Beginning with the Clean Air Act of 1970, and with substantive additional measures enacted in amendments of 1977 and 1990, electric utilities have been subjected to a multilayered patchwork of air pollution emission requirements. Fossil fuel fired electric generating facilities are major emitters of gases (see table 1), with clean air controls currently directed at three pollutants: sulfur dioxide (SO 2 ), nitrogen oxides (NOx), and particulates (PM). Sulfur oxides have health effects and are a major contributor to acid rain and visibility impairment. Nitrogen oxides have direct health effects, contribute to acid rain and visibility impairment, and are a precursor to ozone, a primary constituent of smog. Particulates have health effects, with the smallest particles now thought to be the most serious causative agents; current regulations focus on particles 10 microns in size or smaller (PM 10 ) and new regulations would control particles less than 2.5 microns in diameter (PM 2.5 ). Emissions of SO 2 and of NOx contribute to the formation of these very fine particles. In 1998, electric utilities accounted for approximately 67% of U.S. emissions of SO 2 , 25% of NOx, and 11% of PM 10 . The evolution of air pollution controls over time and as a result of developing scientific understanding of health and environmental impacts has led to the multilayered and interlocking patchwork of controls, which are outlined in more detail below. Moreover, additional controls are in the process of development, in particular with respect to NOx as a precursor to ozone, and to both NOx and SO 2 as contributors to PM 2.5 . In addition, fossil fuel fired electric generating facilities produce two other gases of environmental and health concern: mercury (Hg) and carbon dioxide (CO 2 ). While some sources of mercury are currently regulated, emissions from electric utilities are not. However the Clean Air Act Amendments of 1990 designated Hg as a hazardous air pollutant subject to a regulatory regime spelled out in Â§112. EPA was also required to study hazards to public health from hazardous air pollutant emissions of electric utility steam generating units in general; and, separately, to report to Congress on mercury emissions from major sources, including electric utility steam generating units. This study, completed in 1997, concluded mercury is a hazard to public health; and it found that electric utility steam generating units account for about one-third of the nation's mercury emissions. On December 14, 2000, EPA announced its intention to regulate utility Hg emissions in 2004, with an effective date of 2007 or 2008. Carbon dioxide is a major greenhouse gas, and fossil fuel fired electric generating facilities account for about 36% of U.S. emissions. While CO 2 emissions are not currently regulated, the United States is a signatory of the United Nation Framework Convention on Climate Change, which involves a voluntary commitment to hold greenhouse gas emissions to 1990 levels. At present, U.S. emissions of CO 2 are running some 10% over that goal. Further, the U.S. has signed the Kyoto Protocol, under which the U.S. would be legally committed to reduce emissions in the 2008-2012 period by 7% from a baseline that includes 1990 CO 2 levels; however, that Protocol has not yet been submitted to the Senate for advice and consent and is not in force. But it remains possible that, beyond the already existing voluntary goal, utilities will be subjected to emissions limits on CO 2 at some time in the future. As described below, this patchwork of existing and potential emissions requirements applicable to fossil fuel fired electric generating facilities has a direct impact on strategic decisions concerning investment in new facilities as well as operational decisions with respect to the timing of maintenance and scheduling of operation. At the same time, the electric utility industry is undergoing major restructuring changes. Proponents of change argue that the air quality requirements add confusion and uncertainty to a utility decisionmaking environment already challenged by new generating technology and new policies concerning competition and economic regulation. A restructured electricity generating sector may have consequences for emissions: current electricity generating economics favor the continued operation of older, more polluting coal-fired facilities, at the expense of building newer, cleaner, natural gas-fired facilities. Previous CRS analysis suggests that the environmental effects of restructuring depend on how well the existing regulatory regimen will work as the industry structure changes. It appears that pollutants controlled under emissions caps, such as SO 2 under the acid rain title of the 1990 CAA Amendments, would retain their efficacy regardless of the industry's structure. The robustness of emissions caps and the possible cost savings that tradeable emissions credits provide are seen by some as a better fit for a restructured industry than the current regulatory system. 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 observers have become more numerous and are pushing more strongly for a simplified approach. Several simplifying approaches have been proposed, ranging from repeal of various components of the air pollution regulatory system, to comprehensive replacement of the "command and control" regulatory approach with some economic mechanism, which is often touted as more efficient and transparent. In the mid-1990s, EPA began investigating the merits of a comprehensive approach to utility emissions control. Called the "Clean Air Power Initiative," the purpose was "to develop, in consultation with stakeholders, an integrated regulatory strategy for pollutants emitted from electric powerplants: sulfur dioxide, nitrogen oxides, and, potentially, mercury." It was "a collaborative effort to seek new approaches to future pollution control that cost less, rely on market mechanisms, and reduce the number and complexity of requirements...." As the effort evolved, a "multi-pollutant"or "four pollutants" approach has come to the fore. This approach involves a mix of regulatory and economic mechanisms that would apply to utility emissions of up to four pollutantsâSO 2 , NOx, Hg, and CO 2 . The objective would be to balance the environmental goal of effective controls across these pollutants with the industry goal of a stable regulatory regime for a period of years. During the 106 th Congress, ten bills were introduced to increase pollution controls on electric generating facilities. The pollutants targeted under these bills included SO 2 , NOx, Hg, and CO 2 . All of these bills involved some form of emissions caps, and most included a tradeable credit program to implement that cap. With President Bush endorsing a four pollutant emissions cap with tradeable permits program during the campaign, attempts to address the issue are possible in the 107 th Congress. This report proceeds by (1) laying out the existing regulatory framework, with emphasis on how it can affect strategic and operational decisions in the utility industry; (2) identifying the "drivers" for rethinking the way air pollution controls are imposed on the industry; (3) describing the elements of a "four pollutants" approach; and (4) discussing the ways that this approach would affect the control of emissions and the industry's decisonmaking. It concludes with a brief outline of legislative options for achieving the goal of balancing environmental and industry objectives. To understand the interest in an integrated approach to controlling utilities emissions of air pollutants, it is necessary to recognize the diverse requirements imposed by the CAA. Within the general regulatory structure, several distinctions arise that affect utility planning and operations (e.g., whether the facility is located in clean or dirty air areas, whether a facility is existing or new, and what fuel it burns). And while the underlying regulatory structure generally applies to SO 2 , NOx, and PM, the specific requirements for each differ. 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 on the level of specified air pollutants in ambient air. Second, the Act required national emission limits to be set for major new polluting facilities; these are called New Source Performance Standards (NSPS). NAAQS have been established for six pollutants, including SO 2 , NOx, and PM. Under the law, EPA sets primary NAAQS to protect the public health with an "adequate margin of safety." EPA periodically reviews NAAQS to take into account the most recent health data. NAAQS are federally enforceable with specific deadlines for compliance, but states are primarily responsible for actually implementing the standards, 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 that ambient levels of pollution do not exceed the NAAQS. For areas not in attainment with one or more of these NAAQS, the 1970 CAA mandates states to require new sources to install Lowest Achievable Emissions Rate (LAER) technology. Along with offset rules, LAER ensures that overall emissions do not increase as a result of a new plant's operation. LAER is based on the most stringent emission rate of any state implementation plan or achieved in practice without regard to cost or energy use. Existing sources in a non-attainment area are required to install Reasonably Available Control Technology (RACT), a state determination based on federal guidelines. The 1970 CAA also established New Source Performance Standards (NSPS), which are emission 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 set NSPS for SO 2 , NOx, and PM 10 , and is required by the Act to review the standards every eight years. A new source is subject to NSPS regardless of its location or ambient air conditions.