Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

I know that despair is always more fashionable than optimism, but it is sometimes useful to remember that not everything is going to hell in a hand basket. Yesterday, EPA issued a press release announcing publication of its latest report on trends in air quality. The report, titled “Our Nation’s Air: Status and Trends Through 2008”, makes clear that, overall, air quality has gotten significantly better, particularly since 1990.

What I find most notable is that reductions in NO_x largely occurred after 2002, whereas reductions in other pollutants, such as PM and SO₂, have occurred since 1990. Notice anything about these dates? After 1990, the acid rain trading program came into effect. With respect to NO_x, the report itself acknowledges that the improvements resulted from implementation of the NO_x SIP call and EPA’s NO_x Budget Trading Program. 

What do you know? Trading programs work. Anyone in Congress pondering climate legislation paying attention?

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While Congress may be fiddling on climate legislation, Senators Carper and Alexander are attempting to put three pollutant legislation back on the congressional agenda. Yesterday, they introduced an aggressive three pollutant bill. Here are the highlights. The bill would:

Codify the CAIR program through 2011

Gradually reduce the cap on SO₂ emission allowances to 1.5 million tons by 2018 – substantially more stringent than the CAIR would have imposed. 

Reduce NO_x caps to 1.6 million tons by 2015. 

Create two NO_x trading zones. Zone 1 includes 32 Eastern states and the District of Columbia. Zone 2 includes the remaining 16 contiguous states.

Coal- and oil-fired power plants would have to reduce mercury emissions by 90%. There would be no trading program for mercury.

I still find it remarkable that Senator Alexander, a coal-state Republican, is a co-sponsor of the bill. Nor does he seem to be half-hearted about it. Money quote:

We have a number of different things to work out on carbon.…  But there's no excuse for waiting a minute on SOx, NOx and mercury because we have the technology, we know what to do, and we shouldn't be operating coal plants without pollution control equipment. (My emphasis.)

I have, until recently, assumed that climate change legislation would happen this year. Now that that seems less likely, and with Senator Alexander as a sponsor, it will be interesting to see if the Senate is able to move this legislation, as an alternative. It is worth noting that climate change legislation necessarily would also have resulted in reductions in SO₂, NO_x, and mercury. Unfortunately, the converse is not also true. In the absence of GHG controls, three pollutant legislation would actually increase GHG emissions, because the traditional means of reducing emissions of SO₂, NO_x, and mercury are energy hogs. Oh, well.

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EPA announced yesterday that it had reached a settlement with Duke Energy to address allegations of New Source Review violations at Duke’s Gallagher coal-fired generating plant in New Albany, Indiana. A jury had already found Duke liable for certain NSR violations at the plant. The settlement obviates the need for a remedy trial, which had been scheduled for early 2010.

The settlement requires Duke Energy to repower Units 1 and 3 at Gallagher with natural gas or shut them down and to install emission controls at Units 2 and 4. Duke will also pay a $1.75 million penalty and spend $6.25 million on various mitigation projects. 

The settlement is not that surprising, particularly given the prior liability findings. It nonetheless serves as a useful reminder that EPA continues to focus on coal plants and that it is going to use all the tools at its disposal to reduce coal plant emissions. Although the press release does not mention global warming, these settlements are another way for EPA to attack the climate change problem under existing authority, even in advance of rules regulating GHGs under the PSD program.

BTW, if it seems as though I am inundating you with posts today, the blog will be on vacation until January 4, so I wanted to get some last posts done. Happy holidays to all.

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As I noted a couple of weeks ago, Representative John McHugh (R-NY) has introduced legislation that would require significant reductions in emissions of SO₂ and NO_x, and mercury from power plants. Now, Senators Carper (D-Del.) and Alexander (R-Tenn.) have announced that they will be introducing their own three-pollutant legislation in the Senate. Since they have not yet introduced a bill, we’ll all just have to imagine the specifics for now, but a few interesting nuggets have jumped out of the press releases and news reports.

First, Representative McHugh apparently wants to tie his legislation to the climate bill. However, Senator Alexander, at least, affirmatively wants to keep three-pollutant legislation separate from the climate bill. Senator Alexander seems to be looking to make a name for himself as a Republican willing to advance environmental causes. In addition to this bill, he is also sponsor of legislation that would preclude mountaintop removal. Keeping this bill separate from climate legislation may be a way to walk a fine line, since one can still imagine a scenario in which there is significant pressure from the GOP leadership to have all Republican Senators oppose climate legislation.

Second, Senator Carper specifically referred to using market forces to regulate SO₂ and NO_x, but he did not use similar language for mercury, which suggests that, like the McHugh legislation, the Senate bill will also require facility-specific mercury reductions, rather than allowing a cap-and-trade program for mercury.

EPA is apparently indicating that it may take two years to promulgate new regulations to replace its ill-fated CAIR regulations. In that context, if the movers and shakers in Congress perceive that three-pollutant legislation can pass relatively quickly, it might be seen as an appropriate way to show some environmental progress while climate change proposals get turned into legislative sausage.

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The results of EPA’s annual auction of sulfur dioxide (SO₂) allowances under the acid rain program provide empirical support for a proposition that the regulated community repeatedly advances – certainty is critical to the success of complex regulatory regimes. Prices for 2009 allowances fell from last year’s average of $380/ton to $70/ton, or more than 80%. Prices in the 7 year advance auction fell even more dramatically, from $136/ton in 2008 to $6.65/ton, or more than 95%.

The short explanation for the crash in prices? Uncertainty over the fate of EPA’s Clean Air Interstate Rule. Although there may be a number of other factors in play, the consensus seems to be that CAIR is the primary culprit. Having a rule issued, challenged, struck down, vacated, and then temporarily reinstated does not provide much of a basis for rational investment planning by corporations that might need allowances.

The number and identity of the bidders are also interesting. Two bidders purchased more than 98% of the spot auction allowances. One bidder – JP Morgan Ventures Energy Corporation – purchased essentially 100% of the 7 year allowances. (Though you will all be comforted to know that “Bates College Environmental Econ” was able to purchase 2 allowances in both the spot and 7 year auctions.) Of course, most of the allowances are allocated to existing emitters; fewer than 3% of allowances are auctioned. Nonetheless, this seems like remarkably little interest.

Is there a lesson here for a CO₂ cap and trade program? Don’t let the perfect be the enemy of the good might be one candidate. Another would simply be not to tinker too much. The importance of cost certainty in corporate planning may be obvious, but that does not mean that it doesn’t bear repeating in times such as these.

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