The rules of environmental compliance changed this past July when a federal court threw out the U.S. EPA’s CAIR (Clean Air Interstate Rule) for NOX, SO2 and particulates. The ruling poses immediate questions for power plant operators and environmental control vendors alike. Since the ruling, there’s been much discussion, quite a bit of speculation, and a few significant developments.

Increased Likelihood of Stricter & Multi-Pollutant Bills
An industry CAIR panel at Coal-Gen was quickly assembled to discuss its implications and possible paths forward. "The CAIR Ruling: A Briefing on Implications and Next Steps," was open to all Coal-Gen attendees and exhibitors. I was honored to be a part of if this panel, which was moderated by David Wagman, Chief Editor, and Steve Blankinship, Associate Editor, Power Engineering magazine. Other panelists included Frank Maisano, Bracewell & Giuliani; Doug Cloud, Alston & Bird; Tony Licata, Babcock Power Environmental; and Karl Moor an attorney for Southern Company.

There was consensus that the ruling was both a surprise and a problem for the industry, environmental interests, and emissions control suppliers alike. Panelists also agreed that the alternative paths forward included 1) a narrow legislative fix that provides CAIR the legal authority the court found it to be lacking; 2) a pre-agreed upon appeal and settlement amongst the litigating parties that restores CAIR but satisfies the litigants; 3) an EPA petition to rehear the ruling; and 4) an administrative fix that addresses the deficiencies cited in the ruling.

It was also acknowledged that each of these paths face significant obstacles. While the proposed temporary surgical fix placates Minnesota by excluding the state from CAIR, there are other interests at play, such as waste coal interests and states that believe CAIR does not go far enough in preventing upwind sources preventing their states from meeting the newly tightened NAAQS standards.  Given the legal deficiencies cited in the ruling and changing Presidential Administrations, the difficulties in developing an administrative solution were viewed as nearly insurmountable, and could take as long as a year.
 
The panel agreed that these challenges increase the likelihood that several multi-pollutant bills before Congress will gain traction.  While these bills vary in scope and severity, all of them use cap & trade mechanisms, most of them go beyond CAIR for NOx and SO2, and also include CO2 and mercury.

Allowance Market Uncertainty
The biggest problem cited by panelists was the devastating impacts of the uncertainty on current allowance markets, in which billions of dollars are at stake. Tony Licata from Babcock Power noted however, that in the few days prior to Coal-Gen, price behavior for the existing seasonal market was actually trending upward, suggesting market participants were betting the on the ultimate success of one fix or another.  Of course this upward trend was from a historic low that occurred in the immediate wake of the ruling.

Karl Moor from Southern Company had some interesting comments on the legal process that resulted in the Circuit Court ruling. Cases like this one are presided over my just three judges. Noting that many judges have personal investments in generation companies or pollution control suppliers, a different outcome might have occurred were the case heard before the entire Court.

Possible Developments
There have been a few noteworthy developments sine Coal-Gen. At the Mega-Symposium, held the following week in Baltimore, there was an excellent lunch presentation given by ICF Vice President Joel Bluestein.  He expanded on many of the issues described above and highlighted some potential hurdles.  I see a couple of possible developments unfolding over the coming months.  These are not mutually exclusive paths.

1) In September, Congress passes a short (1-2 year) legislative resuscitation of CAIR to stem the current financial bleeding associated with the billions of dollars wrapped up in the three relevant allowance markets.

2) One of the existing multi-pollutant bill currently before the US Congress gets passed in 2009 and supersedes CAIR when the temporary extension expires. 

One of the more vetted and widely discussed of these bills is Carper’s Clean Air Planning Act of 2007 (CAPA).  Carper concluded that:

• Congressional legislation is necessary to get air pollution control out of the courts and ensure that actions are taken on schedule.
• New law must cover the whole country not just the eastern United States.
• New legislation will address not only SO2 and NOx, but also toxic mercury emissions and CO2-realted global warming.

This “four-pollutant” bill would set up a mandatory cap-and-trade program for utilities to reduce their emissions of carbon dioxide, which causes global warming.

While this and other bills before Congress are more stringent and far-reaching than CAIR, the “default” regulations are even worse for the generation industry. Without CAMR the current mercury regulations (MACT) are strict and costly but lack guidance on monitoring protocols and create massive regulatory uncertainty around what is needed to comply. In the absence of CAIR or new emissions legislation, NOx and SO2 emissions regulations default to the exiting Best Available Removal Technology, which employ a command and control, site specific approach and would be expected to result in nearly all coal-fired units needing SCRs on SNCRs in the near future. 

In addition, all 50 governors, a majority of Congress, both Presidential candidates and virtually all generators support mandatory federal cap & trade for CO2, with most observers predicting that the current regional initiatives (RGGI, WCI, Midwest Climate Accord) will be reconciled, merged, and turned into a federal program.

EPA and the Supreme Court
The most recent development is that the D.C. Court of Appeals has granted U.S. EPA until September 24th to determine whether to pursue rehearing of the ruling that struck down the Clean Air Interstate Rule (CAIR). The earliest a full decision would likely take effect is October 1st.

EPA could file a motion to stay the effectiveness of the mandate while it seeks appeal, i.e. continue with CAIR.  If no one opposes the motion the stay is effective for 90 days. If granted, then CAIR will continue while EPA seeks review in front of the Supreme Court.  The uncertainty around the Supreme Court decision, however, would serve to continue the free-falling prices, illiquidity and massive volatility affecting current NOx and SOx allowance markets.

The best hope for the industry is still a legislative “surgical fix” when Congress reconvenes. Failing this, the stricter of either BART or state-specific regulations will prevail, which means nearly every coal-fired plant in all 48 states expected to continue operations will have some form of costly post-combustion controls. So in the near-term massive uncertainty will prevail. Whatever federal or state regulations are put into place will most certainly be stricter and more encompassing than CAIR.  By moving quickly to adopt optimization, generators can inform their plans for meeting the new stricter regulations in the most cost-effective manner possible. 

www.neuco.net

www.theoptimizationblog.com