As you likely already know, on July 6th the EPA announced the long-awaited replacement to the CAIR regulations for NOx and SO2. A December 2008 court decision kept the requirements of CAIR in place temporarily but directed EPA to issue a new rule to implement the Clean Air Act requirements concerning the transport of air pollution across state boundaries, for which the new "Transport Rule" is the EPA's response.

The EPA's new proposal requires 31 states and the District of Columbia to significantly improve air quality by 2012 through reducing power plant emissions that contribute to ozone and fine particle pollution in other states. It sets a pollution limit for each of the 31 covered states and the District of Columbia and -- in the EPA's preferred alternative -- allows for unlimited intrastate allowance trading, in addition to limited interstate trading if states involved in the trades can assure they will still meet the state-specific emissions limits.

The new rule requires faster and larger cuts in SO2 and NOx that cross state lines than under the CAIR rule. These pollutants react in the atmosphere to form fine particles and ground-level ozone and are transported long distances, making it difficult for other states to comply with the Clean Air Act and its amendments. The new rule will be finalized following a 60-day public comment period which began on July 6th when the announcement was made.

The EPA notes that large additional NOx reductions will be needed beyond those required by this rule in order for the nation to meet both the existing ozone and particulate standards, and anticipated further reductions in both the ozone and particulate standards. Both of these standards are anticipated to be ratcheted down further within the next year. Accordingly, the EPA plans a modified rule to address these additional requirements in 2011 and finalize them in 2012. Each time the EPA changes national ambient air quality standards (NAAQS), they will evaluate whether or not the new emission reductions will be required from upwind states.

I plan to be following up on this with a more detailed blog once my colleagues & I have had a chance to fully digest the proposed rule and its implications for our customers. We're also working to inform our views by talking with key customers to get their take on the proposed rule and how it might affect their companies. For now, suffice to say that the rule as proposed will: 1) require substantial incremental NOx reductions in a time frame (16.5 months) that precludes major hardware retrofits; 2) force companies to analyze and address compliance requirements on their entire fleets within each state; and 3) exacerbate the uncertainties already imposed by the expected further reductions in particulate and ozone NAQQS requirements, potential federal CO2 regulations, and the Maximum Available Control Technology (MACT) requirements replacing the former CAMR rule for mercury reduction also struck down by the U.S. Circuit Court.

So more to come, but one thing is clear: the need to reduce NOx in a manner that can be achieved quickly and avoid capital investments for plants that are needed now but whose longer-term fate remains uncertain has never been greater.

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