By David Wagman, Chief Editor
Imagine the four-letter words that must have erupted among power generators last month when a federal appeals court unexpectedly threw out the Environmental Protection Agency’s (EPA’s) Clean Air Interstate Rule (CAIR).
The three-judge panel of the U.S. Appeals Court for the District of Columbia said CAIR’s method of calculating emission caps was “fundamentally flawed”, its trading provisions “unlawful.” The court said that solutions ranged from Minnesota Power’s position that CAIR be vacated with respect to Minnesota to North Carolina’s request that most of CAIR be sent back to EPA for changes. The court said it could not pick and choose portions of CAIR to preserve. That’s because CAIR was designed by EPA as a single, regional program and that in the court’s opinion “all its components must stand or fall together.”
The court said “We must vacate CAIR because very little will ‘survive remand in anything approaching recognizable form.’ EPA’s approach—region-wide caps with no state-specific quantitative contribution determinations or emissions requirement—is fundamentally flawed.”
“Ouch.” That’s one four-letter word.
The decision took virtually everyone by surprise. Duke Energy, which challenged CAIR because it didn’t think it was allocated enough emissions credits, said it never intended for the rule to be thrown out entirely. “Our whole focus was not to overturn CAIR, but to make sure we got the appropriate number of allowances,” a company spokesman said. Entergy’s attorney in the case conceded that power generators already had invested billions of dollars in anticipation of the emissions trading market that CAIR set up. “They’re not happy with this development,” the attorney said.
Power generators are not happy for a number of reasons. For one thing, many have already made big investments in equipment and emissions credits to comply with CAIR mandates. Don’t forget that CAIR was already well into its implementation phases. The rule was created in 2005. So-called State Implementation Plans (SIPs) were due in 2006. Phase I emission caps for NOX were to be in place in 2009. Phase I emission caps for SO2 were to be in place in 2010. And Phase II caps for both NOX and SO2 were to be in place in 2015.
PPL Energy said that it likely would take a third-quarter impairment charge related to $100 million in emissions allowances it bought for the vacated cap-and-trade portion of CAIR.
“Whoa.” There’s another four-letter word.
Power generators also are unhappy because they may end up spending even more money on pollution control equipment. Popular thinking under CAIR was that a power generator could overcomply on one unit and use the emissions trading mechanism and fleetwide averaging to make up any difference on other generating units. Now that we’re CAIR-free, the fallback rules are the much stricter Best Available Reduction Technology (BART) standards. These standards seemingly would require control equipment to be installed at many more power plants. One concern is that compliance with the new standards could, in a worst-case scenario, trigger the environmental community’s “nuclear option,” namely New Source Review.
“Egad!” And yet another expletive.
Also troubling is what happens to equipment that is already installed. Peter Spinney, director of Technology and Assessment at NeuCo, said one scenario would be for power generators to run control equipment only for the five-month ozone season, as currently required, but not switch them to year-round operation after January 1, as CAIR would have required. A second scenario envisions a power generator electing not to turn on emissions control equipment until new rules are in place. That could take some time, however. After all, the court found basic flaws in the science EPA used to set up CAIR. EPA could try to cobble together replacement rules before the Bush administration leaves office next January. Or, the task simply may prove too great. That would leave the job to a new president and a new Congress.
Individual states, of course, could move on their own. After the Clean Air Mercury Rule (CAMR) rule was overturned last February, Illinois moved quickly to enact its own mercury rule, said John Norris, president of Fuel Tech in a webcast last month. “No one wants to be in a non-attainment area” because of the potential for significant economic penalties to be imposed, he said.
Also worth watching could be North Carolina’s Clean Smokestacks Act and its effect on any future federal rule. After all, Spinney said, North Carolina’s challenge to CAIR was that the state’s air would be affected by upwind sources of emissions even after its own utilities installed emission control devices. North Carolina’s role in overturning CAIR causes Spinney to think that any replacement rules would be even more stringent than what the court threw out.
The regulatory lexicon is already made up of many complex rules and regulations, each identified by its own four-letter acronym (see “Clearing the Air,” July 2008). The court’s decision to throw out CAIR and add to the uncertainty over environmental compliance may well lead to still another acronym: No Utility Totally Satisfied. NUTS.