The electric utility industry is a major source of air pollution, particularly sulfur dioxide(SO 2 ), nitrogen oxides (NOx), and mercury (Hg), as well as suspected greenhouse gases, particularlycarbon dioxide (CO 2 ). On October 27, 2005, the Environmental Protection Agency (EPA) releaseda long-awaited analysis comparing the costs and benefits of alternative approaches to controlling thispollution. Called multi-pollutant proposals, the alternative schemes focus on using market-orientedmechanisms to achieve health and environmental goals in simpler, more cost-effective ways. EPA'snew analysis compares four versions of the Administration-based "Clear Skies" proposal to billsintroduced by Senator Jeffords ( S. 150 ) and Senator Carper ( S. 843 of the108th Congress), which would impose more stringent requirements. The Administration has been reluctant to conduct such a study, citing the cost and difficultyof doing so, but it relented after the Senate Environment and Public Works Committee, on a tie vote,failed to report the Clear Skies bill ( S. 131 ) in March 2005. One reason the bill failedto advance, according to its opponents, was the concern that an analysis comparing its provisions tothose of Senator Jeffords' and Senator Carper's bills had not been conducted. The issue was raisedagain in April 2005, during confirmation hearings for Stephen Johnson, who was sworn in as EPAAdministrator May 2. As one of his first official acts, he promised to conduct a cost-benefit analysisof Clear Skies and the other Senate bills, the results of which have now been released. Electric utility generating facilities are a major source of air pollution. The combustion offossil fuels (petroleum, natural gas, and coal), which accounts for about two-thirds of U.S. electricitygeneration, results in the emission of a stream of gases. These gases include several pollutants thatdirectly pose risks to human health and welfare, including particulate matter (PM), (1) sulfur dioxide, nitrogen oxides,and mercury. PM, SO 2 , and NOx are currently regulated under the Clean Air Act, and EPA hasfinalized rules to regulate mercury. Other gases may pose indirect risks, notably carbon dioxide,which may contribute to global warming. (2) Table 1 provides estimates of SO 2 , NOx, and CO 2 emissions fromelectric generating facilities. As indicated, SO 2 and NOx emissions have declined over the past sixyears as regulations resulting from the 1990 Clean Air Act Amendments have taken hold. In contrast,CO 2 emissions, which are unregulated, have continued to rise. In 2003, fossil-fuel-fired electricgenerating plants accounted for about 72% of the country's SO 2 emissions, 24% of its NOxemissions, and 41% of its CO 2 emissions. Annual emissions of Hg from utility facilities are moreuncertain; current estimates indicate about 45 tons (more than 40% of the country's total Hgemissions) come from electric generating units. Table 1. Emissions from U.S. Fossil-Fuel ElectricGenerating Plants (thousands of metric tons) Source: Energy Information Administration. Includes emissions fromcombined-heat-and-power plants. The evolution of air pollution controls over time and the growing scientificunderstanding of health and environmental impacts of power plant emissions haveled to a multilayered and interlocking patchwork of controls. Moreover, additionalcontrols are now underway, 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, theUnited States agreed to voluntary limits on CO 2 emissions. The current BushAdministration has rejected the Kyoto Protocol, which would impose mandatorylimits, in favor of a voluntary reduction program. In contrast to the Administration'sposition, in June, 2005, the Senate passed a Sense of the Senate resolution calling formandatory controls on greenhouse gases that would not impose significant harm tothe economy. (3) For many years the complexity of the air quality control regime has causedsome observers to call for a simplified approach. One focus of this effort is the"multi-pollutant" or "four-pollutant" approach. This approach involves a mix ofregulatory and economic mechanisms that would apply to utility emissions of up tofour pollutants in various proposals -- SO 2 , NOx, Hg, and CO 2 . The objective wouldbe to balance the environmental goal of effective controls across the pollutantscovered with the industry goal of a stable regulatory regime for a period ofyears. (4) To some degree, this new approach already has been incorporated intoexisting law with three recently finalized rules: (1) the Clean Air Interstate Rule(CAIR), promulgated May 12, 2005, that caps emissions of SO 2 and NOx in theeastern U.S.; (2) the Clean Air Mercury Rule (CAMR), promulgated May 18, 2005,that caps emissions of Hg from coal-fired powerplants; and (3) the Clean AirVisibility Rule (CAVR), promulgated July 6, 2005, that focuses on SO 2 and NOxemissions that impair visibility surrounding national parks and wilderness areas. More SO 2 and NOx reductions are in the pipeline. With new ambient airquality standards for ozone and fine particles taking effect nationwide in 2005,emissions of NOx (which contributes to the formation of ozone) and SO 2 (which isamong the sources of fine particles) need to be reduced further. Mercury emissionsare also a focus of concern: 44 states have issued fish consumption advisories formercury, covering 13 million acres of lakes, 765,000 river miles, and the coastalwaters of 12 entire states. Mercury enters water bodies from air emissions that areeither deposited directly in them or are deposited on land and end up in water throughprecipitation run off. Many in industry, environmental groups, Congress, and the Administrationagree that legislation that addresses power plant pollution in a comprehensive(multi-pollutant) fashion could achieve health and environmental goals in simpler,more cost-effective ways. In the 109th Congress, six bills have been introduced thatwould impose multi-pollutant controls on utilities. (5) Suchlegislation (the Administration version of which is dubbed "Clear Skies") wouldaddress SO 2 , NOx, and Hg from electric generating facilities on a coordinatedschedule, and would rely, to a large extent, on a system like that used in the acid rainprogram, where national or regional caps on emissions are implemented through asystem of tradeable allowances. Some of the legislative proposals include CO 2 capsas well. Key questions in the ensuing congressional debate have been how stringentthe caps should be, how quickly reductions should be mandated, and whether carbondioxide should be among the emissions subject to a cap. Regarding the stringencyissue, all bills would eventually require a 70% to 80% reduction of both NOx andSO 2 emissions from 1998 levels. Regarding mercury, the bills eventually wouldrequire reductions of 70%-90%. The Clear Skies bill ( S. 131 ) would impose the least stringentstandards and would be phased in over the longest period of time. For all threepollutants, the final Clear Skies deadlines would be 2018, but the actual 70%reduction targets might not be met for as long as a decade after that. The reason forthe delay is the use of what are called "banking" provisions in the regulatory scheme. Because the deadlines are far in the future, utilities would be likely to "overcomply"in the early years of the program, building up credits that could be used in place offurther emission reductions in later years. The Administration uses the projectedovercompliance as a selling point for its approach, arguing that it will achievereductions sooner than would a traditional regulatory approach with similardeadlines. But overcompliance in the early years would lead to large holdings ofbanked emission allowances to be used in place of actual reductions in later years,delaying achievement of emissions caps. In its analysis of the Clear Skies bill, EPAdoes not expect to see the full 70% emission reductions until 2026 or later. The Jeffords and Carper bills also allow banking and trading of allowances;but, with earlier and more stringent caps on emissions, utilities would be unable tobank so many allowances and, thus, would reach full compliance at least a decadesooner than under Clear Skies. With respect to carbon dioxide, Clear Skies would not impose controls on it,whereas the Jeffords and Carper bills would. The absence of CO 2 from the mixmight lead to different strategies for achieving compliance, preserving more of amarket for coal, and lessening the degree to which power producers might switch tonatural gas or renewable fuels as a compliance strategy. The cost-benefit analysis released by EPA, October 27, (6) examined sixoptions: four of the six were variants of the Administration's Clear Skies bill or itsregulatory counterparts (7) ; the other two options were Senator Carper's CleanAir Planning Act ( S. 843 in the 108th Congress, but as of the date of theanalysis, not yet introduced in the 109th) and Senator Jeffords' Clean Power Act( S. 150 ). The results of the analysis show very little difference between the four ClearSkies options, so it may be best to think of them as one (for most purposes) andsimplify the discussion to three principal choices: Clear Skies, Carper, and Jeffords. Of the four Clear Skies options that EPA examined, we have chosen the version mostrecently drafted, the Managers' Mark version, which was offered at the SenateEnvironment and Public Works Committee markup of S. 131 on March9, 2005.