Order Code RS20553
Updated March 19, 2002
CRS Report for Congress
Received through the CRS Web
Air Quality and Electricity:
Initiatives to Increase Pollution Controls
Larry B. Parker and John E. Blodgett
Specialists
Resources, Science, and Industry Division
Summary
Since the mid-1990s, EPA has initiated actions resulting in regulatory mandates and
enforcement actions directed primarily at coal-fired electric generating utilities. These
actions would, if implemented, substantially reduce air pollutants, particularly nitrogen
oxides (NOx). These initiatives include the Ozone Transport Rule (also called the NOx
SIP Call); a set of “Section 126 petitions” in which 12 states allege under Section 126
of the Clean Air Act (CAA) that pollutants originating in upwind states prevent their
attainment of clean air standards; and a set of enforcement actions based on New Source
Review (NSR) requirements of the CAA that have resulted in lawsuits against seven
utilities in the Midwest and South and an administrative order against the Tennessee
Valley Authority. While these are separate initiatives, they are related in that each
ultimately focuses on emissions from utilities in the Midwest and South. As of January
22, 2001, the EPA has declared 11 states and the District of Columbia as failing to
submit revised SIPs required under the Ozone Transport Rule; the EPA has approved
four section 126 petitions; and two of the NSR lawsuits have resulted in consent decrees
(Tampa Electric Co. and PSEG), and two others have been settled in principle (Virginia
Power and Cinergy). Legislative activity focuses on developing a multi-pollutant strategy
as an alternative to these piecemeal initiatives. This report will be updated as events
warrant.
Background
Since the mid-1990s, EPA has initiated actions that have resulted in regulatory
mandates and enforcement actions that would, if implemented, substantially reduce air
pollutants (particularly nitrogen oxides – NOx) emitted by some electric generating
facilities. An Ozone Transport Assessment Group (OTAG), formed by EPA in May 1995,
laid the groundwork for the regulatory initiatives; it directly led to the Ozone Transport
Rule (also called the NOx SIP Call). In a supplementary action, 12 states petitioned EPA
under Section 126 of the CAA, concerning interstate pollution, alleging that NOx
originating in upwind states prevented their attainment of ozone standards. An EPA
Office of Enforcement & Compliance Assurance audit of New Source Review (NSR)
Congressional Research Service ˜ The Library of Congress
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applications required under provisions of the Clean Air Act (CAA) that began in late 1996
was the precursor to the enforcement initiative; it led in Nov. 1999 to lawsuits against
seven utilities in the Midwest and South and an administrative order against the Tennessee
Valley Authority alleging violations of NSR requirements of the CAA.1
The first two initiatives, the Ozone Transport Rule and the Section 126 petitions, are
related to each other substantively.2 These initiatives would further control NOx to assist
states in the Northeast in meeting the existing, statutory 1-hour ozone National Ambient
Air Quality Standard (NAAQS). The Ozone Transport Rule includes all or part of 19
eastern states and the District of Columbia. Based on the eight petitions EPA has ruled
on, EPA’s Section 126 determinations would involve a subset of the NOx SIP Call’s 19
states – 12 states and the District of Columbia.
The enforcement initiative is not legally or procedurally related to the above
initiatives; however, the NSR enforcement action by EPA has substantive associations with
them in that NOx is a primary (but not sole) focus, and many of the utilities named as
defendants in these cases would also have to reduce emissions under the NOx SIP Call and
Section 126 determinations. Unlike the other actions, the NSR action does not involve
new regulatory action, but enforcement of existing law and regulations. As such, it is
handled by the EPA’s Office of Enforcement & Compliance Assurance, not a regulatory
office, and involves other pollutants electric generators emit besides NOx (specifically
sulfur dioxide (SO ) and particulates).
2
What is the Focus?
The primary focus of the regulatory initiatives and a primary effect of EPA’s
enforcement action is to reduce NOx emissions in the eastern part of the United States.
The environmental purpose for doing so is to reduce the interstate transportation of this
ozone precursor, thus assisting localities along the eastern seaboard in attaining the ozone
NAAQS. The actions would also mitigate acid rain. The initiatives and enforcement
action by EPA focus on coal-fired electric generating facilities both because they are major
sources of emissions – in 1997 they emitted 24% of the country’s NOx (and also 62% of
its SO , 31% of its carbon dioxide (CO ), and approximately one-third of the country’s
2
2
mercury (Hg)) – and because they represent the most cost-effective sources of large
emission reductions for NOx and SO .
2
In the case of the Section 126 determinations and the NSR enforcement action, coal-
fired powerplants are explicitly targeted for emissions reductions. In the case of the NOx
1 For more details on the Ozone Transport Rule and Section 126 petitions, see CRS Report 98-
236, Air Quality: EPA’s Ozone Transport Rule, OTAG, and Section 126 Petitions – A Hazy
Situation? , updated March 9, 2001. For more details on EPA’s NSR action, see CRS Report
RL30432, Air Quality and Electricity: Enforcing New Source Review.
2 Until recently they were also linked administratively and procedurally through ties to another
regulatory action by EPA – the 1997 promulgation of a new 8-hour National Ambient Air Quality
Standard (NAAQS) for ozone. That linkage was broken by EPA when litigation temporarily halted
implementation of the 8-hour standard. Some observers include the 8-hour standard as a related
fourth initiative, but this report includes it only to the extent it is related to the NOx SIP Call, the
Section 126 petitions, and the enforcement action.
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SIP call, EPA cannot explicitly target sources (that is the responsibility of each affected
state), but the allocation scheme used by EPA to determine the allowable emissions budget
for individual states is based primarily on substantial reductions from coal-fired
powerplants. In general, the initiatives identified here would require affected powerplants
to reduce their NOx emissions by about 75%-85%. Although the Section 126
determinations and the NSR enforcement action target individual sources, EPA provides
flexibility for utilities to achieve the mandated reduction by means other than simply
installing NOx control equipment on affected units. As indicated by EPA’s NSR
settlement with Tampa Electric discussed later, the consent decree involves several
different NOx control strategies to reduce NOx emissions by over 85%, as well as controls
to reduce SO emissions by almost 80%, by the year 2010.
2
Figure 1 indicates the states affected by the initiatives identified here. In line with the
initiatives’ focus on coal-fired electric generating facilities, the Midwest is the primary
location of affected powerplants. Five states – Indiana, Kentucky, North Carolina, Ohio,
and West Virginia – would be affected by all three initiatives. In contrast, Mississippi and
Florida have utilities targeted only under the NSR enforcement initiatives; Missouri,
Connecticut, Rhode Island, and Massachusetts are targeted only under the Ozone
Transport Rule. The other states have utilities targeted under the Ozone Transport Rule
and either a Section 126 determination or NSR enforcement.
Figure 1
The costs and benefits of these initiatives could be substantial, as indicated by Table
1. The NOx SIP Call is the most wide ranging of the initiatives, with estimated costs of
$1.7 billion annually and estimated quantifiable benefits of $1.1-$4.2 billion annually.
Because EPA’s methodology uses cost-effectiveness for determining emission budgets,
the lion’s share of the costs would be borne by the utility industry. The smaller scope of
the Section 126 determinations reduces emissions abatement and benefits, but also costs.
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Of course, this scope could increase if additional petitions submitted to EPA result in more
states being implicated as sources of transported ozone. Finally, the evolving scope of
EPA’s NSR action makes estimates of its costs and benefits difficult, if not impossible, at
this time.
Table 1. Estimated Costs and Benefits of Initiatives
Estimated
Estimated
Estimated Costs
Emission
Estimated Costs
Quantifiable
to Utilities
Reductions (2007)
(1990$)
Benefits (1990$)
(1990$)
NOx SIP Call
NOx –1.14 million
$1.7 billion
$1.1-$4.2 billion
$1.4 billion
tons (ozone season)
Section 126
NOx – 0.66
$1.0 billion
$1.2 billion
$1.0 billion
Findings
million tons (ozone
season)
NSR Action
NOx – n/a
n/a
n/a
n/a
SO2 – n/a
Particulates –
n/a
(annually)
n/a = not available
Source: CRS Report 98-236.
Recent Actions
Since January 2000 significant actions have occurred with all three of the initiatives.
The status of these initiatives as of January 22, 2002, is summarized in Table 2. Perhaps
the most significant action has been the decision of a 3-judge panel of the D.C. Circuit
Court of Appeals to uphold EPA’s Ozone Transport Rule with respect to the 1-hour
ozone NAAQS (Michigan v. EPA, No. 98-1497 (D.C. Cir. March 3, 2000)), and to lift
the stay on implementation. In upholding EPA’s authority and methodology in developing
the NOx SIP Call, the court did make some modifications; in particular, that EPA’s
methodology did not support the inclusion of Wisconsin or all of Missouri and Georgia in
the Rule (a decision reflected in Figure 1). In lifting the stay, the court ordered affected
states to submit revised SIPs within 4 months of its June 22, 2000, order. In a subsequent
ruling issued August 30, 2000, the court ordered EPA to move its original May, 2003,
compliance deadline to May 31, 2004. In December, 2000, EPA declared that 11 states
and The District of Columbia failed to submit revised SIPs by the extended October 30th
deadline. Sanctions will be imposed if the states do not submit revised SIPs within 18
months. In March 2001, the Supreme Court denied a hearing to opponents of the SIP Call,
effectively affirming the appeals court decision.
None of these proceedings, however, affect the indefinite stay of EPA findings with
respect to the 8-hour ozone standard. In February 2001, the Supreme Court ruled that
although EPA has the authority to set a new 8-hour ozone standard, its interpretation of
the relationship between the 1-hour standard’s statutory implementation strategy and its
new 8-hour standard implementation strategy was unreasonable and unlawful. The Court
left it to EPA to “develop a reasonable interpretation” of the statutory provisions as they
relate to the implementing the new 8-hour standard (American Trucking Associations v.
EPA, 531 U.S. _____ (2001) decided February 27, 2001).
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Table 2. Status of Initiatives
Ozone Transport Rule
Section 126 Petitions
NSR Enforcement
1-hour Ozone Standard
Supreme Court denies
EPA granted 4 of
In February 2000, EPA
hearing on SIP Call
original petitions,
and Tampa Electric
3/5/01. Stay lifted by
1/18/00. D.C. Circuit
announced agreement on
appeals court 6/22/00.
Court of Appeals
a consent decree that
EPA finds 11 states and
upholds EPA authority,
would settle EPA’s NSR
D.C. failed to submit
5/15/01.
suit with that utility. In
SIPs 11/19/00. Deadline
November and
for compliance moved to
On 1/15/02, EPA
December 2000, EPA
March 31, 2004
announces it will delay
announced agreements
compliance deadline
in principle with
until March 31, 2004
Virginia Power and
Cinergy.
8-hour Ozone Standard
Appeals court granted
EPA has indefinitely
EPA motion to stay 8-
stayed finding on
In January, 2002, EPA
hour findings. Supreme
original petitions,
and PSEG announced
Court rules EPA has
1/18/00.
the filing and settlement
authority to promulgate
of a EPA/ State of New
8-hour standard, but that
Jersey NSR suit.
its implementation
strategy is unlawful.
EPA left to develop a
“reasonable” alternative.
With respect to the Section 126 petitions, EPA announced its 1-hour ozone findings
on the 8 original petitions on January 18, 2000.3 EPA granted four of the eight petitions
for the 1-hour ozone standard: Connecticut, Massachusetts, New York, and Pennsylvania.
Petitions from four other states were denied as these states no longer had areas that were
not in attainment with the 1-hour standard. The rule specifies NOx allocations for 392
facilities in 12 states and the District of Columbia, and implemented through a cap-and-
trade program. The D.C. Circuit Court of Appeals upheld EPA’s authority to issue the rule
on May 15, 2001, but ordered EPA to reconsider factors used in setting emission limits
(Appalachian Power Co. v. EPA). EPA responded to the court’s order on August 3,
2001. On January 15, 2002, the EPA announced it would delay the compliance deadline
for the Section 126 rule from May 1, 2003 to May 31, 2004 in line with the deadline for
the NOx SIP Call. EPA argues that a court order issued August 24, 2001 had already
suspended the compliance deadline for powerplants, and it would be unfair to make other
emission sources meet an earlier deadline.
In January, 2000, EPA decided to indefinitely stay its original final determinations
with respect to the 8-hour standard, given litigation regarding that standard. It also
announced that findings with respect to petitions by the District of Columbia, Delaware,
Maryland, and New Jersey would be determined in the future.
Since the filing of the NSR lawsuits in November 1999, several significant actions
have occurred. First, in February 2000, EPA announced that it had come to an agreement
with Tampa Electric Company on a consent decree that will settle the NSR lawsuit against
that utility. The agreement will reduce NOx emissions by over 85% (and SO emissions
2
by almost 80%) through a combination of fuel switching to natural gas, pollution control
3 Environmental Protection Agency, Findings of Significant Contribution and Rulemaking on
Section 126 Petitions for Purposes of Reducing Interstate Ozone Transport: Final Rule, 65
Federal Register 2675-2767, January 18, 2000.
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equipment optimization, and other techniques. The estimated $1 billion program is
expected by Tampa Electric to have a “small” impact on its customers’ bills.4
Second, additional waves of enforcement actions began in March 2000. In March
2000, the Justice Department expanded the lawsuits to include another 12 facilities owned
by three of the defendants – American Electric Power, Cinergy, and Southern Company.5
This action was followed in April with EPA issuing a NSR-related notice of violation
against Virginia Power’s Mount Storm plant, and in May against eight Duke Power
facilities. In December 2000, EPA sued Duke Energy for NSR violations at eight coal-
fired powerplants. These actions bring the total number of electric utility plants covered
by the lawsuits to 38 in 12 states.
Third, on November 16, 2000, EPA and Virginia Power announced that an
“agreement in principle” had been reach to settle EPA’s NSR suit against Virginia Power.
Over 12 years, Virginia will spend $1.2 billion to reduce NOx and SO2 emissions by about
70% through a combination of pollution control equipment and fuel switching. This
announcement was followed on December 21, 2000 by a similar agreement in principle
between EPA and Cinergy involving a $1.4 billion investment in control technology.
Fourth, on January 24, 2002, EPA and the State of New Jersey announced the filing
and settlement of a NSR suit against PSEG Fossil LLC. PSEG agreed to reduce its SO2
emissions by 90%, its NOx emissions by 83% from 2000 levels by 2012 at an estimated
cost of $337 million. In addition, PSEG agreed to reduce CO2 emissions by 15% from
1990 levels.
Congressional Actions
The continuing difficulties in the Northeast both in meeting the ozone NAAQS and
in reducing acid precipitation have focused attention on emissions from fossil fuel-fired
utilities, particularly of NOx – and on the potential costs of reducing those emissions. The
interplay among these concerns came to a head when EPA promulgated new, more
stringent ozone and particulate NAAQSs in 1997. The Congress tracked the unfolding of
the NOx SIP Call, the Section 126 petitions, and the NSR enforcement activity primarily
through briefings and correspondence with EPA. However, the piecemeal efforts to
address NOx and other air emissions remain a concern. Since May, 2000, the Senate
Environment and Public Works Committee has held several hearings on possible
comprehensive, multi-pollutant strategies as alternatives to these piecemeal initiatives.
Chairman Jeffords announced that the Committee intends to go to markup on multi-
pollutant legislation early in the 2nd session of the 107th Congress.6
4 Tampa Electric, “Tampa Electric Reaches Agreement with EPA, Department of Justice on
Environmental Issues,” [http://www.tampaelectric.com/energy/ENEPAagrmnt.html].
5 Environmental Protection Agency, “U.S. Expands Clean Air Act Lawsuit Against Electric
Utilities,” March 1, 2000.
6 For a review of proposed legislation, see Larry Parker, Electricity and Air Quality: Comparison
of Proposed Multi-pollutant Legislation, CRS Report RS20894, April 18, 2001.