Kentucky Energy and Environment Cabinet 

Kentucky Division for Air Quality 

------------------------------------------- 

Appendix H.5 

Excerpts from Clean Air 

Interstate Rule Preamble 

 - EPA Cost Analysis 

 

Appendix H.5 - 1 

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Appendix H.5 - 2 

Kentucky Regional Haze SIP
Thursday,

May 12, 2005

Part II

Environmental 

Protection Agency

40 CFR Parts 51, 72, et al. 

Rule To Reduce Interstate Transport of 

Fine Particulate Matter and Ozone (Clean 

Air Interstate Rule); Revisions to Acid 

Rain Program; Revisions to the NOX SIP 

Call; Final Rule


Appendix H.5 - 3 

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25162 Federal Register / Vol. 70, No. 91 / Thursday, May 12, 2005 / Rules and Regulations 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Parts 51, 72, 73, 74, 77, 78 and 

96 

[OAR–2003–0053; FRL–7885–9] 

RIN 2060–AL76 

Rule To Reduce Interstate Transport of 

Fine Particulate Matter and Ozone 

(Clean Air Interstate Rule); Revisions 

to Acid Rain Program; Revisions to the 

NOX SIP Call

AGENCY: Environmental Protection 

Agency (EPA).

ACTION: Final rule.

SUMMARY: In today’s action, EPA finds 

that 28 States and the District of 

Columbia contribute significantly to 

nonattainment of the national ambient 

air quality standards (NAAQS) for fine 

particles (PM2.5) and/or 8-hour ozone in 

downwind States. The EPA is requiring 

these upwind States to revise their State 

implementation plans (SIPs) to include 

control measures to reduce emissions of 

sulfur dioxide (SO2) and/or nitrogen 

oxides (NOX). Sulfur dioxide is a 

precursor to PM2.5 formation, and NOX

is a precursor to both ozone and PM2.5

formation. Reducing upwind precursor 

emissions will assist the downwind 

PM2.5 and 8-hour ozone nonattainment 

areas in achieving the NAAQS. 

Moreover, attainment will be achieved 

in a more equitable, cost-effective 

manner than if each nonattainment area 

attempted to achieve attainment by 

implementing local emissions 

reductions alone. 

Based on State obligations to address 

interstate transport of pollutants under 

section 110(a)(2)(D) of the Clean Air Act 

(CAA), EPA is specifying statewide 

emissions reduction requirements for 

SO2 and NOX. The EPA is specifying 

that the emissions reductions be 

implemented in two phases. The first 

phase of NOX reductions starts in 2009 

(covering 2009–2014) and the first phase 

of SO2 reductions starts in 2010 

(covering 2010–2014); the second phase 

of reductions for both NOX and SO2

starts in 2015 (covering 2015 and 

thereafter). The required emissions 

reductions requirements are based on 

controls that are known to be highly 

cost effective for electric generating 

units (EGUs). 

Today’s action also includes model 

rules for multi-State cap and trade 

programs for annual SO2 and NOX

emissions for PM2.5 and seasonal NOX

emissions for ozone that States can 

choose to adopt to meet the required 

emissions reductions in a flexible and 

cost-effective manner. 

Today’s action also includes revisions 

to the Acid Rain Program regulations 

under title IV of the CAA, particularly 

the regulatory provisions governing the 

SO2 cap and trade program. The 

revisions are made because they 

streamline the operation of the Acid 

Rain SO2 cap and trade program and/or 

facilitate the interaction of that cap and 

trade program with the model SO2 cap 

and trade program included in today’s 

action. In addition, today’s action 

provides for the NOX SIP Call cap and 

trade program to be replaced by the 

CAIR ozone-season NOX trading 

program.

DATES: The effective date of today’s 

action, except for the revisions to 40 

CFR parts 72, 73, 74, and 77 of the Acid 

Rain Program regulations, is July 11, 

2005. States must submit to EPA for 

approval enforceable plans for 

complying with the requirements of this 

rule by September 11, 2006. The 

effective date for today’s revisions to 40 

CFR parts 72, 73, 74, and 77 of the Acid 

Rain Program regulations is July 1, 2006.

ADDRESSES: The EPA has established a 

docket for this action under Docket ID 

No. OAR–2003–0053. All documents in 

the docket are listed in the EDOCKET 

index at http://www.epa.gov/edocket. 

Although listed in the index, some 

information is not publicly available, 

i.e., Confidential Business Information 

(CBI) or other information whose 

disclosure is restricted by statute. 

Certain other material, such as 

copyrighted material, is not placed on 

the Internet and will be publicly 

available only in hard copy form. 

Publicly available docket materials are 

available either electronically in 

EDOCKET or in hard copy at the EPA 

Docket Center, EPA West, Room B102, 

1301 Constitution Avenue, NW., 

Washington, DC. The Public Reading 

Room is open from 8:30 a.m. to 4:30 

p.m., Monday through Friday, excluding 

legal holidays. The telephone number 

for the Public Reading Room is (202) 

566–1744, and the telephone number for 

the Air Docket is (202) 566–1742.

FOR FURTHER INFORMATION CONTACT: For 

general questions concerning today’s 

action, please contact Carla Oldham, 

U.S. EPA, Office of Air Quality Planning 

and Standards, Air Quality Strategies 

and Standards Division, Mail Code 

C539–02, Research Triangle Park, NC, 

27711, telephone (919) 541–3347, e-mail 

at oldham.carla@epa.gov. For legal 

questions, please contact Sonja 

Petersen, U.S. EPA, Office of General 

Counsel, Mail Code 2344A, 1200 

Pennsylvania Avenue, NW., 

Washington, DC, 20460, telephone (202) 

564–4079, e-mail at 

petersen.sonja@epa.gov. For questions 

regarding air quality analyses, please 

contact Norm Possiel, U.S. EPA, Office 

of Air Quality Planning and Standards, 

Emissions Monitoring and Analysis 

Division, Mail Code D243–01, Research 

Triangle Park, NC, 27711, telephone 

(919) 541–5692, e-mail at 

possiel.norm@epa.gov. For questions 

regarding the EGU cost analyses, 

emissions inventories, and budgets, 

please contact Roman Kramarchuk, U.S. 

EPA, Office of Atmospheric Programs, 

Clean Air Markets Division, Mail Code 

6204J, 1200 Pennsylvania Avenue, NW., 

Washington, DC, 20460, telephone (202) 

343–9089, e-mail at 

kramarchuk.roman@epa.gov. For 

questions regarding statewide emissions 

inventories, please contact Ron Ryan, 

U.S. EPA, Office of Air Quality Planning 

and Standards, Emissions Monitoring 

and Analysis Division, Mail Code D205–

01, Research Triangle Park, NC, 27711, 

telephone (919) 541–4330, e-mail at 

ryan.ron@epa.gov. For questions 

regarding emissions reporting 

requirements, please contact Bill 

Kuykendal, U.S. EPA, Office of Air 

Quality Planning and Standards, 

Emissions Monitoring and Analysis 

Division, Mail Code D205–01, Research 

Triangle Park, NC, 27711, telephone 

(919) 541–5372, e-mail at 

kuykendal.bill@epa.gov. For questions 

regarding the model cap and trade 

programs, please contact Sam Waltzer, 

U.S. EPA, Office of Atmospheric 

Programs, Clean Air Markets Division, 

Mail Code 6204J, 1200 Pennsylvania 

Avenue, NW., Washington, DC, 20460, 

telephone (202) 343–9175, e-mail at 

waltzer.sam@epa.gov. For questions 

regarding analyses required by statutes 

and executive orders, please contact 

Linda Chappell, U.S. EPA, Office of Air 

Quality Planning and Standards, Air 

Quality Strategies and Standards 

Division, Mail Code C339–01, Research 

Triangle Park, NC, 27711, telephone 

(919) 541–2864, e-mail at 

chappell.linda@epa.gov. For questions 

regarding the Acid Rain Program 

regulation revisions, please contact 

Dwight C. Alpern, U.S. EPA, Office of 

Atmospheric Programs, Clean Air 

Markets Division, Mail Code 6204J, 

1200 Pennsylvania Avenue, NW., 

Washington, DC, 20460, telephone (202) 

343–9151, e-mail at 

alpern.dwight@epa.gov.

SUPPLEMENTARY INFORMATION: 

Regulated Entities 

Except for the revisions to the Acid 

Rain Program regulations, this action 

does not directly regulate emissions 

sources. Instead, it requires States to 


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Appendix H.5 - 5 

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Federal Register / Vol. 70, No. 91 / Thursday, May 12, 2005 / Rules and Regulations 25197

Register, EPA is publishing a proposal 

to include Delaware and New Jersey in 

the CAIR region for annual SO2 and 

NOX reductions.) The addition of these 

three States made a total of 26 States 

and the District of Columbia covered by 

annual SO2 and NOX caps for the initial 

model run. The initial model run also 

included individual State ozone season 

NOX caps for Connecticut and 

Massachusetts, and did not include 

ozone season NOX caps for any other 

States.

The Agency conducted revised final 

IPM modeling that reflects the final 

CAIR control strategy. The final IPM 

modeling includes regionwide annual 

SO2 and NOX caps on the 23 States and 

the District of Columbia that are 

required to make annual reductions, and 

includes a regionwide ozone season 

NOX cap on the 25 States and the 

District of Columbia that are required to 

make ozone season reductions. The EPA 

modeled the final CAIR NOX strategy as 

an annual NOX cap with a nested, 

separate ozone season NOX cap. 

In this section of today’s preamble, 

the projected CAIR costs and emissions 

are generally derived from the final IPM 

run reflecting the final CAIR. However, 

some of EPA’s analyses are based on the 

initial IPM run, described above, which 

reflected a similar but not identical 

control strategy to the final CAIR. 

Analyses that are presented in this 

section of the preamble that are based 

on the initial IPM run include: IPM 

sensitivity runs that examine the effects 

of using the Energy Information 

Administration (EIA) natural gas price 

and electricity growth assumptions; 

marginal cost effectiveness curves 

developed using the Technology 

Retrofitting Updating Model; estimates 

of average annual SO2 and NOX control 

costs and average non-ozone season 

NOX control costs, and projected control 

retrofits used in the feasibility analysis. 

The air quality analysis in section VI of 

today’s preamble and the benefits 

analysis in section X, as well as the 

analyses presented in the Regulatory 

Impact Analysis (RIA), are based on 

emissions projections from the initial 

IPM run. 

The EPA believes that the differences 

between the initial IPM run that the 

Agency used for many of the analyses 

for the CAIR, and the final IPM run 

reflecting the final CAIR requirements, 

have very little impact on projected 

control costs and emissions. For the two 

IPM runs, projected marginal costs of 

CAIR annual NOX reductions in 2009 

and 2015 are identical. In addition, for 

the two IPM runs, projected marginal 

costs of CAIR annual SO2 reductions in 

2010 and 2015 are almost identical. 

Also, the 2009 and 2015 projected 

annual NOX emissions in the region 

encompassing the States that are 

affected by the final CAIR annual NOX

requirements are virtually identical 

when compared between the two model 

runs (difference between projected NOX

emissions is less than 1 percent for 2009 

and less than 2 percent for 2015). In 

addition, the 2010 and 2015 projected 

annual SO2 emissions in the region 

encompassing the States that are 

affected by the final CAIR annual SO2

requirements are virtually the same 

when compared between the two runs 

(difference between projected SO2

emissions is less than 1 percent for 2010 

and less than 2 percent for 2015). These 

comparisons confirm EPA’s belief that 

the initial IPM run very closely 

represents the final CAIR program.

The IPM output files for the model 

runs used in CAIR analyses are available 

in the CAIR docket. A Technical 

Support Document in the CAIR docket 

entitled ‘‘Modeling of Control Costs, 

Emissions, and Control Retrofits for Cost 

Effectiveness and Feasibility Analyses’’

further explains the IPM runs used in 

the analyses for section IV of the 

preamble. 

2. The EPA’s Proposed Methodology To 

Determine Amounts of Emissions That 

Must be Eliminated 

a. Overview of EPA Proposal for the 

Levels of Reductions and Resulting 

Caps, and Their Timing 

In the NPR, the amounts of SO2 and 

NOX emissions reductions that EPA 

proposed could be cost effectively 

eliminated in the CAIR region in 2010 

and 2015, and the amount of the 

proposed EGU emissions caps for SO2

and NOX that would exist if all affected 

States achieved those reductions by 

capping EGU emissions, appear in 

Tables IV–1 and IV–2, respectively.

TABLE IV–1.—PROJECTED SO2 AND

NOX EMISSION REDUCTIONS IN THE

CAIR REGION IN 2010 AND 2015 

FOR THE PROPOSED RULE

[Million Tons] 1

Pollutant 2010 2015 

SO2 ................... 3.6 3.7 

NOX .................. 1.5 1.8 

1 CAIR Notice of Proposed Rulemaking (69 

FR 4618, January 30, 2004). The proposed 

annual SO2 and NOX caps covered a 27-State 

(AL, AR, DE, FL, GA, IL, IN, IA, KS, KY, LA, 

MD, MA, MI, MN, MO, NJ, NY, NC, OH, PA, 

SC, TN, TX, VA, WV, WI) plus DC region. In 

addition, we proposed an ozone-season only 

cap for Connecticut. 

TABLE IV–2.—PROPOSED ANNUAL

ELECTRIC GENERATING UNIT SO2

AND NOX EMISSIONS CAPS IN THE

CAIR REGION

[Million Tons] 1

Pollutant 2010–2014 2015 and 

later 

SO2 ................... 3.9 2.7 

NOX .................. 1.6 1.3 

1 CAIR Notice of Proposed Rulemaking (69 

FR 4618, January 30, 2004). The proposed 

annual SO2 and NOX caps covered a 27-State 

(AL, AR, DE, FL, GA, IL, IN, IA, KS, KY, LA, 

MD, MA, MI, MN, MO, NJ, NY, NC, OH, PA, 

SC, TN, TX, VA, WV, WI) plus DC region. In 

addition, we proposed an ozone-season only 

cap for Connecticut. 

In the NPR, EPA evaluated the 

amounts of SO2 and NOX emissions in 

upwind States that contribute 

significantly to downwind PM2.5

nonattainment and the amounts of NOX

emissions in upwind States that 

contribute significantly to downwind 

ozone nonattainment. That is, EPA 

determined the amounts of emissions 

reductions that must be eliminated to 

help downwind States achieve 

attainment, by applying highly costeffective control measures to EGUs and 

determining the emissions reductions 

that would result. 

From past experience in examining 

multi-pollutant emissions trading 

programs for SO2 and NOX, EPA 

recognized that the air pollution control 

retrofits that result from a program to 

achieve highly cost-effective reductions 

are quite significant and can not be 

immediately installed. Such retrofits 

require a large pool of specialized labor 

resources, in particular, boilermakers, 

the availability of which will be a major 

limiting factor in the amount and timing 

of reductions. 

Also, EPA recognized that the 

regulated industry will need to secure 

large amounts of capital to meet the 

control requirements while managing an 

already large debt load, and is facing 

other large capital requirements to 

improve the transmission system. 

Furthermore, allowing pollution control 

retrofits to be installed over time 

enables the industry to take advantage 

of planned outages at power plants 

(unplanned outages can lead to lost 

revenue) and to enable project 

management to learn from early 

installations how to deal with some of 

the engineering challenges that will 

exist, especially for the smaller units 

that often present space limitations. 

Based on these and other 

considerations, EPA determined in the 

NPR that the earliest reasonable 

deadline for compliance with the final 


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25198 Federal Register / Vol. 70, No. 91 / Thursday, May 12, 2005 / Rules and Regulations 

highly cost-effective control levels for 

reducing emissions was 2015 (taking 

into consideration the existing bank of 

title IV SO2 allowances). First, the 

Agency confirmed that the levels of SO2

and NOX emissions it believed were 

reasonable to set as annual emissions 

caps for 2015 lead to highly costeffective controls for the CAIR region.

Once EPA determined the 2015 

emissions reductions levels, the Agency 

determined a proposed first (interim) 

phase control level that would 

commence January 1, 2010, the earliest 

the Agency believed initial pollution 

controls could be fully operational (in 

today’s final action, the first NOX

control phase commences in 2009 

instead of in 2010, as explained in detail 

in section IV.C). The first phase would 

be the initial step on the slope of 

emissions reductions (the glide-path) 

leading to the final (second) control 

phase to commence in 2015. The EPA 

determined the first phase based on the 

feasibility of installing the necessary 

emission control retrofits, as described 

in section IV.C. 

Although EPA’s primary costeffectiveness determination is for the 

2015 emissions reductions levels, the 

Agency also evaluated the cost 

effectiveness of the first phase control 

levels to ensure that they were also 

highly cost effective. Throughout this 

preamble section, EPA reports both the 

2015 and 2010 (and 2009 for NOX) costeffectiveness results, although the first 

phase levels were determined based on 

feasibility rather than cost effectiveness. 

The 2015 emissions reductions include 

the 2010 (and 2009 for NOX) emissions 

reductions as a subset of the more 

stringent requirements that EPA is 

imposing in the second phase. 

b. Regulatory History: NOX SIP Call 

In the NPR, EPA generally followed 

the statutory interpretation and 

approach under CAA section 

110(a)(2)(D) developed in the NOX SIP 

Call rulemaking. Under this 

interpretation, the emissions in each 

upwind State that contribute 

significantly to nonattainment are 

identified as being those emissions that 

can be eliminated through highly costeffective controls. 

In the NOX SIP Call, EPA relied 

primarily on the application of highly 

cost-effective controls in determining 

the amount of emissions that the 

affected States were required to 

eliminate. Specifically, EPA developed 

a reference list of the average cost 

effectiveness of recently promulgated or 

proposed controls, and compared the 

cost effectiveness of those controls to 

the cost effectiveness of the NOX SIP 

Call controls under consideration. In 

addition, EPA considered several other 

factors, including the fact that 

downwind nonattainment areas had 

already implemented ozone controls but 

upwind areas generally had not, the fact 

that some otherwise required local 

controls would be less cost-effective 

than the regional controls, and the 

overall ambient effects of the reductions 

required in the NOX SIP Call (63 FR 

57399–57403; October 27, 1998). 

i. Highly Cost-Effective Controls 

In the NOX SIP Call, EPA presented 

control costs in 1990 dollars (1990$). 

For the electric power industry, these 

expenditures were the increase in 

annual electric generation production 

costs in the control region that result 

from the rule. In the CAIR NPR, SNPR, 

and today’s final action, EPA presents 

the same type of electric generation as 

well as other costs in 1999$, and rounds 

all values related to the cost per ton of 

air emissions controls to the nearest 100 

dollars. 

In the NOX SIP Call, EPA’s decision 

on the amount of required NOX

emissions reductions was that this 

amount must be computed on the 

assumption of implementing highly 

cost-effective controls. The 

determination of what constituted 

highly cost effective controls was 

described as a two-part process: (1) The 

setting of a dollar-limit upper bound of 

highly cost-effective emissions 

reductions; and (2) a determination of 

what level of control below this upperbound was appropriate based upon 

achievability and other factors.

With respect to setting the upper 

bound of potential highly cost-effective 

controls, EPA determined this level on 

the basis of average cost effectiveness 

(the average cost per ton of pollutant 

removed). The EPA explained that it 

relied on average cost effectiveness for 

two reasons:

Since EPA’s determination for the core 

group of sources is based on the adoption of 

a broad-based trading program, average cost 

effectiveness serves as an adequate measure 

across sources because sources with high 

marginal costs will be able to take advantage 

of this program to lower their costs. In 

addition, average cost-effectiveness estimates 

are readily available for other recently 

adopted NOX control measures (63 FR 

57399).

At that time, EPA acknowledged that 

average cost effectiveness did not 

directly address the fact that certain 

units might have higher costs relative to 

the average cost of reduction (e.g., units 

with lower capacity factors tend to have 

higher costs):

[I]ncremental cost effectiveness helps to 

identify whether a more stringent control 

option imposes much higher costs relative to 

the average cost per ton for further control. 

The use of an average cost effectiveness 

measure may not fully reveal costly 

incremental requirements where control 

options achieve large reductions in emissions 

(relative to the baseline) (63 FR 57399).

Examination of marginal cost 

effectiveness—which examines what the 

cost would be of the next ton of 

reduction after the defined control 

level—would fill this gap. However, for 

the NOX SIP Call rulemaking, adequate 

information concerning marginal cost 

effectiveness was not available. 

For the NOX SIP Call, to determine 

the average cost effectiveness that 

should be considered to be highly cost 

effective, EPA developed a ‘‘reference 

list’’ of NOX emissions controls that are 

available and of comparable cost to 

other recently undertaken or planned 

NOX measures. The EPA explained that 

‘‘the cost effectiveness of measures that 

EPA or States have adopted, or 

proposed to adopt, forms a good 

reference point for determining which 

of the available additional NOX control 

measures can most easily be 

implemented by upwind States whose 

emissions impact downwind 

nonattainment problems.’’ (63 FR 

57400). The EPA explained that the 

measures on the reference list had 

already been implemented or were 

planned to be implemented, and 

therefore could be assumed to be less 

expensive than other measures to be 

implemented in the future. The EPA 

found that the costs of the measures on 

the reference list approached but were 

below $2,000 per ton (1990$). The EPA 

concluded that ‘‘controls with an 

average cost effectiveness [of] less than 

$2,000 [1990$, or $2,500 (1999$)] per 

ton of NOX removed [should be 

considered] to be highly cost-effective.’’

(63 FR 57400). Notably, the reference 

costs were taken from the supporting 

analyses used for the regulatory actions 

covering the NOX pollution controls—

they are what regulatory decision 

makers and the public believed were the 

control costs. 

Mindful of this $2,000 limit [1990$, or 

$2,500 (1999$)], EPA considered a 

control level that would have resulted 

in estimated average costs of 

approximately $1,800 (1990$) per ton. 

However, EPA concluded that because 

the corresponding level of controls—

nominally a 0.12 lb/mmBtu control 

level—was not well enough established, 

EPA was ‘‘not as confident about the 

robustness’’ of the cost estimates. 

Moreover, EPA expressed concern that 

its ‘‘level of comfort’’ was not as high as 


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Federal Register / Vol. 70, No. 91 / Thursday, May 12, 2005 / Rules and Regulations 25201

56The updated reference list includes estimated 

average costs for SO2 reductions from EGUs under 

best available retrofit technology (BART) requirements. The BART rule was proposed and has 

not been finalized (69 FR 25184; May 5, 2004).

controls that are a step that the Agency 

is taking at this time to eliminate 

emissions that contribute significantly 

to nonattainment of the ozone and fine 

particle NAAQS. As explained 

elsewhere, this step is reasonable in 

light of the current status of 

implementation for those NAAQS. 

Basing emission reduction 

requirements on a presumption of BACT 

emission rates across the board would 

require scrubbers and SCRs on all coalfired units and SCRs on all gas-fired and 

oil-fired units. The cost of these controls 

would vary considerably from source to 

source, be expensive for many sources, 

and may cause substantial fuel 

switching to natural gas and closure of 

smaller coal-fired units. Having 

considered this suggestion for deeper 

regional reductions that would not be as 

cost effective as the highly cost-effective 

reductions in today’s rule, EPA believes 

that a more tailored approach, such as 

the CAIR level control as well as local 

controls under SIPs (where necessary), 

is a more reasonable approach to 

achieving the level of ambient 

improvement needed for attainment 

throughout the United States. 

4. The EPA’s Evaluation of Highly CostEffective SO2 and NOX Emissions 

Reductions Based on Controlling EGUs 

a. SO2 Emissions Reductions 

Requirements 

i. CAIR Proposal for SO2

The NPR focused primarily on 

determining highly cost-effective 

amounts of emissions reductions based 

on, as in the NOX SIP Call, comparison 

to reference lists of the cost 

effectiveness of other regulatory 

controls. In the NPR, EPA developed 

reference lists for both the average cost 

effectiveness and the marginal cost 

effectiveness of those other controls. 

These reference lists indicated that the 

average annual costs per ton of SO2

removed ranged from $500 to $2,100; 

and marginal costs of SO2 removal 

ranged from $800 to $2,200. 

Moreover, EPA further considered the 

cost effectiveness of alternative 

stringency levels for this regulatory 

proposal. That is, EPA examined 

changes in the marginal cost curve at 

varying levels of emissions reductions. 

The EPA determined in the NPR that the 

‘‘knee’’ in the marginal costeffectiveness curve—the point at which 

the marginal cost per ton of SO2

removed begins to increase at a 

noticeably higher rate—appears to start 

above $1,200 per ton (69 FR 4613—

4615). 

In the NPR, EPA then provided 

further analysis of a two-phase SO2

reduction program. The final (second) 

phase, in 2015, would reduce SO2

emissions in the CAIR region by the 

amount that results from making a 65 

percent reduction from the title IV 

Phase II allowance levels (taking into 

consideration the existing bank of title 

IV SO2 allowances). The first phase, in 

2010, would reduce SO2 emissions in 

the CAIR region by a lesser amount, i.e., 

a 50 percent reduction from title IV 

Phase II allowance levels (again, taking 

into consideration the banked title IV 

SO2 allowances). The EPA developed 

this target SO2 control level for further 

evaluation because, based on all of the 

earlier work performed on multipollutant power plant reduction 

programs and general consideration, 

with technical support, of overall 

emissions reductions, costs to industry 

and the general public, ambient 

improvement, and consistency with the 

emerging PM2.5 implementation 

program, we believed it would meet the 

criteria set forth above. 

Then, EPA conducted cost analyses of 

this control level using the IPM as well 

as additional analysis of the 

implications of this control level to 

determine if it did indeed meet those 

criteria. The IPM analysis considered 

the increase in annual electric 

generation production costs in the CAIR 

region that result from the rule. The 

EPA evaluated the cost effectiveness of 

the final phase (2015) cap to determine 

if it is highly cost effective; and, we also 

evaluated the cost effectiveness of the 

2010 cap. The EPA used the IPM to 

estimate cost effectiveness of the CAIR 

in the future. The IPM incorporates 

projections of future electricity demand, 

and thus heat input growth. The EPA’s 

IPM analyses for the CAIR includes all 

fossil fuel-fired EGUs with capacity 

greater than 25 MW. A description of 

the IPM is included elsewhere in this 

preamble, and a detailed model 

documentation is in the docket.

The SO2 annual control costs that 

were presented in the CAIR NPR were 

average costs of $700 per ton and $800 

per ton for years 2010 and 2015, 

respectively, and marginal costs of $700 

per ton and $1,000 per ton for years 

2010 and 2015. In addition, the NPR 

included the results of sensitivity 

analyses that examined costs of the 

proposed SO2 controls based on the 

Energy Information Administration’s 

projections for electricity growth and 

natural gas prices. These sensitivity 

analyses showed marginal SO2 control 

costs of $900 per ton and $1,100 per ton 

for years 2010 and 2015, respectively. 

The EPA proposed to consider the SO2

emissions reductions proposed in the 

NPR as highly cost effective because 

they were consistent with the lower end 

of the reference list range of cost per ton 

of SO2 reduction for controls on both an 

average and a marginal cost basis (69 FR 

4613—4615). 

ii. Analysis of SO2 Emission Reduction 

Requirements for Today’s Final Rule 

(I) Reference Lists of Cost-Effective SO2

Controls 

For today’s action, EPA updated the 

reference list of controls included in the 

NPR of the average and marginal costs 

per ton of recent SO2 control actions. 

The EPA systematically developed a list 

of cost information from both recent 

actions and proposed actions. The EPA 

compiled cost information for actions 

taken by the Agency, and examined the 

public comments submitted after the 

NPR was published, to identify all 

available control cost information to 

provide the updated reference list for 

today’s preamble. The updated 

reference list includes both average and 

marginal costs of control, to which EPA 

compares the CAIR control costs, and 

the list represents what regulatory 

decision makers and/or the public 

believes are the control costs.56

Table IV–3 provides average costs of 

SO2 controls. This table includes 

average costs for recent BACT 

permitting decisions for SO2. Under 

EPA’s New Source Review (NSR) 

program, if a company is planning to 

build a new plant or modify an existing 

plant such that a significant net increase 

in emissions will occur, the company 

must obtain a NSR permit that addresses 

controls for air emissions. BACT is the 

type of control required by the NSR 

program for existing sources in 

attainment areas. The BACT decisions 

are determined on a case-by-case basis, 

usually by State or local permitting 

agencies, and reflect consideration of 

average and incremental cost 

effectiveness. These decisions are 

relevant for EPA’s reference list of 

average costs of SO2 controls, because 

they represent cost-effective controls 

that have been demonstrated.


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57The EPA used the difference between EIA’s 

estimates for well-head natural gas prices and 

minemouth coal prices to determine the sensitivity 

of IPM’s results to higher natural gas prices. The 

EPA describes this sensitivity analysis as ‘‘EIA 

natural gas prices’’. For electric demand, we 

replaced EPA’s assumed annual growth of 1.6 

percent with EIA’s projection of annual growth of 

1.8 percent.

TABLE IV–3.—AVERAGE COSTS PER TON OF ANNUAL SO2 CONTROLS

SO2 control action Average cost per 

ton 

Best Available Control Technology (BACT) Determinations ......................................................................................................... 1 $400–$2,100 

Nonroad Diesel Engines and Fuel ................................................................................................................................................ 2 $800 

Proposed Best Available Retrofit Technology (BART) for Electric Power Sector ........................................................................ 3 $2,600–$3,400 

1These numbers reflect a range of cost-effectiveness data entered into EPA’s RACT/BACT/LAER Clearinghouse (RBLC) for add-on SO2 controls (www.epa.gov/ttn/catc/). We identified actions in the data base for large, utility-scale, coal-fired boiler units for which cost effectiveness data 

were reported. The range of costs shown here is for boilers ranging from 30 MW to an estimated 790 MW (we used a conversion factor of 10 

mmBtu/hr = 1 MW for units for which size was reported in mmBtu/hr). Emission limits for these actions ranged from 0.10 lb/mmBtu to 0.27 lb/

mmBtu. Add-on controls reported for these units are dry or wet scrubbers (in one case with added alkali and in one case with a baghouse). 

Where the dollar-year was not reported we assumed 1999 dollars. The cost range presented in the NPR was $500–$2,100–today’s range includes additional BACT costs that were entered into the clearinghouse after the NPR was published. 2 Control of Emissions of Air Pollution From Nonroad Diesel Engines and Fuel; Final Rule (69 FR 39131; June 29, 2004). The value in this 

table represents the long-term cost per ton of emissions reduced from the total fuel and engine program (cost per ton of emissions reduced in 

the year 2030). 1999$ per ton. 3The EPA IPM modeling 2004, available in the docket. The EPA modeled the Regional Haze Requirements as source specific limits (90 percent SO2 reduction or 0.1 lb/mmBtu rate; except the five state WRAP region for which we did not model SO2 controls beyond what is done for 

the WRAP cap in the base case modeling). Estimated average costs based on this modeling are $2,600 per ton in 2015 and $3,400 per ton in 

2020. 1999$ per ton. 

Table IV–4 provides the marginal cost 

per ton of recent State and regional 

decisions for annual SO2 controls.

TABLE IV–4.—MARGINAL COSTS PER TON OF ANNUAL SO2 CONTROLS

SO2 control action Marginal cost per 

ton 

New Hampshire Rule ..................................................................................................................................................................... 1 $600 

WRAP Regional SO2 Trading Program ......................................................................................................................................... 2 $1,100–$2,200 

1The EPA IPM base case modeling August 2004, available in the docket. (1999$ per ton). We modeled New Hampshire’s State Bill ENVA2900, which caps SO2 emissions at all existing fossil steam units. 2 ‘‘An Assessment of Critical Mass for the Regional SO2 Trading Program,’’ prepared for Western Regional Air Partnership Market Trading 

Forum by ICF Consulting Group, September 27, 2002, available in the docket. This analysis looked at the implications of one or more States 

choosing to opt-out of the WRAP regional SO2 trading program. (1999$ per ton) 

(II) Cost Effectiveness of the CAIR 

Annual SO2 Reductions 

In the NPR, EPA evaluated an annual 

SO2 control strategy based on a 

specified level of emissions reductions 

from EGUs. Available information 

indicated that emissions reductions 

from this industry would be the most 

cost effective. (As noted elsewhere, EPA 

considered control strategies for other 

source categories, but concluded that 

they would not qualify as highly costeffective controls.) Of course, under 

today’s rule, although EPA calculates 

the amount of emissions reductions 

States must achieve by evaluation of the 

EGU control strategy, States remain free 

to achieve those reductions by 

implementing controls on any sources 

they wish. 

For today’s action, EPA updated the 

predicted annual SO2 control costs 

included in the NPR. The EPA analyzed 

the costs of the CAIR using an updated 

version of the IPM (documentation for 

the IPM update is in the docket). 

Further, EPA modified the modeling to 

match the final CAIR strategy (see 

section IV.A.1 for a description of EPA’s 

CAIR IPM modeling).

The EPA also updated its analysis of 

the sensitivity of the marginal cost 

results to assumptions of higher electric 

growth and natural gas prices than we 

used in the base case. These sensitivity 

analyses were based on the Energy 

Information Administration’s Annual 

Energy Outlook for 2004.57

In determining whether our control 

strategy is highly cost effective, EPA 

believes it is important to account for 

the variable levels of cost effectiveness 

that these sensitivity analyses indicate 

may occur if electricity demand or 

natural gas prices are appreciably higher 

than assumed in the IPM. Those two 

factors are key determinants of control 

costs and, over the relatively long 

implementation period provided under 

today’s action, a meaningful degree of 

risk arises that these factors may well 

vary to the extent indicated by the 

sensitivity analyses. As a result, EPA 

wanted to examine the marginal costs 

that would occur under the scenarios 

modeled in the sensitivity analyses to 

see how they differed from the costs 

using EPA’s assumptions. 

Table IV–5 provides the average and 

marginal costs of annual SO2 reductions 

under the CAIR for 2010 and 2015. 

(When presenting estimated CAIR 

control costs in section IV of this 

preamble, EPA uses ‘‘Main Case’’ to 

indicate the primary CAIR IPM 

analyses, as differentiated from other 

IPM analyses such as sensitivity runs 

used to examine the impacts of varying 

assumptions about natural gas price and 

electric growth.)

TABLE IV–5.—ESTIMATED COSTS PER

TONS OF SO2 CONTROLLED UNDER

CAIR, CAP LEVELS BEGINNING IN

2010 AND 2015 1

Type of cost effectiveness 2010 2015 

Average Cost—Main Case $500 $700 

Marginal Cost—Main Case 700 1,000 


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58The updated reference list of average SO2

control costs includes estimated average EGU costs 

under BART. The BART rule has been proposed but 

not finalized (69 FR 25184; May 5, 2004).

59EPA did promulgate Phase I of the ozone 

implementation rule in April 2004 (69 FR 23951; 

April 30, 2004) but has not issued Phase II of the 

rule, which will interpret CAA requirements 

relating to local controls (e.g., RACT, RACM, RFP).

TABLE IV–5.—ESTIMATED COSTS PER

TONS OF SO2 CONTROLLED UNDER

CAIR, CAP LEVELS BEGINNING IN

2010 AND 2015 1—Continued

Type of cost effectiveness 2010 2015 

Sensitivity Analysis: Marginal Cost Using EIA 

Electric Growth and Natural Gas Prices ............. 800 1,200 

1The EPA IPM modeling 2004, available in 

the docket. $1999 per ton. 

These estimated SO2 control costs 

under the CAIR reflect annual EGU SO2

caps of 3.6 million tons in 2010 and 2.5 

million tons in 2015 within the CAIR 

region. Based on IPM modeling, EPA 

projects that SO2 emissions in the CAIR 

region will be about 5.1 million tons in 

2010 and 4.0 million tons in 2015. The 

projected emissions are above the cap 

levels because of the use of the existing 

title IV bank of SO2 allowances. Average 

costs shown for 2015 are an estimate of 

the average cost per ton to achieve the 

total difference in projected emissions 

between the base case conditions and 

the CAIR in the year 2015 (the 2015 

average costs are not based on the 

increment in reductions between 2010 

and 2015). (A more detailed description 

of the final CAIR SO2 and NOX control 

requirements is provided below in 

today’s preamble.) 

(III) SO2 Cost Comparison for CAIR 

Requirements 

The EPA believes that if an SO2

control strategy has a cost effectiveness 

that is at the low end of the updated 

reference tables, the approach should be 

considered to be highly cost effective. 

The costs in the reference range should 

be considered to be cost effective 

because they represent actions that have 

already been taken to reduce emissions. 

In deciding to require these actions, 

policymakers at the local, State and 

Federal levels have determined them to 

be cost-effective reductions to limit or 

reduce emissions. Thus, costs at the 

bottom of the range must necessarily be 

considered highly cost effective. 

Today’s action requires SO2 emissions 

reductions (or an EGU emissions cap) in 

2015. The EPA has determined that 

those emissions reductions are highly 

cost effective. In addition, today’s action 

requires that some of those SO2

emissions reductions (or a higher EGU 

emissions cap) be implemented by 2010. 

The EPA has examined the cost 

effectiveness of implementing those 

earlier emissions reductions (or cap) by 

2010, and determined that they are also 

highly cost effective. 

The cost of the SO2 reductions 

required under today’s action—if the 

States choose to implement those 

reductions through EGUs, for which the 

most cost-effective reductions are 

available—on average and at the margin, 

are at the lower end of the range of cost 

effectiveness of other, recent SO2

control requirements.58 This is true for 

our analysis of both the costs EPA 

generally expects as well as the 

somewhat higher costs that would result 

from higher than expected electricity 

demand and natural gas prices, as 

indicated in the sensitivity analyses that 

EPA has done.

Specifically, the average cost 

effectiveness of the SO2 requirements is 

$700 per ton removed in 2015. This 

amount falls toward the low end of the 

reference range of average costs per ton 

removed of $400 to $3,400. Similarly, 

the marginal cost effectiveness of the 

SO2 requirements ranges from $1,000 to 

$1,200 for 2015 (with the higher end of 

the range based on the sensitivity 

analyses). These amounts fall toward 

the lower end of the reference range of 

marginal cost per ton removed of $600 

to $2,200.

The EPA believes that selecting as 

highly cost-effective amounts toward 

the lower end of our average and 

marginal cost ranges for SO2 and NOX

control is appropriate because today’s 

rulemaking is an early step in the 

process of addressing PM2.5 and 8-hour 

ozone nonattainment and maintenance 

requirements. The CAA requires States 

to submit section 110(a)(2)(D) plans to 

address interstate transport, and overall 

attainment plans to ensure the NAAQS 

are met in local areas. By taking the 

early step of finalizing the CAIR, we are 

requiring a very substantial air emission 

reduction that addresses interstate 

transport of PM2.5 as well as a further 

reduction in interstate transport of 

ozone beyond that required by the NOX

SIP Call Rule. Much of the air quality 

improvement resulting from reduced 

transport is likely to occur through 

broad and deep emissions reductions 

from the electric power sector, which 

has been a major part of the transport 

problem. Other air quality benefits will 

occur as the result of Federal mobile 

source regulations for new sources, 

which cover passenger vehicles and 

light trucks, heavy-duty trucks and 

buses, and non-road diesel equipment. 

Against this backdrop of Federal 

actions that lower air emissions (as well 

as some substantial State control 

programs), States will develop plans 

designed to achieve the standards in 

their local nonattainment areas. The 

EPA has not yet promulgated rules 

interpreting the CAA’s requirements for 

SIPs for PM2.5 and ozone nonattainment 

areas,59 nor have States developed plans 

to demonstrate attainment. As a result, 

there are significant uncertainties 

regarding potential reductions and 

control costs associated with State 

plans. We believe that some areas are 

likely to attain the standards in the near 

term through early CAIR reductions and 

local controls that have costs per ton 

similar to the levels we have determined 

to be highly cost effective. We expect 

that other areas with higher PM2.5 or 

ozone levels will determine through the 

attainment planning process that they 

need greater emissions reductions, at 

higher costs per ton, to reach attainment 

within the CAA’s timeframes. For those 

areas, States will need to assess targeted 

measures for achieving local attainment 

in a cost-effective (but not necessarily 

highly cost-effective) manner, in 

combination with the CAIR’s significant 

reductions. Given the uncertainties that 

exist at this early stage of the 

implementation process, EPA believes 

this rule is a rational approach to 

determining the highly cost-effective 

reductions in PM2.5 and ozone 

precursors that should be required for 

interstate transport purposes.

As discussed above, the Agency 

believes this approach is consistent with 

our action in the NOX SIP Call. While 

the cost level selected for the NOX SIP 

Call was not at the low end of the 

reference range of costs, if the NOX SIP 

Call costs were for annual rather than 

seasonal controls they would have been 

lower relative to the annual control 

costs on the list. This would make the 

relationship between the cost of the 

NOX SIP Call and the reference costs 

used in that rulemaking, more similar to 

relative costs of CAIR compared to its 

reference lists. Also, significant local 

controls for meeting the 1-hour ozone 

standard had already been adopted in 

many areas. 

Although EPA’s primary costeffectiveness determination is for the 

2015 emissions reductions levels, the 

Agency also evaluated the cost 

effectiveness of the interim phase 

control levels to ensure that they were 

also highly cost effective. For the SO2

requirements for 2010, the average cost 

effectiveness is $500 per ton removed, 

and the marginal cost effectiveness 


Appendix H.5 - 11 

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60EPA is using the knee in the curve analysis 

solely to show that the required emissions 

reductions are very cost effective. The marginal cost 

curve reflects only emissions reduction and cost 

information, and not other considerations. We note 

that it might be reasonable in a particular regulatory 

action to require emissions reductions past the knee 

of the curve to reduce overall costs of meeting the 

NAAQS or to achieve benefits that exceed costs. It 

should be noted that similar analysis for other 

source categories may yield different curves.

ranges from $700 to $800. The 2010 

costs indicate that the interim phase 

CAIR reductions are also highly costeffective.

(IV) Cost Effectiveness: Marginal Cost 

Curves for SO2 Control 

As noted above, the Agency also 

considered another factor to corroborate 

its conclusion concerning the cost 

effectiveness of the selected levels of 

control:

The cost effectiveness of alternative 

stringency levels for today’s action. 

Specifically, EPA examined changes in 

the marginal cost curve at varying levels 

of emissions reductions for EGUs. 

Figure IV–1 shows that the ‘‘knee’’ in 

the 2010 marginal cost-effectiveness 

curve—the point where the cost of 

controlling a ton of SO2 from EGUs is 

increasing at a noticeably higher rate—

appears to occur at about $2,000 per ton 

of SO2. Figure IV–2 shows that the 

‘‘knee’’ in the 2015 marginal costeffectiveness curve also appears to occur 

at about $2,000 per ton of SO2. (As 

discussed above, the projected marginal 

costs of SO2 reductions for the CAIR are 

$700 per ton in 2010 and $1,000 per ton 

in 2015.) The EPA used the Technology 

Retrofitting Updating Model (TRUM), a 

spreadsheet model based on the IPM, for 

this analysis. (The EPA based these 

marginal SO2 cost-effectiveness curves 

on the electric growth and natural gas 

price assumptions in the main CAIR 

IPM modeling run. Marginal cost 

effectiveness curves based on other 

electric growth and natural gas price 

assumptions would look different, 

therefore it would not be appropriate to 

compare the curves here to the marginal 

costs based on the IPM modeling 

sensitivity run that used EIA 

assumptions.) These results make clear 

that this rule is very cost effective 

because the control level is below the 

point at which the cost begins to 

increase at a significantly higher rate. 

In this manner, these results 

corroborate EPA’s findings above 

concerning the cost effectiveness of the 

emissions reductions.60


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b. NOX Emissions Reductions 

Requirements 

i. The CAIR Proposal for NOX and 

Subsequent Analyses for Regionwide 

Annual and Ozone Season NOX Control 

Levels 

In this section, EPA describes its 

proposed method for determining 

regionwide NOX control levels and the 

method used for the final CAIR. 

In the CAIR NPR, EPA updated the 

reference list included in the NOX SIP 

Call for the average annual cost 

effectiveness of recent or proposed NOX

controls, and determined that these 

amounts ranged from approximately 

$200 to $2,800. In addition, in the NPR, 

EPA developed a reference list for 

marginal annual cost effectiveness for 

NOX controls, and determined that these 

amounts ranged from approximately 

$1,400 to $3,000 (69 FR 4614—4615). 

In the NPR, EPA proposed a twophased annual NOX control program, 

with a final phase in 2015 and a first 

phase in 2010. The regionwide 

emissions reduction requirements that 

EPA proposed—and the budget levels 

that would apply if all States chose to 

implement the reductions from EGUs—

were based on using a combination of 

recent historical heat input and NOX

emissions rates for fossil fuel-fired 

EGUs. For historical heat input, EPA 

proposed determining the highest heat 

input from units affected by the Acid 

Rain Program for each affected State for 

the years 1999–2002. The EPA then 

summed this heat input for all of the 

States affected for annual NOX

reductions. For 2015, EPA calculated a 

proposed regionwide annual NOX

budget by multiplying this heat input by 

an emission rate of 0.125 lb/mmBtu, and 

for 2010 by multiplying by 0.15 lb/

mmBtu. 

In developing the CAIR NPR, when 

EPA considered the appropriate amount 

of annual SO2 emissions reductions, 

EPA relied on the existing title IV 

annual SO2 cap as a starting point. 

However, in considering the appropriate 

amount of NOX reductions, the situation 

is different because title IV does not cap 

NOX emissions. Therefore, EPA and the 

States have focused on emissions caps 

based on a combination of heat input 

and NOX emission rates. Emission rates 

similar to the rates used to develop the 

CAIR NPR have been considered in the 

past. For example, the CAPI 1996 study, 

noted above, contemplated NOX caps 

based on an emission rate of 0.15 lb/

mmBtu (and other options based on 

NOX rates of 0.20 lb/mmBtu and 0.25 lb/

mmBtu). The NOX SIP Call is based on 

an emission rate of 0.15 lb/mmBtu. 

The methodology described in the 

NPR is best understood as the means for 

developing the target 2015 annual NOX

control level (or emissions budget) for 

further evaluation through IPM. The 

EPA developed this level mindful of its 

experience to date with the NOX SIP 

Call and the earlier work EPA has 

performed on multi-pollutant power 

plant reduction programs. The EPA also 

considered available technical 

information on pollution controls, costs 

to industry and the general public, 

ambient air improvement, and 

consistency with the emerging PM2.5

implementation program, in developing 

its target control level. 

Recent advances in combustion 

control technology for NOX reductions, 

as well as widespread use of selective 

catalytic reduction (SCR) on U.S. coalfired EGU boilers achieving NOX

emission rates of 0.06 lb/mmBtu and 

below, provide evidence that even lower 

average NOX emission rates are more 

highly cost-effective than rates 

considered in the past (based on 

analyzing EGUs), possibly on the order 

of 0.12 lb/mmBtu or less. The EPA 

developed the target annual NOX

control level (or emissions budget) with 


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61The EPA does not collect annual heat input 

data from these non-Acid Rain units. EIA does 

collect heat input from such units, however there 

are some limitations to the data. First, there are no 

requirements specifying how the data should be 

collected or quality assured. Second, the data is 

collected on a plant-wide basis rather than on a 

unit-by-unit basis.

62 These projected average NOX emissions rates 

are from updated IPM modeling done in 2004. The 

IPM modeling done prior to the NPR also projected 

similar average emission rates, about 0.15 lb/

mmBtu and 0.11 lb/mmBtu in 2010 and 2015, 

respectively.

the understanding that the evaluation of 

that level might indicate that average 

emission rates on the order of 0.12 lb/

mmBtu or less might be highly cost 

effective for the final (2015) control 

phase, and an interim level resulting in 

an average emission rate of less than 

0.15 lb/mmBtu might be feasible for the 

first phase. 

The EPA did evaluate the target 

annual NOX control levels (or emissions 

budgets) using the IPM. The EPA 

confirmed that the 2015 level is highly 

cost effective. The Agency also 

evaluated the cost effectiveness of the 

proposed 2010 cap to assure that the 

interim phase reductions would also be 

highly cost effective. The EPA’s IPM 

analyses for the CAIR includes all fossil 

fuel-fired EGUs with generating capacity 

greater than 25 MW. 

The proposed cap for the first phase 

was developed taking into consideration 

how much pollution control for NOX

and SO2 could be installed without 

running into a shortage of skilled labor, 

in particular boilermakers (EPA’s 

assumptions regarding boilermaker 

labor are described in section IV.C.2 of 

this preamble). The Agency focused on 

providing substantial reductions of both 

SO2 and NOX emissions at the outset of 

the proposed program, leading to 

significant retrofits of Flue Gas 

Desulfurization units (FGD) for SO2

control and SCR for NOX control.

In the NPR, EPA explained that using 

the highest Acid Rain Program heat 

input for each State to develop a 

regionwide heat input amount, rather 

than the average Acid Rain Program 

heat input, provided a cushion that 

represented a reasonable adjustment to 

reflect that there are some non-Acid 

Rain units that operate in these States 

that will be subject to the proposed 

CAIR emission reduction levels. The 

EPA explained that it did not use heat 

input data from non-Acid Rain units in 

the proposal because it did not have all 

the necessary data available at the time 

the NPR was developed.61 Using the 

highest of recent years’ Acid Rain 

Program heat input provided an 

approximation of the regionwide heat 

input, although it did not include heat 

input from non-Acid Rain sources. 

Multiplying the approximate recent heat 

input by 0.125 lb/mmBtu to develop a 

proposed regionwide annual 2015 NOX

cap could reasonably be expected to 

yield an average effective NOX emission 

rate (considering all EGUs potentially 

affected by CAIR for annual reductions, 

not only the Acid Rain units, and 

considering growth in heat input) 

somewhat less than 0.125 lb/mmBtu. 

Likewise, multiplying the approximate 

recent heat input by 0.15 lb/mmBtu to 

develop a regionwide annual 2010 NOX

cap could reasonably be expected to 

yield an average effective NOX emission 

rate for all CAIR units of about 0.15 lb/

mmBtu or less.

Although EPA calculated—in essence, 

as a target level for further evaluation—

the proposed regionwide annual NOX

control levels (or emissions budgets) 

based on heat input from only Acid 

Rain Program units, the Agency 

evaluated the cost effectiveness of the 

control levels using heat input from all 

EGUs that potentially would be affected 

by the proposed CAIR. The EPA 

evaluated cost effectiveness using the 

IPM, which includes both Acid Rain 

units and non-Acid Rain units. Further, 

the IPM incorporates assumptions for 

electricity demand growth, and thus 

heat input growth. 

Specifically, EPA evaluated these 

target annual NOX caps on EGUs for 

2010 and 2015—and therefore the 

associated regionwide emissions 

reductions—using the IPM, which, in 

effect, demonstrated that these proposed 

NOX emissions cap levels can be met 

using highly cost-effective controls with 

the expected levels of electricity 

demand in 2010 and 2015, respectively. 

Those expected levels of electricity 

demand are higher than the electricity 

demand during the 1999 to 2002 years 

upon which EPA based heat input; and 

as a result, the amount of heat input 

necessary to meet the projected 

electricity demand is expected to be 

higher than the amount that EPA 

developed for evaluation purposes 

through the method described above. 

The projected average future emissions 

rates that would be associated with the 

2010 and 2015 heat input levels needed 

to meet electricity demand (coupled 

with the NOX emissions budgets 

developed through the methodology 

described above) would be about 0.14 

lb/mmBtu and 0.11 lb/mmBtu in 2010 

and 2015, respectively.62 These average 

rates would be for all units affected by 

annual NOX controls under CAIR, 

including non-Acid Rain units. Thus, 

the heat input is projected to be higher 

in 2010 and 2015 than the recent 

historic heat input used to develop the 

target emissions budgets, and the 

projected NOX emission rates in 2010 

and 2015 are lower than the 0.15 lb/

mmBtu and 0.125 lb/mmBtu rates that 

were used to develop the budgets. IPM 

determined the costs of meeting these 

average future NOX emission rates of 

0.14 lb/mmBtu and 0.11 lb/mmBtu. The 

EPA considers these emission rates to be 

highly cost-effective and feasible.

In the NPR, EPA proposed an interim 

(Phase I) annual NOX phase in 2010 and 

a final (Phase II) annual NOX phase in 

2015. However, in today’s final rule, 

EPA is promulgating a Phase I for NOX

in 2009 (with the Phase II for NOX in 

2015, as proposed). The EPA 

determined the regionwide NOX control 

levels for 2009 and 2015 for today’s 

final action using the same methodology 

as we used to determine proposed 

levels. The Agency evaluated the cost 

effectiveness of the final reduction 

requirements (and average NOX

emission rates) using IPM and 

determined them to be highly costeffective, assuming controls on EGUs. 

The EPA’s evaluation of the cost 

effectiveness of the emission reduction 

strategy we assumed in establishing the 

final CAIR control levels is discussed 

further below. 

The average NOX emission rates in the 

first and second phases of CAIR will be 

lower than the nominal emission rate on 

which the NOX SIP Call was based, 

which was 0.15 lb/mmBtu. In the NOX

SIP Call, EPA also considered a control 

level based on a lower nominal 

emission rate, 0.12 lb/mmBtu. However, 

at that time the use of SCR was not 

sufficiently widespread to allow EPA to 

conclude that the controls necessary to 

meet a tighter cap could be installed in 

the required timeframe, without causing 

reliability problems for the electric 

power sector. Now, through the 

experience gained from the NOX SIP 

Call, EPA has confidence that with SCR 

technology average emissions rates 

lower than the NOX SIP Call nominal 

emission rate can be achieved on a 

regionwide basis. 

In the CAIR NPR, after determining 

the regionwide control level and 

evaluating it to assure that it is highly 

cost-effective, the Agency then 

apportioned the regionwide budgets to 

the affected States. The EPA proposed to 

apportion regionwide NOX budgets to 

individual States on the basis of each 

State’s share of recent average heat 

input. In the NPR, EPA used the average 

share of Acid Rain Program heat input. 

However, as discussed in the SNPR and 

the NODA, in order to distribute more 

equitably to States their share of the 

regionwide NOX budgets, EPA then 


Appendix H.5 - 14 

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63The control costs for this model sensitivity that 

were presented in the NPR were in error (69 FR 

4615). The corrected costs from the sensitivity are 

as shown here.

considered each State’s proportional 

share of recent average heat input using 

data from non-Acid Rain Program 

sources as well as Acid Rain Program 

sources. The EPA obtained EIA heat 

input data reported for non-Acid Rain 

sources and combined the EIA heat 

inputs with Acid Rain heat inputs to 

determine each State’s share of 

combined average recent heat input.

The fact that EPA distributed the 

regionwide budget to individual States 

based on their proportional share of heat 

input from Acid Rain and non-Acid 

Rain units combined does not affect the 

determination of the regionwide budgets 

themselves. The regionwide budgets 

were determined to be highly costeffective when tested for all units—both 

non-Acid Rain units as well as Acid 

Rain units—that would be affected by 

CAIR. (The EPA’s method for 

apportioning regionwide NOX budgets 

to States is discussed in more detail 

elsewhere in today’s preamble. That 

discussion includes an explanation of 

the differences between the State 

budgets that were presented in the NPR, 

the SNPR, and the NODA. In addition, 

see the TSD entitled ‘‘Regional and State 

SO2 and NOX Emissions Budgets.’’) 

In the NPR, EPA proposed that 

Connecticut contributed significantly to 

downwind ozone nonattainment, but 

not to PM2.5 nonattainment. Thus, the 

Agency proposed that Connecticut 

would not be subject to an annual NOX

control requirement and was not 

included in the region proposed for 

annual controls. We proposed that 

Connecticut would be affected by an 

ozone season-only NOX control level, 

and proposed to calculate Connecticut’s 

ozone season control level in a parallel 

way to how the regionwide annual NOX

control levels were calculated. That is, 

EPA selected the highest of the same 4 

years of (ozone season-only) heat input 

used for the regionwide budget 

calculation, and multiplied that heat 

input by the same NOX emission rates 

used to calculate the regionwide control 

levels. Connecticut is the only State for 

which an ozone season budget was 

proposed. 

The EPA used the same methodology 

for developing regionwide budgets for 

today’s final rule as was proposed in the 

NPR. For the final CAIR, EPA found that 

23 States and the District of Columbia 

contribute significantly to downwind 

PM2.5 nonattainment and found that 25 

States and the District of Columbia 

contribute significantly to downwind 

ozone nonattainment (section III in 

today’s preamble describes the 

significance determinations). CAIR 

requires annual NOX reductions in all 

States determined to contribute 

significantly to downwind PM2.5

nonattainment, and requires ozone 

season NOX reductions in all States 

determined to contribute significantly to 

downwind ozone nonattainment (many 

of the CAIR States are affected by both 

annual and ozone season NOX reduction 

requirements). The final CAIR ozone 

season NOX reductions are required in 

two phases, with Phase I commencing 

in 2009 and Phase II in 2015, the same 

years as the annual NOX reduction 

requirements. 

As described above, the Agency 

proposed ozone season NOX reduction 

requirements for Connecticut, and did 

not propose separate ozone season 

reduction requirements in any other 

State. For today’s final rule, EPA 

requires ozone season reductions in all 

States contributing significantly to 

downwind ozone nonattainment. The 

EPA determined regionwide ozone 

season NOX control levels for the final 

CAIR using the same methodology as 

was used for the annual NOX reduction 

requirements (which is the same 

method that was proposed for 

Connecticut’s ozone season budget). 

That is, EPA determined the highest 

(ozone season) heat input from Acid 

Rain Program units for the years 1999–

2002 for each State, then summed this 

heat input for all of the States affected 

for ozone season NOX reductions. For 

the final 2015 control level, EPA 

calculated a regionwide ozone season 

NOX budget by multiplying this heat 

input by an emission rate of 0.125 lb/

mmBtu, and for 2009 by multiplying by 

0.15 lb/mmBtu. The Agency evaluated 

the cost effectiveness of these ozone 

season NOX control levels (and average 

NOX emission rates) using IPM and 

determined them to be highly costeffective, assuming controls on EGUs. 

The EPA’s evaluation of the cost 

effectiveness of the final CAIR control 

requirements is discussed further below.

Based on EPA’s analysis of proposed 

annual NOX control levels, in the NPR 

the Agency presented average costs for 

annual NOX control of $800 per ton and 

$700 per ton for 2010 and 2015, and 

marginal costs of $1,300 per ton and 

$1,500 per ton for 2010 and 2015. In the 

NPR, EPA also presented marginal costs 

of annual NOX control from sensitivity 

analyses that used EIA assumptions for 

electricity growth and natural gas 

prices. Those marginal control costs 

were $1,300 per ton and $1,600 per ton 

for 2010 and 2015, respectively. The 

EPA also presented costs from a 

sensitivity model run that used EIA 

assumptions for electricity growth and 

natural gas price and higher SCR costs. 

These marginal control costs were 

$1,700 per ton and $2,200 per ton for 

2010 and 2015, respectively.63

In the NPR, EPA also presented the 

average cost effectiveness for ozone 

season-only NOX control of $1,000 per 

ton and $1,500 per ton for 2010 and 

2015, respectively, and a marginal cost 

for ozone season-only control of $2,200 

per ton and $2,600 per ton for 2010 and 

2015. The EPA also presented average 

costs for the non-ozone season 

(remaining seven months of the year) 

control of $700 per ton and $500 per ton 

in 2010 and 2015, respectively. (As 

noted above, the capital costs of 

installing NOX control equipment 

would be largely identical whether the 

equipment will be operated during the 

ozone season only or for the entire year. 

However, the amount of reductions 

would be less if the control equipment 

were operated only during the ozone 

season compared to annual operation.) 

The EPA proposed the conclusion 

that these costs met the criteria for 

highly cost-effective emissions 

reductions for NOX (69 FR 4613–4615). 

As with SO2, EPA also considered the 

cost effectiveness of alternative 

stringency levels for this regulatory 

proposal (examining changes in the 

marginal cost curve at varying levels of 

emission reductions). 

ii. What Are the Most Significant 

Comments That EPA Received About 

Proposed NOX Emission Reduction 

Requirements, and What Are EPA’s 

Responses? 

Some commenters expressed concern 

that EPA did not account for growth of 

heat input in calculating regionwide 

NOX emissions budgets, noting that 

growth was used in the calculation of 

the regional budget for the NOX SIP 

Call. Commenters suggest that, by not 

taking heat input growth into account, 

EPA developed regionwide budgets that 

are unduly stringent. 

On the other hand, some commenters 

noted that they supported EPA’s 

proposal to base regionwide budgets on 

historical heat input and did not want 

EPA to use growth projections for 

calculating regionwide NOX emissions 

budgets. Some stated that using actual, 

historic heat input numbers would be 

more straightforward than using growth 

projections, and some pointed to 

complications with the growth 

projection methodologies used in the 

NOX SIP Call. 

The EPA recognizes that it employed 

a growth factor in the NOX SIP Call. 


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64The updated reference list includes estimated 

average NOX control costs under BART. The BART 

rule has been proposed but not finalized (69 FR 

25184; May 5, 2004).

There, EPA determined the amount of 

the regional emissions reductions and 

budgets by applying a growth factor to 

a historic heat input baseline. The DC 

Circuit, after first remanding that growth 

methodology for a better explanation, 

upheld it. West Virginia v. EPA, 362 

F.3d 861 (DC Cir., 2004). See 67 FR 21 

868 (May 1, 2002). 

For CAIR, as described above, EPA 

developed a target level for the 

proposed NOX regionwide cap based on 

recent historic heat input and assumed 

emission rates of 0.125 lb/mmBtu and 

0.15 lb/mmBtu for 2015 and 2010, 

respectively. The EPA evaluated these 

target NOX emissions levels using IPM, 

which indicated that those target caps—

in conjunction with expected electricity 

demand for 2015 and 2010—would 

result from higher heat input levels and 

lower average emissions rates (about 

0.11 lb/mmBtu and 0.14 lb/mmBtu for 

2015 and 2010, respectively) than the 

amounts assumed in developing the 

target NOX caps. Most importantly, IPM 

indicated the cost levels associated with 

those projected 2015 and 2010 average 

NOX emission rates, and EPA has 

determined that those cost levels are 

highly cost-effective. For the final rule, 

EPA revised its analyses to reflect the 

2009 initial NOX control phase, and 

determined that the final CAIR 

requirements are highly cost-effective. 

The EPA’s methodology, in which the 

CAIR emissions reductions are 

predicted to be cost-effective under 

conditions of projected electricity 

growth that, in turn, projects heat input 

growth, in effect accounts for heat input 

growth. Moreover, the amount of heat 

input growth is the amount determined 

by IPM, a state-of-the-art model of the 

electricity sector (detailed 

documentation for IPM is in the docket). 

Some commenters suggested that EPA 

adjust the NOX regionwide budget 

amounts to include heat input from 

non-Acid Rain units. For example, some 

suggested adding the non-Acid Rain 

unit heat input amounts that EPA used 

in apportioning regionwide NOX

budgets to the States, to the total 

regionwide heat inputs that EPA used to 

calculate regionwide NOX budgets. 

The regionwide budgets determined 

in the NPR were target levels developed 

as a starting point for further evaluation. 

The regionwide heat input amounts and 

NOX emission rates used to develop 

target budget levels were inherently 

imprecise. As discussed above, IPM 

modeling indicates that the projected 

future heat input amounts (based on 

electricity growth) are greater than the 

recent historic regionwide amount used 

to develop the target budget levels, and 

the future average emission rates for all 

units affected by CAIR annual NOX

controls (including non-Acid Rain 

units) are less than the rates used to 

develop the target budget levels. IPM 

indicates that the target regionwide NOX

budget levels (and corresponding future 

average NOX emission rates and heat 

input levels) are highly cost-effective for 

all CAIR units, including non-Acid Rain 

units. The EPA does not believe it is 

necessary to adjust the target regionwide 

budget levels to include the relatively 

small additional amount of heat input 

from non-Acid Rain units. The method 

the Agency used to develop target levels 

was not intended to be a precise 

methodology for determining the NOX

caps; rather, it was a reasonable method 

for selecting a target level to be 

evaluated further. Upon evaluation of 

the target level, EPA determined that it 

can be achieved using highly costeffective controls for all affected EGUs, 

including non-Acid Rain units. 

iii. Analysis of NOX Emission Reduction 

Requirements for Today’s Final Rule

(I) Reference Lists of Cost-Effective 

Controls 

For today’s action, EPA updated the 

reference list of controls included in the 

NPR of the average and marginal costs 

per ton of recent NOX control actions. 

The EPA systematically developed a list 

of cost information from recent actions 

and proposed actions. The Agency 

sought cost information for actions 

taken by EPA, and examined the 

comments submitted after the NPR was 

published, to identify all available 

control cost information to provide the 

updated reference list for today’s 

preamble. The updated reference list 

includes both average and marginal 

costs of control to which EPA compares 

the CAIR control costs, although the 

Agency has limited information on 

marginal costs of other programs. 

The EPA’s updated summary of 

average costs of annual NOX controls are 

shown in Table IV–6. The results of this 

reexamination show that costs of recent 

actions are generally very similar to 

those identified in the NOX SIP Call. 

The cost figures are presented in 1999 

dollars.64

TABLE IV–6.—AVERAGE COSTS PER TON OF ANNUAL NOX CONTROLS

NOX control action Average cost 

per ton 

Marine Compression Ignition Engines .............................................................................................................................................. Up to $200 2

Off-highway Diesel Engine ............................................................................................................................................................... $400–$700 2

Nonroad Diesel Engines and Fuel ................................................................................................................................................... $600 1

Marine Spark Ignition Engines ......................................................................................................................................................... $1,200–$1,800 2

Tier 2 Vehicle Gasoline Sulfur .......................................................................................................................................................... $1,300–$2,3002

Revision of New Source Performance Standards for NOX Emissions-EGUs ................................................................................. $1,700 3

2007 Highway Heavy Duty Diesel Standards .................................................................................................................................. $1,600–$2,100 2

National Low Emission Vehicle ........................................................................................................................................................ $1,900 2

Tier 1 Vehicle Standards .................................................................................................................................................................. $2,100–$2,800 2

Revision of New Source Performance Standards for NOX Emissions-Industrial Units ................................................................... $2,200 3

On-board Diagnostics ....................................................................................................................................................................... $2,300 2

Texas NOX Emission Reduction Grants FY 2002–2003 ................................................................................................................. $300–$12,700 4

Best Available Retrofit Technology (BART) for Electric Power Sector ............................................................................................ $800 5

1 Control of Emissions of Air Pollution From Nonroad Diesel Engines and Fuel; Final Rule (69 FR 39131; June 29, 2004). The value in this 

table represents the long-term cost per ton of emissions reduced from the total fuel and engine program (cost per ton of emissions reduced in 

the year 2030). This value includes the cost for NOX plus NMHC reductions. 1999$ per ton. 2 Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements; Final Rule (66 FR 5102; January 18, 2001). The values shown for 2007 Highway HD Diesel Stds are discounted costs. Costs shown 

in this table include a VOC component. 1999$ per ton. 


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65The CSP consists of 200,000 tons, which is 

apportioned to each of the 23 States and the District 

of Columbia that are required by CAIR to make 

annual NOX reductions, as well as the 2 States 

(Delaware and New Jersey) for which EPA is 

proposing to require annual NOX reductions.

3Proposed Revision of Standards of Performance for Nitrogen Oxide Emissions From New Fossil-Fuel Fired Steam Generating Units; Proposed Revision to Reporting Requirements for Standards of Performance for New Fossil-Fuel Fired Steam Generating Units; Proposed Rule (62 

FR 36953; July 9, 1997), Table 4 (the Agency’s estimate of average control costs was unchanged for the NSPS revisions final rule, published 

September 5, 1998). In the CAIR NPR, we included a value from the range of NOX controls for coal-fired EGUs from Table 2 in the proposed 

NSPS proposed rule (62 FR 36951). 1999$ per ton. 4 Costs shown in this table are the range of project costs reported for projects that were FY 2002–2003 recipients of the TERP Emission Reductions Incentive Grants Program. These costs may not be in 1999 dollars. (www.tnrcc.state.tx.us/oprd/sips/grants.html) 5The EPA IPM modeling 2004 of the proposed BART for the electric power sector (69 FR 25184, May 5, 2004), available in the docket. The 

EPA modeled the Regional Haze Requirements as a source specific 0.2 lb/mmBtu NOX emission rate limit. Estimated average costs based on 

this modeling are $800 per ton in 2015 and 2020. 1999$ per ton. 

Table IV–7 presents modeled 

marginal costs for recent State annual 

NOX rules.

TABLE IV–7.—MARGINAL COSTS PER TON OF REDUCTION, RECENT ANNUAL NOX RULES

NOX control action Marginal cost per 

ton 

Texas Rules ................................................................................................................................................................................... $2,000–$19,600 1

1The EPA IPM base case modeling August 2004, available in the docket. 1999$ per ton. We modeled Senate Bill 7 and Ch. 117, which impose varying NOX control requirements in different areas of the State; the range of marginal costs shown here reflects the range of 

requirements. 

The EPA does not believe that it has 

sufficient information, for today’s 

rulemaking, to treat controls on source 

categories other than certain EGUs as 

providing highly cost-effective 

emissions reductions. The CAA Section 

110 permits States to choose the sources 

and source categories that will be 

controlled in order to meet applicable 

emission and air quality requirements. 

This means that some States may choose 

to meet their CAIR obligations by 

imposing control requirements on 

sources other than EGUs.

As examples of cost-effective actions 

that States can take in efforts to provide 

for attainment with the air quality 

standards, Table IV–8 presents 

estimated average costs for potential 

local mobile source NOX control 

actions. The EPA received these cost 

data during the public comments on the 

NPR.

TABLE IV–8.—AVERAGE COSTS OF POTENTIAL LOCAL MOBILE SOURCE CONTROL ACTIONS TO REDUCE NOX EMISSIONS

[$ per Ton] 1

Source category Average cost per 

ton 

MWCOG Analysis: Mobile Source, Bicycle racks in DC ............................................................................................................... $9,000 

MWCOG Analysis: Mobile Source, Telecommuting Centers ........................................................................................................ 7,300 

MWCOG Analysis: Mobile Source, Government Action Days (ozone action days) ..................................................................... 5,000 

MWCOG Analysis: Mobile Source, Permit Right Turn on Red ..................................................................................................... 1,200 

MWCOG Analysis: Mobile Source, Employer Outreach ............................................................................................................... 3,500 

MWCOG Analysis: Mobile Source, Mass Marketing Campaign ................................................................................................... 2,900 

MWCOG Analysis: Mobile Source, Transit Prioritization .............................................................................................................. 8,500 

1Washington DC Metro Area MWCOG Analysis of Potential Reasonably Available Control Measures (RACM). Projects determined to be ‘‘Possible’’ by MWCOG but not RACM because benefits from the possible control measures do not meet the 8.8 tpd NOX or 34.0 tpd VOC threshold 

necessary for RACM. These costs may not be in 1999 dollars. (www.mwcog.org/uploads/committee-documents/z1ZZXg20040217144350.pdf) 

Comments submitted to the EPA CAIR docket from the Clean Air Task Force et al., dated March 30, 2004, included costs from the MWCOG 

analysis. 

(II) Cost Effectiveness of CAIR Annual 

NOX Reductions 

Table IV–9 provides the average and 

marginal costs of annual NOX

reductions under CAIR for 2009 and 

2015. These costs are updated from the 

NPR figures—the EPA analyzed the 

costs of the CAIR using an updated 

version of IPM (documentation for the 

IPM update is in the docket). Further, 

EPA modified the modeling to match 

the final CAIR strategy (see section 

IV.A.1 for a description of EPA’s CAIR 

IPM modeling). 

CAIR provides for a Compliance 

Supplement Pool (CSP) of NOX

allowances that can be used for 

compliance with the annual NOX

reduction requirements. The CSP is 

discussed in detail later in this 

preamble. The EPA used IPM to model 

marginal costs of CAIR with the CSP. 

The magnitude of the NOX CSP is 

relatively small compared to the annual 

NOX budget,65 thus the CSP does not 

significantly impact the marginal costs 

(see Table IV–9).

As with SO2 marginal costs, EPA 

considered the sensitivity of the NOX

marginal cost results to assumptions of 

higher electric growth and future 

natural gas prices than the Agency used 

in the base case, as shown in Table IV–

9.

TABLE IV–9.—ESTIMATED COSTS PER

TON OF ANNUAL NOX CONTROLLED

UNDER CAIR 1

Type of cost effectiveness 2009 2015 

Average Cost—Main Case $500 $700 

Marginal Cost—Main Case 1,300 1,600 


Appendix H.5 - 17 

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TABLE IV–9.—ESTIMATED COSTS PER

TON OF ANNUAL NOX CONTROLLED

UNDER CAIR 1—Continued

Type of cost effectiveness 2009 2015 

Marginal Cost—With Compliance Supplement 

Pool (CSP) .................... 1,300 1,600 

Sensitivity Analysis: Marginal Cost Using Alternate Electricity Growth 

and Natural Gas Price 

Assumptions .................. 1,400 1,700 

1The EPA IPM modeling 2004, available in 

the docket. 1999$ per ton. 

These estimated NOX control costs 

under CAIR reflect annual EGU NOX

caps of 1.5 million tons in 2009 and 1.3 

million tons in 2015 within the CAIR 

annual NOX control region (the 23 

States and DC that must make annual 

reductions). In both the main IPM 

modeling case and the modeling case 

that includes the CSP, projected annual 

NOX emissions in the CAIR region will 

be about 1.5 million tons in 2009 and 

1.3 million tons in 2015. The projected 

emissions are very similar in both 

modeling cases because the CSP is 

relatively small compared to the annual 

NOX budget. 

Average costs shown for 2015 are 

based on the amount of reductions that 

would achieve the total difference in 

projected emissions between the base 

case conditions and CAIR in the year 

2015. These costs are not based on the 

increment in reductions between 2009 

and 2015. (A more detailed description 

of the final CAIR SO2 and NOX control 

requirements is provided later in today’s 

preamble.) 

Most of the States subject to today’s 

PM2.5 control requirements have been 

subject to the NOX SIP Call 

requirements. Some sources in these 

States have installed SCRs, and run 

them during the ozone season. These 

sources might comply with the PM2.5

annual NOX requirements by, at least in 

part, running the SCR controls for the 

remaining months of the year. Under 

these circumstances, the compliance 

costs for the PM2.5 SIP requirements are 

lower. 

Table IV–10 provides estimated costs 

per ton of NOX for non-ozone season 

reductions under CAIR. These figures 

are updated from the NPR 

calculations—the EPA analyzed the 

costs of the CAIR using an updated 

version of IPM (documentation for the 

IPM update is in the docket) and 

modeled controls on a region that more 

closely matches the region affected by 

CAIR.

TABLE IV–10.—PREDICTED COSTS

PER TON OF NON-OZONE SEASON

NOX CONTROLLED UNDER CAIR 1

Type of cost effectiveness 2009 2015 

Average Cost .................... $500 $500 

1The EPA IPM modeling 2004, available in 

the docket. 1999$ per ton. 

The estimated non-ozone season NOX

costs, like the annual NOX costs, are on 

the low end of the cost effectiveness 

range described in Table IV–6. The EPA 

considers the 2015 and also the 2009 

costs to represent highly cost-effective 

controls.

Environmental Defense reached 

similar conclusions regarding the cost 

effectiveness of non-ozone season NOX

reductions, as described in their report 

‘‘A Plan for All Seasons: Costs and 

Benefits of Year-Round NOX Reductions 

in Eastern States (2002).’’ As stated in 

that report, ‘‘[As Figure 4 shows,] 

extending NOX reductions throughout 

the year results in dramatic decreases in 

the per-ton costs of NOX emission 

reductions for the 19 NOX SIP Call 

States. This is because the bulk of the 

cost for reducing NOX emissions from 

power plants lies in the capital 

investment in the control equipment. 

Once the primary investment has been 

made, it costs relatively little to 

continue running the control equipment 

beyond the summer months required by 

EPA’s NOX SIP Call.’’ Environmental 

Defense based these conclusions on 

analysis conducted by Resources for the 

Future (RFF). In an RFF paper, ‘‘CostEffective Reduction of NOX Emissions 

from Electricity Generation (July 2001),’’

RFF draws similar conclusions. 

(III) NOX Cost Comparison for CAIR 

Requirements 

The EPA believes that selecting as 

highly cost-effective amounts at the 

lower end of these average and marginal 

cost ranges is appropriate for reasons 

explained above in this section of the 

preamble. 

As discussed above, although in the 

NOX SIP Call the cost level selected was 

not at the low end of the reference range 

of costs, if the NOX SIP Call costs were 

for annual rather than seasonal controls 

they would have been lower relative to 

the other control costs on the reference 

list which were mostly for annual 

programs. 

For annual NOX, the range of average 

cost effectiveness extends broadly, from 

under $200 to thousands of dollars 

(Table IV–6). The 2015 estimated 

average costs for CAIR annual NOX

control of $700 are consistent with the 

lower end of this range. 

Less information is available for the 

marginal costs of controls than for 

average costs. Looking at the available 

marginal costs (Table IV–7), the 2015 

CAIR marginal costs for annual NOX

controls are at the lower end of the 

range. The EPA also evaluated the cost 

effectiveness of the 2009 cap, and 

concluded that the 2009 requirements 

are highly cost-effective. 

(IV) Cost Effectiveness: Marginal Cost 

Curves for Annual NOX Control 

As with SO2 controls, EPA also 

considered the cost effectiveness of 

alternative stringency levels for NOX

control for today’s action by examining 

changes in the marginal cost curve at 

varying levels of emissions reductions. 

Figure IV–3 shows that the ‘‘knee’’ in 

the 2010 marginal cost effectiveness 

curve for EGUs—the point where the 

cost of controlling a ton of NOX begins 

to increase at a noticeably higher rate—

appears to occur at over $1,700 per ton 

of NOX. Although EPA conducted this 

marginal cost curve analysis based on 

an initial NOX control phase in 2010, 

the results would be very similar for 

2009, which is the initial NOX phase in 

the final CAIR. Figure IV–4 shows that 

the ‘‘knee’’ in the 2015 marginal cost 

effectiveness curve for EGUs appears to 

occur at over $1,700 per ton of NOX. 

(The EPA based these marginal NOX

cost effectiveness curves on the 

electricity growth and natural gas price 

assumptions in the main CAIR IPM 

modeling run. Marginal cost 

effectiveness curves based on other 

electric growth and natural gas price 

assumptions would look different, 

therefore it would not be appropriate to 

compare the curves here to the marginal 

costs based on the IPM modeling 

sensitivity run that used EIA 

assumptions.) The EPA used the 

Technology Retrofitting Updating Model 

(TRUM), a spreadsheet model based on 

IPM, for this analysis. These results 

make clear that this rule is very costeffective because the control level is 

below the point at which the cost begins 

to increase at a significantly higher rate. 

In this manner, these results 

corroborate EPA’s findings above 

concerning the cost effectiveness of the 

emissions reductions.66

BILLING CODE 6560–50–P


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66EPA is using the knee in the curve analysis 

solely to show that the required emissions 

reductions are very cost effective. The marginal cost 

curve reflects only emissions reduction and cost 

information, and not other considerations. We note 

that it might be reasonable in a particular regulatory 

action to require emissions reductions past the knee 

of the curve to reduce overall costs of meeting the 

NAAQS or to achieve benefits that exceed costs. As 

in the case of SO2 controls, described above, it 

should be noted that similar analysis for other 

source categories may yield different curves.


ER12MY05.002</GPH>

Appendix H.5 - 19 

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25212 Federal Register / Vol. 70, No. 91 / Thursday, May 12, 2005 / Rules and Regulations 

67For both the NOX SIP Call and CAIR, the NOX

control costs on the reference lists are generally for 

annual reductions. The EPA compared the costs of 

ozone season reductions under the NOX SIP Call, 

as well as ozone season CAIR NOX reductions, to 

the annual reduction programs on the reference 

lists.

68 In the NOX SIP Call EPA used average, not 

marginal, costs to evaluate cost effectiveness. For 

the reasons discussed above we are evaluating both 

average and marginal costs for CAIR.

69Estimated costs for regionwide CAIR NOX

controls during the ozone season are higher than 

the average and marginal costs for CAIR annual 

NOX controls. This is because, as noted above, the 

capital costs of installing NOX control equipment 

would be largely identical whether the SCR will be 

operated during the ozone season only or for the 

entire year. However, the amount of reductions 

would be less if the control equipment were 

operated only during the ozone season compared to 

annual operation.

70EPA is using the knee in the curve analysis 

solely to show that the required emissions 

reductions are very cost effective. The marginal cost 

curve reflects only emissions reduction and cost 

information, and not other considerations. We note 

that it might be reasonable in a particular regulatory 

action to require emissions reductions past the knee 

of the curve to reduce overall costs of meeting the 

NAAQS or to achieve benefits that exceed costs. As 

in the case of SO2 controls, described above, it 

should be noted that similar analysis for other 

source categories may yield different curves.

(V) Cost Effectiveness of Ozone Season 

NOX Reductions 

The CAIR requires ozone season NOX

emissions reduction for all States 

determined to contribute significantly to 

ozone nonattainment downwind (25 

States and the District of Columbia). The 

EPA used IPM to model average and 

marginal costs of the ozone season 

reductions assuming EGU controls. In 

this modeling case, EPA modeled an 

ozone season NOX cap for the region 

affected by CAIR for downwind ozone 

nonattainment, but did not include the 

CAIR annual SO2 or NOX caps. Based on 

that modeling, Table IV–11 provides 

estimated average and marginal costs of 

regionwide ozone season NOX

reductions for 2009 and 2015. Table IV–

11 shows the estimated cost 

effectiveness of today’s ozone season 

NOX control requirements for 8-hour 

transport SIPs.

TABLE IV–11.—ESTIMATED COSTS

PER TON OF OZONE SEASON NOX

CONTROLLED UNDER CAIR 1

Type of cost effectiveness 2009 2015 

Average Cost .................... $900 $1,800 

Marginal Cost ................... 2,400 3,000 

1The EPA IPM modeling 2004, available in 

the docket. 1999$ per ton. 

These estimated NOX control costs are 

based on ozone season EGU NOX caps 

of 0.6 million tons in 2009 and 0.5 

million tons in 2015 within the CAIR 

ozone season NOX control region. 

Average costs shown for 2015 are based 

on the amount of reductions that would 

achieve the total difference in projected 

emissions between the base case 

conditions and CAIR in the year 2015. 

These costs are not based on the 

increment in reductions between 2009 

and 2015. (A more detailed description 

of the final CAIR SO2 and NOX control 

requirements is provided later in today’s 

preamble.) 

The EPA believes that selecting as 

highly cost-effective amounts at the 

lower end of the average and marginal 

cost ranges is appropriate for reasons 

explained above in section IV in this 

preamble. 

In the NOX SIP Call, EPA identified 

average costs of $2,500 (1999$) (or 

$2,000 (1990$)) as highly costeffective.67 The estimated average costs 

of regionwide ozone season NOX control 

under CAIR are $1,800 per ton in 2015 

and $900 per ton in 2009. Thus, with 

respect to average costs the controls for 

the final phase (2015) cap, which are 

below the $2,500 identified in the NOX

SIP Call, are also highly cost-effective, 

as are those for the 2009 cap. In 

addition, the estimated average costs of 

CAIR ozone season NOX control are at 

the lower end of the reference range of 

average annual NOX control costs (the 

reference list of average annual NOX

control costs is presented above).

Similarly, the estimated marginal 

costs 68 of ozone season CAIR NOX

controls are within EPA’s reference 

range of marginal costs, at the lower end 

of the range (the reference list of 

marginal annual NOX control costs is 

presented above). We note that the 

marginal costs in the reference range are 

for annual NOX reductions, and would 

likely be higher for ozone season only 

programs. Considering both average and 

marginal costs, the CAIR ozone season 

control level is highly cost-effective.

For purposes of estimating costs of 

ozone season control under CAIR, EPA 

set up this modeling case with CAIR 

ozone season NOX requirements but 

without the annual NOX requirements. 

The Agency believes that the cost of the 

ozone season CAIR requirements will 

actually be lower than the costs 

presented here because interactions will 

occur between the CAIR annual and 

ozone season NOX control 

requirements.69 In addition, for States in 

both programs, the same controls 

achieving annual reductions for PM 

purposes will achieve ozone season 

reductions for ozone purposes; this is 

not reflected in our cost-per-ton 

estimates.

As with SO2 controls, and annual 

NOX controls, EPA also considered the 

cost effectiveness of alternative 

stringency levels for CAIR NOX

reductions for ozone purposes by 

examining changes in the marginal cost 

curve at varying levels of emissions 

reductions. Figure IV–5 shows that the 

‘‘knee’’ in the 2010 marginal cost 

effectiveness curve for ozone season 

NOX reductions from EGUs—the point 

where the cost of controlling an ozone 

season ton of NOX begins to increase at 

a noticeably higher rate—appears to 

occur somewhere between $3,000 and 

$4,000 per ton of NOX. Although EPA 

conducted this marginal cost curve 

analysis based on an initial NOX control 

phase in 2010 the results would be very 

similar for 2009, which is the initial 

NOX phase in the final CAIR. Figure IV–

6 shows that the ‘‘knee’’ in the 2015 

marginal cost effectiveness curve for 

ozone season NOX reductions from 

EGUs appears to occur somewhere 

between $3,000 and $4,000 per ton of 

NOX. The EPA used the Technology 

Retrofitting Updating Model (TRUM), a 

spreadsheet model based on the IPM, for 

this analysis. These results make clear 

that CAIR NOX reductions for ozone 

purposes are very cost-effective because 

the control level is below the point at 

which the cost begins to increase at a 

significantly higher rate. 

In this manner, these results 

corroborate EPA’s findings above 

concerning the cost effectiveness of the 

emissions reductions.70


Appendix H.5 - 20 

Kentucky Regional Haze SIP
Federal Register / Vol. 70, No. 91 / Thursday, May 12, 2005 / Rules and Regulations 25213

B. What Other Sources Did EPA 

Consider When Determining Emission 

Reduction Requirements? 

1. Potential Sources of Highly CostEffective Emissions Reductions 

In today’s rulemaking, EPA 

determines the amount of regionwide 

emissions reductions required by 

determining the amount of emissions 

reductions that could be achieved 

through the application of highly costeffective controls on certain EGUs. The 

EPA has reviewed other source 

categories, but concludes that for 

purposes of today’s rulemaking, there is 

insufficient information to conclude 

that highly cost-effective controls are 

available for other source categories. 

a. Mobile and Area Sources 

In the NPR (69 FR 4610), EPA 

explained that ‘‘it did not identify 

highly cost-effective controls on mobile 

or area sources.’’ No comments were 

received suggesting that mobile or area 

sources should be controlled. Therefore, 

in developing emission reduction 

requirements, EPA is not assuming any 

emissions reductions from mobile or 

area sources. 

b. Non-EGU Boilers and Turbines 

The largest single category of 

stationary source non-EGUs are large 

non-EGU boilers and turbines. This 


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Appendix H.5 - 21 

Kentucky Regional Haze SIP