Presentation forNational Association of Regulatory Utility CommissionersU.S. Environmental Protection AgencyOffice of Air and RadiationFebruary 18, 2007Air EmissionsCap and Trade ProgramsAn UpdateOverviewStatus of:•Acid Rain Program (ARP)•NOxBudget Trading Program (NBP)•Clean Air:–Interstate Rule (CAIR)–Mercury Rule (CAMR)–Visibility Rule (CAVR)Power Sector Reductions of SO2NOxand HgARP covers fossil generation annual SO2emissions and NOxemissions of coal-firedgenerators in contiguous U.S.. Largest SO2andNOxemitters faced controlin 1995 and 1996,respectively, all othersin program in 2000.NBP covers ozoneseason (summer) NOxemissions in selectedEastern states for fossilgenerator units (andseveral other largestationary sources).Earlier northeasternprogram replaced bylarger Eastern regionalprogram beginning in2004.Coverage of ARP and NBPCAIR Emission Caps*(million tons)2009/20102015Annual SO23.7 2.6(2010)Annual NOx1.5 1.3(2009)Seasonal NOx.58 .48(2009)*For the affected region.States controlled for fine particles (annual SO2and NOx)States not covered by CAIRStates controlled for ozone (ozone season NOx)States controlled for both fine particles (annual SO2and NOx) and ozone (ozone season NOx)CAMR Emissions Caps(tons)20102018Mercury 38 15CAVROutside of CAIR Region –BART (best available retrofittechnology)CAIR Sets Stage for CAMR and CAVRSO2Emissions withARP and CAIR/CAMR/CAVRSO2Emissions (Million t/yr)NOxEmissions withNBP and CAIR/CAMR/CAVRAcid Rain Environmental Progress: SulfateOzone Air Quality Improvements from the NBP2003 2005Note:Included in the maps, but excluded from the analysis, are four areas with incomplete data for 2003 to 2005 (Cass Co, MI; Dayton-Springfield, OH;Essex Co (Whiteface Mtn), NY; LaPorte, IN).Nearly 70 percent of the areas out of attainment in 2003 are now below the ozone standardin 2005. Power plant NOxreductions is the major contributor to this improvement.8-Hour Ozone Nonattainment Areas,April 2004 (2001-2003 Air Quality Data)Areas Remaining Above Standard(2003-2005 Air Quality Data)NOx Budget Program TradingCAIR, CAMR, CAVRBenefits of Acid Rain and CAIR Programs• Benefits are driven by:– Reduced premature deaths– Lowering aggravation and incidence of heartand lung ailments– There also some benefits estimated forincreased worker productivity, reducedabsences from school andwork, and visibilityimprovement in some parks• Many benefits are not included in estimates:– CAIR’s Canadian Health Benefits– Acid rain environmental benefits– Mercury benefits– Remaining visibility benefits from parks andurban areas– Others• Found that the benefits are far outweighing the costsfor these programs:– ARP has a benefit to cost ratio of 40 to 1– CAIR has B/C ratio of more than 25 to 1• For context, from the Energy InformationAdministration’s latest forecast (AEO 2007) youcan estimate electricity sales of about $320 billionand $360 billion in 2010and 2020, respectively($2005).Annual Benefits-Qualified Assessment050100150200250300350400

Billion 2006 $Acid Rain -CanadaAcid Rain -USCAIR/CAMR- USNote: All estimates used a 3% discount rate. Use of 7% discount ratewould lower estimates about 15 percent. CPI-U used to convert 1999$and 2000$ to 2006$. Sources: Used Chestnut & Mills Analysis, "A freshlook at the benefits and costs of the US acid rain program" (Oct. 1,2004) for 2010 Acid Rain Benefits and EPA's Multi-pollutant RegulatoryAnalysis: CAIR, CAVR, CAMR (Oct. 2005) for 2010 and 2020 estimatesfor these programs. Acid Rain 2020 benefits extrapolated from 2010estimates.2010 2020CAIR, CAMR, and CAVR Implementation• Main rules are done – programs are movinginto place.• State plan development is advancing.• EPA is providing Federal backstop programs.– CAIR Federal Implementation Plan in effect– CAMR Federal plan proposed• Litigation is in progress, there was a favorableCAVR decision recently.• Power industry is actively installing pollutioncontrols and making other compliancepreparations.Advanced Pollution Controls for SO2and NOxthat Are Installed,Committed to, and Projected for Coal-fired GenerationInstalled by 2006Installed by 2006Projected 2010Projected 2010Committed 2007-2009*Committed 2007-2009*Projected 2020Projected 2020Scrubbers SCRs• EPA has estimated the“Committed 2007-2009” upfrontcapital costs forpollution controlson existing plants to be over $12billion.• EPA has estimated the upfrontcapital costsfor forecastedadditional pollution controlretrofits to be about $8 billion in2010, $6 billion in 2015, and morethan $3 billion by 2020. (Pollutioncontrol expenditures for new coalfired units that EPA projects to bebuilt are close to $4 billion in 2015and over $9 billion in 2020.• Roughly two-thirds of existingcoal-fired capacity is located in acost-of-service area.• Many units will have both SCRand FGD installed (by 2020, about320 existing coal-fired units andan additional 100 new coal-firedunits that are projected to be built).Gigawatts300250200150100500Source: EPA 2006 Base Case for CAIR, CAMR, and CAVR results from IPM and 2004 and 2006 NEEDS data sets for IPM.*Committed 2007-2009 based on reports from selected major companies. It is an understatement of controls going into place now.Note: All dollar figures are $2005.Source: EPA’s use of the Integrated Planning Model in 2006..Visit the Clean Air Markets web site for:•Emissions data•Allowance transfers•Program rules and guidelines•Program studies and progress reportsClean Air Marketswww.epa.gov/airmarkets