Electric utility generating facilities are a major source of air pollution. The combustion of fossil fuels (petroleum, natural gas, and coal), which accounts for about two-thirds of U.S. electricity generation, results in the emission of a stream of gases. These gases include several pollutants that directly pose risks to human health and welfare, including particulate matter (PM), sulfur dioxide (SO 2 ), nitrogen oxides (NOx), and mercury (Hg). Particulate matter, SO 2 , and NOx are currently regulated under the Clean Air Act (CAA), and the Environmental Protection Agency (EPA) has promulgated rules to regulate mercury beginning in 2010. Other gases may pose indirect risks, notably carbon dioxide (CO 2 ), which contributes to global warming. Table 1 provides estimates of SO 2 , NOx, and CO 2 emissions from electric generating facilities. Annual emissions of Hg from utility facilities are more uncertain; current estimates indicate about 48 tons. Utilities are subject to an array of environmental regulations, which affect in different ways both the cost of operating existing generating facilities and the cost of constructing new ones. The evolution of air pollution controls over time and as a result of growing scientific understanding of health and environmental impacts has led to a multilayered and interlocking patchwork of controls. Moreover, additional controls are in the process of development, particularly with respect to NOx as a precursor to ozone, to both NOx and SO 2 as contributors to PM 2.5 , and to Hg as a toxic air pollutant. Also, under the United Nations Framework Convention on Climate Change (UNFCCC), the United States agreed to voluntary limits on CO 2 emissions. The current Bush Administration has rejected the Kyoto Protocol, which would impose mandatory limits, in favor of a voluntary reduction program. In contrast to the Administration's position, in June 2005, the Senate passed a Sense of the Senate calling for mandatory controls on greenhouse gases that would be designed not to impose significant harm on the economy. For many years, the complexity of the air quality control regime has caused some observers to call for a simplified approach. Now, with the potential both for additional control programs on SO 2 and NOx and for new controls directed at Hg and CO 2 intersecting with the technological and policy changes affecting the electric utility industry, such calls for simplification have become more numerous and insistent. One focus of this effort is the "multi-pollutant" or "four-pollutant" approach. This approach involves a mix of regulatory and economic mechanisms that would apply to utility emissions of up to four pollutants in various proposals—SO 2 , NOx, Hg, and CO 2 . The objective would be to balance the environmental goal of effective controls across the pollutants covered with the industry goal of a stable regulatory regime for a period of years. In February 2002, the Bush Administration announced two air quality proposals to address the control of emissions of SO 2 , NOx, Hg, and CO 2 . The first proposal, called "Clear Skies," would amend the Clean Air Act to place emission caps on electric utility emissions of SO 2 , NOx, and Hg. Implemented through a tradeable allowance program, the emissions caps would be imposed in two phases: 2010 (2008 in the case of NOx) and 2018. As part of a complete rewrite of Title IV of the Clean Air Act, the Administration's proposal was introduced in the 108 th Congress as H.R. 999 and S. 485 . Revised versions of Clear Skies legislation were introduced in the 109 th Congress as H.R. 227 and S. 131 . The proposal has not been reintroduced in the 110 th Congress. The second Administration proposal initiates a new voluntary greenhouse gas reduction program, similar to ones introduced by the earlier George H. W. Bush and Clinton Administrations. Developed in response to the U.S. ratification of the 1992 UNFCCC, these previous plans projected U.S. compliance, or near compliance, with the UNFCCC goal of stabilizing greenhouse gas emissions at their 1990 levels by the year 2000 through voluntary measures. The Bush Administration proposal does not make that claim, projecting only a 100 million metric ton reduction in emissions from what would occur otherwise in the year 2012. Total emissions would continue to rise. Instead, the plan focuses on improving the carbon efficiency of the economy, reducing 2002 emissions of 183 metric tons per million dollars of GDP to 151 metric tons per million dollars of GDP in 2012. It proposes several voluntary initiatives, along with increased spending and tax incentives, to achieve this goal. The Administration notes that the new initiatives would achieve about one-quarter of the objective, while three-quarters of the projected reduction is seen as occurring through existing efforts. In the 110 th Congress, five bills have been introduced that would impose multi-pollutant controls on utilities. They are all four-pollutant proposals that include carbon dioxide. S. 1168 , introduced by Senator Alexander, and S. 1177 , introduced by Senator Carper, are revised versions of S. 2724 , introduced in the 109 th Congress. S. 1201 , introduced by Senator Sanders, and S. 1554 , introduced by Senator Collins, are similar but revised versions of S. 150 , introduced in the 109 th Congress. In contrast, H.R. 3989 , introduced by Representative McHugh, represents a new proposal. All of these bills involve some form of emission caps, beginning in 2009-2012 time frame. S. 1168 , S. 1177 , and S. 1201 include a second phase beginning in 2013-2015; H.R. 3989 includes a multi-phase program for CO 2 only. They would employ a tradeable credit program to implement the SO 2 , NOx, and CO 2 caps while all but H.R. 3989 permit plant-wide averaging in complying with the Hg requirements. The provisions concerning SO 2 , NOx, and Hg in the five bills are generally more stringent than the comparable provisions of S. 131 of the 109 th Congress. It is difficult to compare the CO 2 caps contained in these bills with the Administration's proposal concerning CO 2 —both because the Administration's proposal is voluntary rather than mandatory and because it is broader (covering all greenhouse gas emissions rather than just utility CO 2 emissions). The five bills are summarized in the Appendix . Each of these bills generally builds on the SO 2 allowance trading scheme contained in Title IV of the 1990 Clean Air Act Amendments (CAAA). Under this program, utilities are given a specific allocation of permitted emissions (allowances) and may choose to use those allowances at their own facilities, or, if they do not use their full quota, to bank them for future use or to sell them to other utilities needing additional allowances. All five bills introduced in the 110 th Congress provide for a tradeable allowance scheme to implement their emission caps on SO 2 , NOx, and CO 2 . However, allowance allocation schemes in the bills differ, with S. 1201 and S. 1554 containing detailed provisions for allocating SO 2 , NOx, and CO 2 allowances to various economic sectors and interests. In most cases, these interests (or their trustees in the case of households and dislocated workers and communities) would auction off (or otherwise sell) their allowances to the affected utilities and use the collected funds for their own purposes. In addition, S. 1201 requires the increasing use of auctions, mandating 100% of the annual allowance allocation be auctioned within 15 years of enactment. In contrast, S. 1168 bases its allowance formulas on fuel usage adjusted by factors specified in the bill, along with a requirement that 25% of the allowances be auctioned. S. 1177 specifies CO 2 and NOx limitations based on electricity output, and SO 2 limitations based on the current Title IV program. The bill sets a schedule for increasing the percentage of the annual allowance allocation that is to be auctioned with 100% required in 2036 and thereafter. Finally, H.R. 3989 auctions 100% of its CO 2 allowances while providing discretion to EPA to allocate SO 2 and NOx allowances. On mercury, all five bills focus on achieving a 90% reduction by 2011 ( S. 1554 and H.R. 3989 ), 2013 ( S. 1201 ) or 2015 ( S. 1168 and S. 1177 ). In contrast, the emissions goal of S. 131 of the 109 th Congress would have allowed about three times more emissions and three to five more years for compliance. In addition, all but H.R. 3989 restrict Hg credit trading to plant-wide averaging of emissions, in contrast with the cap-and-trade program of S. 131 . H.R. 3989 is even more stringent, imposing the emissions rate limitation on a unit-by-unit basis. The bills currently introduced in the 110 th Congress specify CO 2 reductions. In contrast, the Administration's CO 2 proposal relies on various voluntary programs and incentives to encourage reductions in greenhouse gases from diverse sources, including CO 2 emissions from electric generation. These voluntary reductions should not be taken as a given, as neither the George H. W. Bush Administration's nor the Clinton Administration's voluntary programs achieved their stated goals. Thus, in one sense, comparing a mandatory reduction program such as that proposed by S. 1168 , S. 1177 , S. 1201 , and S. 1554 with the Administration's voluntary program is comparing apples to oranges. The first is legally binding, the second has been criticized as merely an exhortation. The CO 2 reduction requirements of S. 1168 , S. 1201 , and S. 1554 are similar, except that S. 1201 and S. 1554 requires affected sources also offset CO 2 emissions from small electric generating units. In contrast, S. 1177 imposes a cap that starts out slightly higher than the other two bills and declines on a slower schedule. Finally, H.R. 3989 has the most detailed reduction scheme with substantial reductions from coal-fired facilities scheduled through 2050. All but H.R. 3989 have provisions to create offsets and facilitate sequestration efforts. Among its titles, S. 1168 has extensive provisions providing for greenhouse gas offsets from landfill methane (CH 4 ), sulfur hexafluoride (SF 6 ) projects, afforestation or reforestation, energy efficiency, agricultural practices (manure management), and biomass. The provisions in S. 1177 include allowance allocations for incremental nuclear capacity, clean coal technology, and renewable energy, along with programs to encourage sequestration. Likewise, S. 1554 includes allowance allocations to encourage renewable energy, energy efficiency, and sequestration. Finally, S. 1201 requires the EPA to develop standards for providing allowances for geologic and biological sequestration. In addition to emissions caps, S. 131 of the 109 th Congress would have substantially modified or eliminated several provisions in the Clean Air Act with respect to electric generating facilities. The bill would have eliminated New Source Performance Standards (NSPS) (Section 111) and replaced them with statutory standards for SO 2 , NOx, particulate matter, and Hg for new sources. Modified sources could have also opted to comply with these new statutory standards and be exempted from the applicable Best Available Control Technology (BACT) determinations under Prevention of Significant Deterioration (PSD) provisions (CAA, Part C) or Lowest Achievable Emissions Rate (LAER) determinations under non-attainment provisions (CAA, Part D). Compliance with these provisions would have exempted such facilities from New Source Review (NSR), PSD-BACT requirements, visibility Best Available Retrofit Technology (BART) requirements, Maximum Achievable Control Technology (MACT) requirements for Hg, and non-attainment LAER and offset requirements. The exemption would not have applied to PSD-BACT requirements if facilities were within 50 km of a PSD Class 1 area. Existing sources could have also received these exemptions if they agreed to meet a particulate matter standard specified in the bill along with good combustion practices to minimize carbon monoxide emissions within three years of enactment. In addition, S. 131 would have provided these exemptions for industrial sources that choose to opt into the Clear Skies program. S. 131 also would have included an exemption for steam electric generating facilities from Hg regulation under Section 112 of the CAA (including the residual risk provisions), and relief from enforcement of any Section 126 petition (with respect to reducing interstate transportation of pollution) before December 31, 2014. The five bills in the 110 th Congress generally omit the regulatory changes of S. 131 , while introducing new provisions. All five bills would revise the current New Source Review (NSR) program to require affected electric generating units 40 years or older (30 years old in the case of H.R. 3989 ) to meet more stringent SO 2 and NOx performance standard by either 2015 ( S. 1201 ), 2016 ( S. 1554 ), 2020 ( S. 1168 and S. 1177 ), or five years after enactment ( H.R. 3989 ). All except S. 1554 and H.R. 3989 contain provisions establishing a new performance standard for CO 2 . S. 1168 and S. 1177 would also eliminate the annual NOx and SO 2 caps contained in the recently promulgated Clean Air Interstate Rule (CAIR). In addition to the above, S. 1201 and S. 1554 would create several new regulatory programs and standards, including an Efficiency Performance Standard, and a Renewable Portfolio Standard. These programs would be implemented through a credit trading program.

Summary: With the prospect of new layers of complexity being added to air pollution controls, and with electricity restructuring putting a premium on economic efficiency, interest is being expressed in finding mechanisms to achieve health and environmental goals in simpler, more cost-effective ways. The electric utility industry is a major source of air pollution, particularly sulfur dioxide (SO2), nitrogen oxides (NOx), and mercury (Hg), as well as unregulated greenhouse gases, particularly carbon dioxide (CO2). At issue is whether a new approach to environmental protection could achieve the nation's air quality goals more cost-effectively than the current system. One approach being proposed is a "multi-pollutant" strategy—a framework based on a consistent set of emissions caps, implemented through emissions trading. Just how the proposed approach would fit with the current (and proposed) diverse regulatory regimes remains to be worked out; they might be replaced to the greatest extent feasible, or they might be overlaid by the framework of emissions caps. In February 2002, the Bush Administration announced two air quality initiatives. The first, "Clear Skies," would amend the Clean Air Act to place emission caps on electric utility emissions of SO2, NOx, and Hg. Implemented through a tradeable allowance program, the emissions caps would generally be imposed in two phases: 2008 and 2018. "Clear Skies" was re-introduced in the 109th Congress as S. 131. The second initiative begins a voluntary greenhouse gas reduction program. This plan, rather than capping CO2 emissions, focuses on improving the carbon efficiency of the economy, reducing 2002 emissions of 183 metric tons per million dollars of GDP to 151 metric tons per million dollars of GDP in 2012. In the 110th Congress, five bills have been introduced that would impose multi-pollutant controls on utilities. They are all four-pollutant proposals that include carbon dioxide. S. 1168 and S. 1177 are revised versions of S. 2724, introduced in the 109th Congress. S. 1201 and S. 1554 are expanded and revised versions of S. 150, introduced in the 109th Congress, while H.R. 3989 is a new proposal. All of these bills involve some form of emission caps, beginning in the 2009-2012 time frame, with all but S. 1554 including a second phase in 2013-2015 (CO2 only for H.R. 3989). They would employ a tradeable credit program to implement the SO2, NOx, and CO2 caps; all but H.R. 3989 permit plant-wide averaging in complying with the Hg requirements. The provisions concerning SO2, NOx, and Hg in the 110th Congress bills are generally more stringent than the comparable provisions of S. 131 of the 109th Congress. It is difficult to compare the CO2 caps contained in these bills with the Administration's proposal concerning CO2—both because the Administration's proposal is voluntary rather than mandatory and because it is broader (covering all greenhouse gas emissions rather than just utility CO2 emissions).