, 2011

Figure 10, below, shows that, compared with 2005, before implementation of CAIR, sources in the CAIR NOx annual program continued to

reduce year-round emissions in 2010 as program participants operated NOx control devices on EGUs outside the summer months. From

2005 to 2010, NOx emissions from units in the CAIR NOx annual program and ARP fell 42 percent, while heat input remained stable, falling

less than one percent.

Figure 10: Monthly Emissions and Heat Input from CAIR NOx Annual Program Sources, 2005 vs. 2010

Note: The CAIR NOx annual program had not begun in 2005, so the set of participating units from 2008 was used as the 2005 baseline in this figure. Facilities

that were not covered by the ARP did not report emissions in 2005. For these facilities, the earliest subsequent reported values, usually from the 2008 CAIR

training year, were substituted.

Source: EPA, 2011

From 1990 to 2010, all states participating in the CAIR NOx annual program decreased their emissions, as indicated in Figure 11, below.

Comparing 2005 to 2010, all states in the CAIR region emitted less NOx except Delaware and D.C., which increased their NOx emissions by

855 tons. The total NOx emissions from participating sources in 2010 were about 55,000 tons below the regional emission budget of

1,490,264 tons. Ten states and D.C. exceeded their 2010 budgets by a total of about 109,000 tons, indicating that, on an aggregate basis,

sources within those states covered a portion of their emissions with allowances banked from earlier years, transferred from an out-ofstate account, or purchased from the market.

Figure 11: State-by-State Annual NOx Emission Levels for CAIR and ARP Sources, 1990–2010
Clean Air Interstate Rule, Acid Rain Program, and Former NOx Budget Trading Program 2010 Progress Report | Progress Reports | Clean Air Markets | Air & Radiation | US EPA

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Note: State-level data shown in this map is available for download.

Source: EPA, 2011

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CAIR and ARP Program Compliance

SO2 Programs

Because SO2 allowances from the ARP are used by sources to comply with the CAIR SO2 annual program, compliance results for both

programs are displayed together in this report. Table 3, below, shows how ARP and CAIR allowances were used. All ARP and CAIR SO2

facilities were in compliance with both programs and held enough allowances to cover their SO2 emissions.

Table 3: CAIR and ARP SO2 Allowance Reconciliation Summary, 2010

Total Allowances Held (1995–2010 Vintage) 21,505,185 

 Affected Facility Accounts: 14,599,394

 Other (General and Non-Affected Facility Accounts): 6,905,791

Allowances Deducted for Acid Rain Compliance* 5,081,366

Penalty Allowance Deductions (2011 Vintage) 0

Banked Allowances (prior to CAIRSO2 deductions) 16,423,819

 Affected Facility Accounts: 9,518,028

 Other (General and Non-Affected Facility Accounts): 6,905,791

Acid Rain Program Allowances Deducted for CAIR SO2 Compliance 1,188,678

Banked Allowances 15,235,141

 Affected Facility Accounts: 8,329,350

 Other (General and Non-Affected Facility Accounts): 6,905,791

*Includes 6,111 allowances deducted from opt-ins for reduced utilization.

Compliance Results

As of July 2, 2011, the reported 2010 SO2 emissions by CAIR and ARP

sources totaled 5,166,487 tons. Because of variation in rounding

conventions, changes due to resubmissions by sources, and allowance

compliance issues at certain units, this number is lower than the sums of

emissions used for reconciliation purposes shown in Table 3, above.

Therefore, the allowance totals deducted for actual emissions in Table 3

differ from the number of emissions shown elsewhere in this report.

CAIR and ARP SO2 Programs

Reported emissions (tons): 5,166,487

Compliance issues, rounding, and report resubmission

adjustments (tons): –45,912

Emissions not covered by allowances (tons): 0
Clean Air Interstate Rule, Acid Rain Program, and Former NOx Budget Trading Program 2010 Progress Report | Progress Reports | Clean Air Markets | Air & Radiation | US EPA

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Additional vintage 2010 allowances deducted for CAIR: +1,143,358

Total allowances deducted for emissions (includes some 2 for

1 CAIR deductions: 6,263,933

2010 was the first year for compliance with the CAIR SO2 program. Under this program, allowances are used to cover emissions based on

the vintage year of the allowances, with pre–2010 vintage allowances used at 1 allowance for 1 ton of SO2 emissions, and 2010 vintage

allowances used at 2 allowances for 1 ton. For facilities covered by both CAIR and the ARP, reconciliation is a two-step process. First, ARP

deductions are made. Then, any additional deductions to comply with the CAIR SO2 program are made. The additional deductions under

CAIR could be to cover the 2 for 1 use of 2010 allowances or to cover emissions for units that are subject to CAIR, but not the ARP.

In 2010, almost 22 million SO2 allowances were available for compliance under both programs (9 million vintage 2010 and almost 13

million banked from prior years). Just over 5 million allowances were deducted for ARP compliance and an additional 1.2 million allowances

were deducted to complete reconciliation for CAIR. After reconciliation for both programs, over 15.2 million ARP SO2 allowances were

banked and carried forward to the 2011 compliance year.

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NOx Programs

CAIR NOx Compliance Results

Tables 4 and 5, below, show how NOx allowances were used in 2010. All covered facilities were in compliance with the CAIR NOx annual

and ozone season programs and held enough allowances to cover their NOx emissions.

Table 4: CAIR NOx Ozone Season Allowance Reconciliation Summary, 2010

Total Allowances Held (2003–2010 Vintage) 1,002,016 

 Affected Facility Accounts: 873,775

 Other (General, State Holding and Non-Affected Facility Accounts): 128,241

Allowances Deducted for CAIR NOx Ozone Season Trading Program 587,127

Penalty Allowance Deductions (2011 Vintage) 0

Banked Allowances 414,889

 Affected Facility Accounts: 286,648

 Other (General, State Holding and Non-Affected Facility Accounts): 128,241

Table 5: CAIR NOx Annual Allowance Reconciliation Summary, 2010

Total Allowances Held (2009–2010 Vintage) 1,823,717 

 Affected Facility Accounts: 1,723,440

 Other (General, State Holding and Non-Affected Facility Accounts): 100,277

Allowances Deducted for CAIR NOx Annual Trading Program 1,420,621

Penalty Allowance Deductions (2011 Vintage) 0

Banked Allowances 403,096

 Affected Facility Accounts: 302,819

 Other (General, State Holding and Non-Affected Facility Accounts): 100,277

Compliance Results

As of July 3, 2011, the reported 2010 ozone season NOx emissions by

CAIR sources totaled 593,669 tons, and annual emissions totaled

1,427,301 tons. Because of variation in rounding conventions, changes

due to resubmissions by sources, and allowance compliance issues at

certain units, these numbers are different from the sums of emissions

used for reconciliation purposes shown in Table 4 (ozone season

reconciliation) and Table 5 (annual reconciliation). Therefore, the

allowance totals deducted for actual emissions in Tables 4 and 5 differ

from the number of emissions shown elsewhere in this report.

CAIR NOx Ozone Season

Reported emissions (tons): 593,669

Compliance issues, rounding, and report resubmission

adjustments (tons): –6,542

Emissions not covered by allowances (tons): 0

Total allowances deducted for emissions: 587,127

CAIR NOx Annual Program

Reported emissions (tons): 1,427,301

Compliance issues, rounding, and report resubmission

adjustments (tons): -6,680

Emissions not covered by allowances (tons): 0

Total allowances deducted for emissions: 1,420,621
Clean Air Interstate Rule, Acid Rain Program, and Former NOx Budget Trading Program 2010 Progress Report | Progress Reports | Clean Air Markets | Air & Radiation | US EPA

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On May 1, 2009, the NBP transitioned to the CAIR NOx ozone season program and transferred a total of 275,367 allowances from the NBP

to the CAIR NOx ozone season program. By the end of the 2009 ozone season, 392,799 allowances were banked and available for program

compliance in 2010. Because NOx emissions in the 2010 ozone season were below the CAIR budget, sources were able to bank additional

allowances, leaving 414,889 allowances available for use in 2011.

Under the CAIR NOx annual program, 342,975 allowances were carried over from 2009. Because annual NOx emissions in 2010 were also

below the CAIR budget, after reconciliation, 403,096 allowances remained in the bank to be carried over into 2011.

ARP NOx Compliance Results

The ARP NOx Program does not impose a cap on NOx emissions and does not rely on allowance trading. The program allows affected

sources to comply either by meeting a unit-specific emission rate or by including two or more units in an emission rate averaging plan.

These options provide affected sources with the flexibility to meet the NOx emission reduction requirements in a cost-effective manner. In

2010, all 956 units that were subject to the ARP NOx Program achieved compliance.

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Controls and Monitoring

To meet the ARP and CAIR emission reduction targets, some sources opt to install control technologies. A wide set of controls are available

to help reduce emissions. The following is an analysis of controls on ARP and CAIR program coal-fired units and CAIR NOx program

combined cycle units in 2010.

SO2 Controls in 2010

The wide variety of SO2 control options available to sources includes switching to low sulfur coal or employing various types of flue gas

desulfurization units (FGDs), such as fluidized bed limestone units. FGDs on coal-fired generators are the principal means of controlling

SO2. As discussed in detail above, 35 units in the ARP added new SO2 controls in 2010. Sources added FGDs at 34 of the units in the CAIR

SO2 annual program. Across both programs the share of generation, measured in megawatt hours (MWh), at controlled units was 60

percent of coal-fired generation in 2010 (see Table 6, below).

Table 6: SO2 Controls in 2010 on Coal-Fired Units in the ARP and CAIR Annual SO2 Program

SO2 Control Type Number of Units Share of Units Share of MWh Generation

FGD 427 38% 59%

Other 44 4% 1%

Uncontrolled 643 58% 39%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2011

NOx Controls in 2010

Sources have a variety of options by which to reduce NOx emissions. New selective catalytic reduction units (SCRs), the most efficient NOx

controls, were installed at five generation units under the CAIR NOx ozone season program in 2010. Units with add-on controls — SCR or

selective non-catalytic reduction (SNCR) — accounted for nearly two-thirds of coal-fired generation (59 percent) and 80 percent of

generation at combined cycle units (gas- or oil-fired). Although 124 coal-fired units and 15 combined cycle units remain uncontrolled, they

represent only two percent of coal-fired generation and one percent of combined cycle generation under the CAIR NOx ozone season

program (see Table 7, below).

Table 7: NOx Controls in 2010 CAIR NOx Ozone Season Program

NOx Control Type Number of Coal-Fired Units Share of Coal-Fired

MWh Generation

Number of Combined Cycle

Units (Gas- or Oil-Fired)

Share of Combined Cycle 

(Gas- or Oil-Fired)

MWh Generation

Combustion 446 37% 66 13%

Non-Controlled 124 2% 15 1%

Other Control 38 1% 91 6%

SCR 207 51% 317 80%

SNCR 127 8% 0 0%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2011

Seven sources in the CAIR NOx annual program installed add-on controls in 2010. The 347 coal-fired units with add-on controls (either

SCRs or SNCRs) generated 57 percent of annual generation, and the 379 combined cycle units with SCRs generated 75 percent of annual

generation (see Table 8, below). Similar to the CAIR NOx ozone season program, uncontrolled units represent two percent of coal-fired

generation and one percent of combined cycle generation under the CAIR NOx annual program.

Table 8: NOx Controls in 2010 CAIR NOx Annual Program

Share of Combined Cycle 
Clean Air Interstate Rule, Acid Rain Program, and Former NOx Budget Trading Program 2010 Progress Report | Progress Reports | Clean Air Markets | Air & Radiation | US EPA

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NOx Control Type Number of Coal-Fired Units Share of Coal-Fired

MWh Generation

Number of Combined Cycle

Units (Gas- or Oil-Fired) (Gas- or Oil-Fired)

MWh Generation

Combustion 436 38% 120 20%

Non-Controlled 99 2% 19 1%

Other Control 40 2% 88 4%

SCR 222 49% 379 75%

SNCR 125 8% 0 0%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2011

Continuous Emission Monitoring Systems

Accurate and consistent emissions monitoring is the foundation of a cap and trade system. EPA has developed detailed procedures (40 CFR

Part 75) to ensure that sources monitor and report emissions with a high degree of precision, accuracy, reliability, and consistency.

Sources use continuous emission monitoring systems (CEMS) or other approved methods. Part 75 requires sources to conduct stringent

quality assurance tests of their monitoring systems, such as daily and quarterly calibration tests and a semiannual or annual relative

accuracy test audit. These tests ensure that sources report accurate data and provide assurance to market participants that a ton of

emissions measured at one facility is equivalent to a ton measured at a different facility.

While many CAIR units with low levels of emissions did not have to use CEMS, the vast majority of NOx emissions — over 99 percent —

were measured by CEMS. Similarly, CEMS monitored over 99 percent of SO2 emissions including 100 percent from coal-fired units and 18

percent from oil-fired units. Coal-fired units were required to use CEMS for NOx concentration and stack gas flow rate to calculate and

record their NOx mass emissions. Oil-fired and gas-fired units could use a NOx CEMS in conjunction with a fuel flow meter to determine

NOx mass emissions. Alternatively, for oil-fired and gas-fired units that either operated infrequently or had very low NOx emissions, Part

75 provided low-cost alternatives to conservatively estimate NOx mass emissions. The relatively low percentage for oil-fired units with

CEMS is consistent with the decline in oil-fired heat input, as most of these units were used infrequently and qualified for reduced

monitoring.

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Market Activity

SO2 Allowance Market in 2010

Over the first decade of the ARP, allowance prices were stable and significantly lower than projected. When CAIR was proposed in late

2003, allowance prices were influenced by the more stringent CAIR SO2 budget and the new compliance deadlines. With the start of the

CAIR SO2 program in 2010, the Acid Rain SO2 market essentially has become the CAIR SO2 market. See Table 9, below, for a summary of

the 2010 SO2 allowance market.

Table 9: SO2 Allowance Market in Brief (close of 2010)

Total Value of the SO2 Allowance Market: $290 million 

Average Nominal Price: $19 per ton

Total Allowance Volume (Allowable Emissions): 15,233,537

Note: Total value of allowance market is a snapshot based on the average nominal price as of December 2010 ($19/ton) and total allowance volume available for

2010 compliance.

Source: EPA, 2011 and CantorCO2e Market Price Index, 2011

NOx Allowance Markets in 2010

The 2010 CAIR NOx ozone season allowance market continued its price decline from the previous year closing at the end of December at

$30 per ton (see Figure 12). The annual NOx allowance price, as reported by the CantorCO2e Market Price Index, climbed briefly to $716

early in 2010 and then declined to $325 per ton by the end of the year.

Figure 12: NOx Annual and Ozone Season Allowance Spot Price (Prompt Vintage), January — December

2010

Note: Prompt vintage is the vintage for the current compliance year.

Source: EPA, 2011 and CantorCO2e Market Price Index, 2011
Clean Air Interstate Rule, Acid Rain Program, and Former NOx Budget Trading Program 2010 Progress Report | Progress Reports | Clean Air Markets | Air & Radiation | US EPA

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In 2010, the second year of the CAIR ozone season and annual NOx programs, CAIR sources emitted about 594,000 tons of NOx during the

ozone season (May through September), a 20 percent increase from 2009 levels, but still below the overall budget. CAIR sources emitted

about 31,000 tons less than their overall ozone season budget, resulting in about 415,000 banked allowances. Not surprisingly, the

downward tendency of ozone season allowance prices continued through most of 2010. Emissions of CAIR annual NOx were 1.4 million

tons, about 82,000 tons less than the overall budget. The CAIR annual NOx bank grew to more than 400,000 allowances.

Generally, sources in a cap and trade program may consider several emission reduction alternatives and are allowed to trade allowances as

part of their compliance strategies. By allowing trades, the overall market can achieve emission targets at a lower cost than through a

command and control program because abatement costs are not the same for all sources. A market for emission allowances will emerge,

and the allowance price will reflect the marginal cost of emission reductions. Emission control decisions will be made based on the cost of

control options relative to the market price of allowances. The allowance price motivates those who have relatively low cost opportunities

for emission reductions to make those investments and then sell their surplus allowances to those with higher marginal abatement costs.

Looking at the CAIR NOx ozone season allowance market, it has been EPA’s expectation that the CAIR annual NOx cap would be the

binding constraint and absorb most of the capital costs of controls (i.e., SCRs), while the NOx ozone season allowance prices would

primarily be driven by operating costs. As expected, the current CAIR NOx allowance prices are below the total expected control cost.

However, in the middle of 2010, CAIR annual NOx allowance prices dipped below $500 per ton — the variable SCR cost and theoretical

floor price — and remained there through the rest of the year.

Transaction Types and Volumes

Allowance transfer activity includes two types of transfers: EPA transfers to accounts and private transactions. EPA transfers to accounts

include the initial allocation of allowances by states or EPA, as well as transfers into accounts related to special set-asides. This category

does not include transfers due to allowance retirements. Private transactions include all transfers initiated by authorized account

representatives for any compliance or general account purposes.

To help better understand the trends in market performance and transfer history, EPA classifies private transfers of allowance transactions

into two categories:

Transfers between separate and distinct economic entities, which may include companies with contractual relationships such as

power purchase agreements, but excludes parent-subsidiary types of relationships. These transfers are categorized broadly as

“economically significant trades.”

Transfers within a company or between related entities (e.g., holding company transfers between a unit compliance account and

any account held by a company with an ownership interest in the unit).

While all transactions are important to proper market operation, EPA follows trends in the economically significant transaction category

with particular interest because these transactions represent an actual exchange of assets between unaffiliated participants. In 2010, about

a third of each program’s traded allowances were exchanged between unrelated parties, often with a broker facilitating the trade (see

Table 10, below).

Table 10: 2010 Allowance Transfers under CAIR and ARP

Program Transfer Type Number of 

Allowances Transferred

Share of 

Program Allowances Transferred

CAIR NOx Ozone Season Distinct Organizations 132,854 36%

Related Organizations 237,151 64%

CAIR NOx Annual Distinct Organizations 344,758 39%

Related Organizations 540,267 61%

ARP and CAIR SO2 Annual Distinct Organizations 3,009,858 33%

Related Organizations 6,056,910 66%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2011

Brokers play an important role in the emissions allowance markets. They primarily facilitate and conduct trades between willing buyers and

sellers, undertaking the direct costs of identifying trading partners and transacting sales at a price acceptable to both parties. In the

allowance trading market, the fees charged by brokerage firms are often considered to be transaction costs. These costs associated with

buying and selling allowances are generally low.

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