In February 2002, the Bush Administration announced two air quality proposals to addressthe control of emissions of sulfur dioxide (SO 2 ), nitrogen oxides (NOx), mercury (Hg), and carbondioxide (CO 2 ). (1) The firstproposal, called "Clear Skies," would amend the Clean Air Act (CAA) to place emission caps onelectric utility emissions of SO 2 , NOx, and Hg. Implemented through a tradeable allowanceprogram, the emissions caps would be imposed in two phases: 2010 (2008 in the case of NOx) and2018. As part of a complete rewrite of Title IV of the Clean Air Act, Clear Skies was introduced inthe 108th Congress on February 27, 2003, as H.R. 999 and S. 485 . (2) In the 109th Congress, amodified version of Clear Skies ( S. 131 ) has been introduced by Senator Inhofe and hasbecome the focus of congressional hearings and potential markup. (3) Much of the debate surrounding the Administration's Clear Skies proposal has focused onits cap-and-trade implementation scheme. For example, EPA states: "The Clear Skies approachwould deliver guaranteed emissions reductions of SO 2 , NOx, and mercury at a fraction of commandand control costs, increasing certainty for industry, regulators, consumers and citizens." (4) In some ways, the proposal'scap-and-trade provisions are its least significant aspects in terms of the proposal's interaction withthe structure of the Clean Air Act. EPA has already promulgated regulations using a regionalcap-and-trade program to control NOx emissions over the eastern United States (called the NOx SIPCall) under existing Clean Air Act authority, and has proposed other cap-and-trade regulations toachieve Clear Skies' level of reductions over 28 eastern states and the District of Columbia for bothSO 2 and NOx. (5) Inaddition, EPA has proposed other cap-and-trade regulations to achieve similar Clear Skies mercuryreductions, although their legality has been subject to some question. (6) Far more important to the fabric of the Clean Air Act are the various provisions in ClearSkies to alter, delete, or hold in abeyance for some time existing sections of the Clean Air Act withrespect to affected electric generating units and industrial sources that choose to opt into theprogram. The Administration has made it clear that with Clear Skies, it believes certain CAAprovisions are no longer necessary. As stated by then-EPA Administrator Whitman before theSenate Environment and Public Works Committee, as EPA was developing Clear Skies legislation: Well, it is our feeling that right now that depending onwhere you set the targets, that New Source Review is certainly one of those regulatory aspects thatwould no longer be necessary -- the regional haze, the BART, as I mentioned before, the MACTstandards, the NOx SIP Call, the 126 Rule, acid rain -- all of those could be eliminated and combinedinto one regulatory process under a new piece of legislation that would be vastly simplified. Itdepends where they go on those for utilities -- we are talking for utilities now -- as far as most ofthose are concerned. But where you go depends on what level is set in the final legislation, how faryou can go to eliminate the additional regulations that we have in place now. (7) This report examines the potential impact Clear Skies legislation would have on the structureof the Clean Air Act with respect to electric generating units and other industrial sources that chooseto opt into the program. Many of the changes in the Clean Air Act proposed by Clear Skies would occur with respectto Title I. Within its general regulatory structure, several distinctions arise that affect utility planningand operations -- for example, whether the facility is located in clean or dirty air areas, whether afacility is existing or new, and what fuel it burns. And while the underlying regulatory structuregenerally applies to SO 2 , NOx, and particulate matter (PM), the specific requirements for each differ. Despite changes made in the 1990 Clean Air Act Amendments, specifically the addition of acap-and-trade program to control SO 2 emissions (Title IV), the basic structure designed in 1970 andexpanded in 1977 remains the backbone of the Act. The addition of Title IV in 1990 did not changeany of the basic requirements of the Act; Title IV was a supplemental provision, not a substitute forexisting provisions. National Ambient Air Quality Standards / New SourcePerformance Standards / Lowest Achievable Emissions Rate. As enacted in 1970,the CAA established a two-pronged approach to protect and enhance the quality of the nation's air. First, the Act established National Ambient Air Quality Standards (NAAQS), which set limits onthe level of specified air pollutants in ambient air. Second, the Act required national emission limitsto be set for major new polluting facilities; these are called New Source Performance Standards(NSPS). NAAQS have been established for six "criteria" pollutants, including SO 2 , NOx, andPM. (8) Under the law, EPAsets primary NAAQS (9) toprotect the public health with an "adequate margin of safety." (10) EPA periodically reviewsNAAQS to take into account the most recent health data. NAAQS are federally enforceable withspecific deadlines for compliance, but states are primarily responsible for actually implementing thestandards, through development and enforcement of State Implementation Plans (SIPs). In general,these plans focus on reducing emissions from existing facilities to the extent necessary to ensure thatambient levels of pollution do not exceed the NAAQS. For areas not in attainment with one or more of these NAAQS, the 1970 CAA mandatesstates to require new sources to install Lowest Achievable Emissions Rate (LAER) technology. Along with "offset" rules, (11) LAER ensures that overall emissions do not increase as a resultof a new plant's operation. LAER is based on the most stringent emission rate of any stateimplementation plan or achieved in practice without regard to cost or energy use. (12) Existing sources in anonattainment area are required to install less stringent Reasonably Available Control Technology(RACT), a state determination based on federal guidelines. The 1970 CAA also established New Source Performance Standards (NSPS), which areemission limitations imposed on designated categories of major new (or substantially modified)stationary sources of air pollution. For fossil fuel-fired electric generating facilities, EPA has setNSPS for SO 2 , NOx, and PM 10 (particles smaller than 10 microns), and is required by the Act toreview the standards every eight years. A new source is subject to NSPS regardless of its locationor ambient air conditions. Recognizing that pollutants are no respecters of state boundaries, the CAA has establishedseveral mechanisms for addressing interstate pollution that may contribute to noncompliance witha NAAQS. These mechanisms include regional commissions, such as the Ozone TransportCommission, state petitions under Section 126, and other provisions for regional groups. The largestof these interstate regulatory regimes is the NOx SIP Call, which controls NOx emissions from 20states and the District of Columbia. Under the NOx SIP Call, the affected states are given emissionbudgets that they can achieve in whatever manner they choose. Noting the regional nature of theozone problem in the eastern United States, EPA successfully encouraged states to implement therule through an EPA-coordinated cap-and-trade program. In summary, under this overall regulatory regimen, existing sources in nonattainment areasare subject to controls determined by the state as necessary to meet NAAQS; existing sources inattainment areas are essentially free from controls. And major new sources, including fossilfuel-fired electric generating facilities, are subject to NSPS as the minimum requirement,anywhere. (13) Prevention of Significant Deterioration / New Source Review /Best Available Control Technology. The 1977 CAA broadened the air qualitycontrol regimen with the addition of the Prevention of Significant Deterioration (PSD) and visibilityimpairment provisions. The PSD program (Part C of Title I of the CAA) focuses on ambientconcentrations of SO 2 , NOx, and PM in "clean" air areas of the country (i.e., areas where air qualityis better than the NAAQS). The provision allows some increase in clean areas' pollutionconcentrations depending on their classification. In general, historic or recreation areas (e.g.,national parks) are classified Class I with very little degradation allowed, while most other areas areclassified Class II with moderate degradation allowed. States are allowed to reclassify Class II areasto Class III areas, which would be permitted to degrade up to the NAAQS. (14) New sources in PSD areas must undergo preconstruction review (called New Source Reviewor NSR) and must install Best Available Control Technology (BACT) as the minimum level ofcontrol. State permitting agencies determine BACT on a case-by-case basis, taking into accountenergy, environmental, and economic impacts. BACT cannot be less stringent than the federalNSPS, but it can be more so. More stringent controls can be required if modeling indicates thatBACT is insufficient to avoid violating PSD emission limitations, or the NAAQS itself. A complement to the PSD program for existing sources is the regional haze program (Section169A of the Act), which focuses on "prevention of any future, and the remedying of any existing,impairment of visibility" resulting from manmade air pollution in national parks and wildernessareas. (15) Among thepollutants that impair visibility are sulfates, organic matter, and nitrates. Sources built between 1962and 1977 are required to install Best Available Retrofit Technology (BART). In 1999, the EPApromulgated a regional haze program, which would entail more stringent controls on NOx and SO 2 . Table 1 summarizes the current air quality control requirements imposed on fossil fuel-firedelectric generating facilities by Title I. Separate from the Title I requirements for criteria pollutants, Section 112 of the Actestablishes a two-phase federal regulatory program for 188 hazardous air pollutants (HAPs) listedin the Act. Among the HAPs is mercury. In the first phase, Maximum Achievable Control Technology (MACT) standards are to bepromulgated for all major sources of the pollutants. MACT is determined by the EPA Administrator,but it must be at least as stringent as the best controlled similar source for new sources or (with someexceptions) the average of the best performing 12% for existing sources. In the second phase, eightyears after promulgation of MACT, additional regulations may be promulgated to address any"residual risks" from HAPs after the implementation of MACT. Electric utilities were given special treatment under Section 112. In Section 112(n), the Actrequired that EPA report to Congress on the hazards to public health from electric generating units'emissions of HAPs and make an affirmative finding that regulation under Section 112 is "appropriateand necessary" for such units before proceeding to issue MACT standards. EPA made this findingin December 2000; but in January 2004, it proposed to rescind its conclusion that the MACTstandard was necessary, instead proposing a cap-and-trade program under Section 111 as itspreferred approach. Table 1. Implementing Title I: Simplified Structure for Electric Generating Units Source: CRS, modified from Electric Power Research Institute, NOx Regulatory Changes and the ElectricUtility (September 1981), pp. 2-3. Table 2. Implementing Section 112 for Mercuryand Other HAPs from Electric Generating Units and OtherSources Source: CRS. Under current law, states are allowed to implement standards for HAPs thatare more stringent than the federal ones, and several (including Massachusetts,Connecticut, New Jersey, and Wisconsin) have already done so. Table 2 summarizes the current requirements imposed on fossil fuel-firedelectric generating facilities by Section 112. Clear Skies would change numerous provisions of current law. Some of thesechanges add new authorities or programs -- for example, the establishment ofnational cap-and-trade programs for utility emissions of NOx and mercury, and theextension and revision of the Title IV cap-and-trade program for SO 2 . Other changesremove existing authority (e.g., the hazardous air pollutant provisions of Section 112,as they relate to mercury emissions from utilities and from opt-in facilities in otherindustries). And other changes modify and/or hold in abeyance certain provisions forseveral years (e.g., BART, Section 126, conformity). A list of the additional authorities would include (1) the cap-and-tradeprograms for SO 2 , NOx, and Hg; (2) statutory national emission standards for newand reconstructed electric generating units (EGUs); (3) authority for sources in otherindustries to opt into the cap-and-trade program; and (4) establishment of an optional"transitional area" category in place of the traditional nonattainment area designationsunder Sections 107 and 110. A list of the authorities removed (or limited in new ways) would include (1)provisions for major sources (i.e., affected EGUs and opt-in units would no longerbe considered major sources); (2) changes to the hazardous air pollutant provisionsof Section 112, removing utilities and opt-in units from the sources whose mercuryemissions can be controlled under Maximum Achievable Control Technology(MACT) and residual risk provisions; (3) changes to Section 126, establishing amoratorium on the use of petitions to control interstate air pollution, and establishingsubstantially more stringent requirements for acceptance of such petitions after themoratorium; (4) reduction of the noncompliance penalties under the new SO 2 cap-and-trade program; (5) effective preemption of more stringent state requirementsfor NOx and mercury; (6) elimination of New Source Review (NSR) formodifications of major sources; (7) elimination of Best Available RetrofitTechnology (BART) requirements under Section 169A (which concerns visibilityprotection); (8) establishment of a statutory 50 km zone around Class I areas forimposition of the Prevention of Significant Deterioration (PSD) requirements(replacing a current regulatory 100 km zone); (9) exempting affected units locatedin PSD Class II areas from Class II limitations on pollution increments; (10)extension of deadlines for meeting the ozone and PM 2.5 NAAQS; (11) a de facto moratorium on the provisions of Subpart 2 dealing with ozone nonattainment in mostareas; and (12) a de facto moratorium on the conformity requirements (for highwaysand other projects) under Section 176 in most ozone and PM 2.5 nonattainment areas. 1. Cap and Trade Program for SO2, NOx, andMercury. Much of Clear Skies consists of detailed provisions thatwould replace Title IV of the Clean Air Act, the acid precipitation title, with a revisedand expanded version establishing a multi-pollutant cap-and-trade program. Theproposal would place caps on emissions of SO 2 , NOx, and Hg in two phases, andwould set up trading programs to provide flexibility in meeting the three caps. For the version introduced as S. 131 , Phase 1 would establishcaps for EGUs of: 2.19 million tons of NOx in 2008; 4.5 million tons of SO 2 in 2010; and 34 tons of mercury in 2010. The S. 131 Phase 2 caps, which would take effect in 2018, are set at: 1.79 million tons of NOx; 3.0 million tons of SO 2 ; and 15 tons of mercury. (17) The allowance trading program provisions are generally similar to those ofthe existing Title IV program. As specified under S. 131 , allowanceswould be allocated free to EGUs based on historic fuel usage. For the new NOx andHg programs, the allocation would be adjusted by factors specified in the bill (e.g.,EGUs fueled by lignite would receive three times as many Hg allowances as wouldcomparable EGUs fueled by bituminous coal). Unlike the existing program, a smallpool (7% of the SO 2 and 5% of the NOx and Hg allowances) would be set aside fornew units. 2. National Emission Standards for SO2, NOx, andHg Emissions from New and Reconstructed EGUs. Clear Skieswould establish statutory standards for emissions of SO 2 , NOx, and Hg from new andreconstructed EGUs. The standards are generally more stringent than current NSPS(e.g., for NOx, the standard would be 1.0 lb/MWh for coal-fired EGUs versus thecurrent NSPS of 1.6 lb/Mwh (18) ; for particulate matter, the standard would be 0.20lb/MWh, about one-third less than the current NSPS). The Hg standard (0.015lb/GWh) is more stringent than the proposed MACT for subbituminous, lignite, andIGCC units -- especially the lignite units -- but it would allow two and a half timesas much emissions as the proposed MACT for bituminous-fired EGUs. Compared to the current NSPS, the National Emission Standards would applyto fewer units (as discussed further in item 6 under "Authorities Removed orLimited," below). The National Emission Standards would be reviewed and, ifappropriate, revised at least every eight years following their promulgation, the sameas the requirement for existing NSPS. 3. Authority for Non-Utility Sources to Opt into theCap-and-Trade Program. S. 131 would allow units thatare not affected EGUs and whose emissions of SO 2 , NOx, and Hg are vented onlythrough a stack or duct to opt into the cap-and-trade program. The proposalestablishes alternative methods of determining allowances for these units based ona unit's heat input or product output and its emissions during one of several optionalbase periods. In the case of S. 131, a unit would receive allocations equalto 70% of its baseline SO 2 and NOx emissions beginning in 2010, and 50%beginning in 2018. Mercury allocations, beginning in 2010, would be equal to theemissions allowed under federal or state hazardous air pollutant standards (generally,the standards for industrial boilers and process heaters promulgated by EPA inSeptember 2004). In return for opting into the cap-and-trade program, units would be exemptfrom compliance deadlines for all hazardous air pollutants under four broadcategories of regulations (industrial boilers, process heaters, combustion engines andturbines, and plywood) as soon as they apply for acceptance, (19) and wouldbe permanently exempt from the regulations if EPA accepts their application to optin. In addition, units that opt in would no longer be considered a major sourceor a major emitting facility or major stationary source for purposes of Part C (PSD)and Part D (nonattainment) of the Act for 20 years. As discussed later (see item 1under "Authorities Removed or Limited," below), this would exempt opt-in unitsfrom several requirements provided the owner/operator properly operated,maintained, and repaired the unit's pollution control equipment to limit particulateemissions and used good combustion practices to minimize carbon monoxideemissions. 4. Establishment of an Optional "TransitionalArea" Category in Place of Nonattainment Designations. ClearSkies would amend Section 107 of the Clean Air Act to allow areas to be designated"transitional" rather than "nonattainment" for the new 8-hour ozone and PM 2.5 standards, if EPA or state modeling demonstrate that the area will attain the newstandards by December 31, 2015. EPA modeling demonstrates that 88% of the ozoneand about two-thirds of the PM 2.5 nonattainment counties would qualify for thistransitional status; (20) other areas could qualify by adopting additionallocal controls. The effects of this change (as discussed in more detail in items 10, 11,and 12 under "Authorities Removed or Limited") are to extend the deadlines forreaching attainment and remove numerous statutory requirements for nonattainmentareas under Part D until after 2017. 1. Exemption from Major Source RequirementsUnder Parts C and D. Clear Skies would provide that affected units(including both EGUs and facilities in other industries that opt into the cap-and-tradeprogram) would not be considered major emitting facilities or major stationarysources of air pollution for purposes of Parts C (PSD provisions) and D(nonattainment provisions) of Title I of the Clean Air Act for a period of 20 yearsafter the date of enactment. For the PSD program, this would exempt them from therequirements of NSR and BART, as well as BACT. Unless an affected unit waslocated within 50 km of Class I areas (158 designated national parks and wildernessareas), it would not be subject to the ambient air protections (i.e., increments) of thePSD program. If the unit is located within 50 km of a Class I area , however, it wouldremain subject to the PSD requirements in Part C of Title I. (21) (See furtherdiscussion under items 7, 8, and 9, below.) For nonattainment areas, Clear Skies would exempt affected units fromnonattainment NSR, LAER, and offset requirements. This would limit the ability ofnonattainment areas to impose additional controls on existing EGUs and opt-infacilities under their State Implementation Plans. To qualify for the exemptions, an existing affected unit (or opt-in unit asnoted above) must show that it "operates, maintains and repairs pollution controlequipment to limit emissions of particulate matter" and "uses good combustionpractices to minimize emissions of carbon monoxide" within three years of the dateof enactment. 2. Changes to the Hazardous Air PollutantProvisions of Section 112. Clear Skies would revise Section 112 ofthe Clean Air Act to preclude regulation of any hazardous air pollutants emitted byelectric utility steam generating units through either MACT or residual riskstandards, with the following exception. The Administrator would retain theauthority to address any non-mercury hazardous air pollutants from EGUs providedthat any determination to do so is based on public health concerns and, on anindividual source basis, considers the effects of emission controls installed oranticipated in order to meet 2018 emission requirements under the cap-and-tradeprogram. A determination to impose such controls would also need to be based ona peer-reviewed study with notice and opportunity to comment, to be completed notbefore January 2015. Any such standards could not take effect before January 1,2018. As noted earlier, S. 131 as introduced also exempts units that optinto the cap-and-trade program from compliance deadlines under four sets ofhazardous air pollutant regulations already promulgated under Section 112 once theunits apply to opt in; it would permanently exempt them from compliance with thefour MACT standards if EPA accepts their application. 3. Changes to Section 126Petitions. Clear Skies would add a new Section 110(q) to the CleanAir Act, establishing a moratorium on the use of petitions to control interstate airpollution from affected units (under Section 126 of the Act) and establishing morestringent requirements for acceptance of such petitions after the moratorium. Undercurrent law, Section 126 authorizes downwind states or political subdivisions topetition the Administrator to find that certain upwind sources emit air pollutants inamounts that contribute significantly to the petitioner's nonattainment. If theAdministrator grants the finding, the upwind sources must either shut down orimplement controls that the Administrator may mandate, within a specified period,but no later than three years from the date of the finding. The amendment wouldprovide that the Administrator may not require submission of SIPs subjectingaffected units to Section 126 requirements with an effective date prior to December31, 2014. In reviewing a petition under Section 126, the Administrator would have toconsider, among other factors, any emissions reductions required to occur by theapplicable attainment dates of any relevant nonattainment areas. In addition, asconditions for making a finding concerning affected units, the Administrator wouldhave to determine that the required emission reductions from the affected units (1)are at least as cost-effective as emission reductions from each other principalcategory of sources in areas upwind of the petitioner (including on-road and off-roadmobile sources), and (2) will improve air quality in the petitioner's nonattainmentareas at least as cost-effectively as other emission reductions, if a methodology isreasonably available to make such determinations. 4. Change in Noncompliance Penalties Under TitleIV. Clear Skies would replace the Clean Air Act's existing Section411 beginning in 2008, effectively reducing the penalties for noncompliance with thesulfur dioxide cap-and-trade program provided in current law. Under current law,noncompliance penalties were set at $2,000 per ton of excess emissions in 1990. Theamount is adjusted for inflation: in 2004, the adjusted amount would have been$2,890.59, according to the Bureau of Labor Statistics. Section 406 of the bill wouldset the penalties at $2,000, with no further inflation adjustments, thus cutting thepenalty by about one-third initially, and more in subsequent years. 5. Preemption of StateRequirements. Like current law, Clear Skies states that it does notpreempt the right of any state or political subdivision thereof to adopt or enforcelimits more stringent than those provided in the bill. Under the cap-and-tradeprograms, however, " notwithstanding any other provision of this Act, " states andtheir political subdivisions would be prohibited from interfering with the transfer,sale, or purchase of allowances. The net effect of these provisions would be to allowincreased emissions in another jurisdiction by an amount equal to any reductionachieved in a more stringent state for each of the three covered pollutants. Since thebill also limits the ability to file Section 126 petitions to control out-of-statepollution, a more stringent standard enacted by a state might have no effect onnational levels of a pollutant, but would burden a state's economy with additionalcontrol costs. 6. Elimination of New Source Review forModifications of EGUs. As noted earlier, Clear Skies wouldexempt EGUs and opt-in facilities from NSR for a period of 20 years. The bill does,however, establish National Emission Standards for new EGUs (also describedabove). These new standards would not apply to "modified" units, but would applyto "reconstructed" units. Reconstruction is defined as the replacement of componentsto such an extent that the fixed capital cost of the new components exceeds 50% ofthe fixed capital cost to construct a comparable new unit. Also, the standards wouldnot apply to reconstructed units unless it is technologically and economically feasibleto meet the standards. Under current law and subsequent regulation, there is no specific costcriterion for what qualifies as a modification requiring an affected source to undergoNSR, but it is considered to be well below a 50% threshold. EPA's October 2003attempt to establish a 20% threshold was criticized as exempting virtually every plantmodification from the existing requirement, and was stayed by the U.S. Court ofAppeals for the D.C. Circuit on December 24, 2003. (22) 7. Elimination of Best Available RetrofitTechnology (BART) Requirements. Under Section 169A of PartC of the Clean Air Act, major sources that were in operation between 1962 and 1977are subject to BART. BART is intended to assure reasonable progress toward thegoal of visibility protection in Class I national park and wilderness areas. Clear Skieswould exempt EGUs and opt-in facilities from BART for a period of 20 years afterenactment. 8. Class I PSD Areas. As notedabove, S. 131 as introduced provides that an affected unit to be locatedwithin 50 km of a Class I area on which construction or reconstruction begins afterthe date of enactment would remain subject to PSD requirements. PSD currentlyrequires that all major new and modified sources with the potential to affect airquality in a Class I area obtain a new source permit that assures no adverse impacton the area's visibility. The statute does not specify a specific distance limit, but theregulations require permit applicants to identify Class I areas within 100 km of theunit's location. (23) 9. Class II PSD Areas. Under thePSD program, areas classified as Class II are permitted to increase moderatelyambient concentrations of SO 2 , NOx, and PM by a statutorily determined increment(regulatorily determined in the case of NOx). Clear Skies would exempt affectedunits located in Class II areas from having to offset or otherwise further control theiremissions in order to maintain ambient air quality within the Class II increments. 10. Extension of Deadlines for the Ozone andPM2.5 NAAQS. Under current law, nonattainment areas mustgenerally demonstrate that they will attain the new standards for ozone and fineparticles (PM 2.5 ) by 2007, 2009, or 2010 (depending on EPA's classificationscheme). (24) As noted earlier, Clear Skies would create a new"transitional" area classification in place of nonattainment, for areas that candemonstrate through modeling that they will attain the standards by December 2015. Until that date, transitional areas would not incur penalties or face additionalrequirements beyond those identified in the EPA or state modeling (generally theClear Skies controls and already promulgated federal standards for mobile sources).After 2015, if an area failed to achieve the standard, it would be designatednonattainment by June 2017, and would then have to impose controls to reachattainment by 2022. Meanwhile, until 2017, the ozone transitional areas would beexempt from statutory requirements spelled out in Subpart 2 of Part D of the Act(described below). 11. Elimination of the Provisions of Subpart 2 forOzone Nonattainment. Subpart 2 (Sections 181 and 182) of theClean Air Act spells out numerous specific requirements for areas that are classifiedin Marginal, Moderate, Serious, Severe, or Extreme ozone nonattainment. These caninclude LAER standards and offset requirements for new stationary sources,imposition of RACT on existing stationary sources, inspection and maintenanceprograms for motor vehicles, vapor recovery at gas stations, use of reformulatedgasoline, and $5,000 per ton penalties on some emissions if an area ultimately failsto meet the standard. EPA has proposed to keep these requirements in place for areasthat have failed to meet the 1-hour ozone standard, but it would appear that suchareas might be able to qualify as "transitional" under Clear Skies. (25) Transitional areas would not be considered in nonattainment. If the areas do qualifyas transitional, they would appear to be able to roll back statutory requirements towhich they are now subject, provided that they can demonstrate attainment by 2015. 12. Elimination of the ConformityRequirements. Under Section 176 of the Clean Air Act, ozone andPM 2.5 nonattainment areas are required to demonstrate that new federally fundedprojects (e.g., for highways, transit, or airports) conform to the area's SIP for cleanair. Failure to demonstrate transportation conformity can lead to a suspension offederal transportation funds until conformity is demonstrated. By reclassifying mostozone and PM 2.5 nonattainment areas "transitional," Clear Skies would eliminate theapplication of conformity in those areas until 2018. Proposed Clear Skies legislation would make numerous changes to thestructure of Title I with respect to electric generating units (EGUs) covered by theproposed legislation and those industrial sources that choose to opt into the proposedprogram. Table 3 attempts to provide an overview of what Title I would look likeunder Clear Skies with respect to EGUs and industrial sources that chose to opt in. The most significant structural change would be the elimination of location as avariable for controlling EGUs (unless within 50 km of a PSD Class I area). Theemission limitations envisioned under Clear Skies are not based on whether an EGUis in an attainment or nonattainment area. This situation extends to the allowancesystem, which is allowed to operate regardless of an EGU's location or a state or localgovernment's desires to restrict trading in order to help the area come into compliancewith NAAQS. Because EGUs would no longer be major sources under the meaningof Part C and Part D, states' ability to set stringent LAER or offset rules on EGUs innonattainment areas would be eliminated. Table 3. Summary of EGU Requirements under Title I If Clear Skies Is Enacted Source: CRS. Likewise, the inability to restrict trading by EGUs within nonattainment areaswould prevent state and local governments from influencing the actual emissions ofsuch EGUs. Finally, the state's enforcement mechanism, NSR, is eliminated forEGUs covered by Clear Skies. If states chose to set stringent state standards under their own Clean Air Actor equivalent statute, those standards would not be completely controlling. Bypreventing states from restricting allowance trading, any extra reductions achievedby state legislation designed to help achieve attainment (or protect local habitat orscenic areas under Part C) would create additional allowances that the utility couldsell to upwind utilities not covered by the state's legislation. The state could neitherprevent the sale nor obtain relief under a Section 126 petition forcing the neighboringutilities to reduce emissions (until after 2014 under strict conditions). For the 8-hour ozone and PM 2.5 NAAQS, Clear Skies attempts to eliminatethe need for stronger state and local standards (at least the "need" in a regulatorysense) in most cases by establishing a new "transitional" designation for areas thatdo not currently meet ambient air quality standards. Areas would be designatedtransitional if EPA or state modeling showed that Clear Skies and other measuressuch as the recently promulgated controls on mobile sources would bring an area intoattainment by December 2015. Transitional areas would not be considerednonattainment in a regulatory or legal sense, obviating the need and the statutorypretext for additional controls. With respect to PSD, Clear Skies attempts to protect Class I areas byproviding for Part C requirements for facilities within 50 km of an Class I area. Whether this is sufficient is debatable. In terms of protecting areas that states deemworthy of protection but that do not meet Clear Skies' Class I requirement, states andlocalities are basically in the same situation as with respect to nonattainment -- thatis, they are severely constrained in being able to meet requirements by the inabilityto impose additional controls on EGUs and opt-ins. The distinction that has been the source of the most substantial controversyover the years, EGU age, is not fully resolved by Clear Skies. Both Title I and TitleIV of the CAA place the most stringent requirements on new sources, allowingexisting sources to operate with fewer controls. Clear Skies would reduce thisdisparity by setting up allowance reserves for new sources. However, although allallowances would be allocated free, the allocation formulas for existing sourceswould be more generous than for new sources. In addition, the allowances for newsources are on a first-come, first-serve basis. Once the reserve is exhausted, nofurther allowances are available, and no existing allocations may be reassigned byEPA to future new sources commencing operation. Thus, existing units wouldcontinue to have an advantage over new facilities, which would receive either fewerallowances than existing sources, or none at all. Table 4. Control of Mercury and Other HAPsfrom Electric Generating Units (and Opt-Ins) If Clear Skies IsEnacted Source: CRS. Table 4 provides an overview of the regulation of mercury and otherhazardous air pollutants under Clear Skies. Maximum Achievable ControlTechnology standards and residual risk standards would no longer be applicable tonew or existing EGUs; nor would they apply to other industrial sources that opt intothe cap-and-trade program. The absence of such unit-specific standards would makeit more difficult to address "hot spots," areas where concentrations of mercury aregreater than elsewhere. As with the PSD and nonattainment provisions, if states chose to set morestringent state standards under their own Clean Air Act or equivalent statute, thosestandards would not be completely controlling. By preventing states from restrictingallowance trading, any extra reductions achieved by state legislation designed toregulate mercury would create additional allowances the utility could sell to upwindutilities not covered by the state's legislation. The state could not prevent the sale. The Administrator would retain the authority to address non-mercury HAPsfrom EGUs under stringent conditions, including a requirement for a peer-reviewedstudy of public health concerns on an individual unit basis with notice andopportunity to comment. Any such standards could not be implemented before 2018. In some ways, former Administrator Whitman has identified the central issuein Clear Skies' interaction with the Clean Air Act: Are the targets stringent enoughto permit the relaxing or removal of some provisions of the Clean Air Act designedto achieve the same thing with respect to electric utilities? In terms of utility controls designed to achieve the NAAQS, it must be statedthat Clear Skies will not achieve either the 8-hour ozone NAAQS or the fineparticulate NAAQS within the current CAA compliance deadlines, neither in termsof the reductions necessary to achieve those standards nor the timing of thereductions Clear Skies would achieve. EPA's analysis indicates that somenonattainment areas will need additional controls and time to reach attainment. (26) Clear Skies,as currently drafted, would effectively remove additional electric utility control fromthe suite of options available to states to achieve that additional level of control. Inaddition, the opt-in provision means that the reach of Clear Skies is unclear. In someareas, the removal of an industrial source from Part C or Part D could greatly reducethe options state and local authorities would have to achieve NAAQS attainment orto maintain PSD increments. Similar problems are anticipated for Clear Skies' mercury controls. Atpresent, 45 states have issued fish consumption advisories because of mercurycontamination. In about half the cases, the advisories affect every water body in thestate. Clear Skies proposes relatively modest controls on mercury from electricutilities, (27) and most other sources of mercury are alreadysubject to more stringent controls. (28) As currently drafted, Clear Skies wouldeffectively remove additional electric utility controls from the suite of optionsavailable to the states to further reduce mercury emissions. The ability of industrialsources to opt into the Clear Skies program would further reduce state mercurycontrol options. The response of the Administration is to argue that reductions will beachieved sooner and less expensively under Clear Skies than under the Clean AirAct, (29) even though Clear Skies would extend compliance deadlines 5 to 15 years for statesto achieve air quality standards. The record of Title IV suggests that substantialovercontrol may be achieved in the early years of a market-based cap-and-tradeprogram. However, as the program also illustrates over the past couple of years,those early reductions can be used later to increase emissions in a given year over themandated cap. (30) Thus, achieving reductions early under acap-and-trade program does not mean achieving more reductions over the longerterm. For state and local authorities, this additional flexibility allowing sources touse banked allowances can further complicate compliance strategies.

Summary: The 109th Congress, like the two before it, is expected to consider proposals to controlemissions of multiple pollutants from electric power plants. The bills include anAdministration-based proposal, the Clear Skies Act (S. 131), which would control emissions ofsulfur dioxide (SO 2 ), nitrogen oxides (NOx), and mercury, and other bills that would control thethree pollutants plus the greenhouse gas carbon dioxide. Much of the debate surrounding the Administration's Clear Skies proposal has focused onits cap-and-trade implementation scheme. But in some ways, the proposal's cap-and-trade provisionsare its least significant aspects in terms of the proposal's interaction with the structure of the CleanAir Act. EPA has already promulgated regulations using a regional cap-and-trade program to controlNOx emissions over the eastern United States (the "NOx SIP Call") under existing Clean Air Actauthority, and has proposed other cap-and-trade regulations to achieve Clear Skies' level ofreductions over 28 eastern states and the District of Columbia for both SO 2 and NOx (in the CleanAir Interstate Rule). In addition, EPA has proposed cap-and-trade regulations to achieve mercuryreductions similar to those in Clear Skies, although the legality of these regulations is morequestionable. Critical to the fabric of the Clean Air Act are the various provisions in Clear Skies to alteror to delete existing sections of the Act with respect to both electric generating units (EGUs) andindustrial sources that choose to opt into the program. The Administration has made it clear that withClear Skies' comprehensive approach to EGUs and opt-ins, it believes certain CAA provisions needno longer apply to them, in some cases permanently, in others for as long as 20 years or under certainconditions. These include most statutory requirements for Prevention of Significant Deteriorationand attainment of National Ambient Air Quality Standards under Title I of the Act, as well as mostcontrols on hazardous air pollutants as they apply to EGUs and opt-ins. These changes woulddiminish the suite of options states currently have to achieve compliance with air quality standards. In July 2001 testimony, then-EPA Administrator Whitman identified the central issue inClear Skies' interaction with current law: Are the emission reduction targets stringent enough topermit the relaxing or removal of current provisions of the Clean Air Act designed to achieve thesame thing with respect to electric utilities? EPA's analysis indicates that Clear Skies will notachieve either the 8-hour ozone or the fine particulate ambient air quality standards that the agencyrecently implemented within current CAA compliance deadlines. Some nonattainment areas willneed additional controls and time to reach attainment. Clear Skies addresses these issues in part byproviding 5 to 15 years of additional time, while effectively removing additional electric utilitycontrol from the suite of options available to states to achieve the standards. Similarly, withmercury, Clear Skies proposes relatively modest controls on electric utilities, and, as currentlydrafted, would effectively remove additional electric utility controls from the suite of optionsavailable to the states. The ability of industrial sources to opt into Clear Skies could further reducestate control options for both mercury and criteria pollutants. This report will not be updated.