On July 6, the Environmental Protection Agency (EPA) finalized the Cross-State Air Pollution Rule (CSAPR), which requires 27 states in the eastern and mid-western U.S. to substantially improve air quality by reducing power plant emissions that contribute to ozone and/or fine particle pollution in so-called "down-wind" states. It replaces and strengthens the EPA's 2005 Clean Air Interstate Rule (CAIR), which the U.S. Court of Appeals for the D.C. Circuit ordered the EPA to revise in 2008.

While the new ruling allows CAIR to remain in place temporarily until the agency works to finalize this rule, the uncertainty around what would replace it puts emissions reductions on hold and effectively decimates the CAIR allowance markets for both NOx and SO2.  Although the EPA announced an intended CAIR replacement, referring to the "Transport Rule" a year ago, that proposed rule described three very different regulatory mechanisms by which the state-specific reductions believed necessary to allow all affected states to comply with the Clean Air Act of 1970 and its amendments of 1990.

That fact that the EPA has implemented CSAPR is no surprise -- they were ordered to find a replacement for CAIR by the D.C. US Circuit Court when that court struck down CAIR in July of 2008. Moreover, the Clean Air Act’s “good neighbor” provision (section 110(a)(2)(D)(i)(I)) requires upwind states to control emissions that affect the ability of downwind states to meet federal air quality regulations. In 1997, and again in 2006, the EPA tightened air quality standards for ozone and particulate matter. The EPA's model indicates that emissions from 27 upwind states contribute to violations of these standards in downwind states. If the EPA did not regulate this interstate transport of ozone and particulate matter, downwind states would likely sue to force the EPA’s hand, as they did last decade which resulted in additional NOx regulations referred to as Section 326.

In a supplemental rulemaking based on additional analysis of air quality information, the EPA’s also proposing to require sources in Iowa, Kansas, Michigan, Missouri, Oklahoma and Wisconsin to reduce NOX emissions during the summertime ozone season. This proposal would increase the total number of states covered by the rule from 27 to 28; and add summer ozone season limits to the annual limits under CSAPR for five of these six states.

So how does CSAPR compare to CAIR and the Transport Rule that was initially proposed to replace CAIR?  For one, it is more aggressive than CAIR for both NOx and SO2, with respect to both the level of reduction and geographic scope (taking into consideration the supplemental ruling described above). Secondly, there are state-specific caps intended to avoid emissions from upwind states interfering with the ability of downwind states to comply with the SO2, NOx, ground-level ozone, and PM 2.5 requirements associated with the Clean Air Act, its Amendments and the National Ambient Air Quality Standards (NAAQS) promulgated in response to them.
And thirdly, it most closely resembles the most "market-oriented" of the three alternatives described in the proposed Transport Rule, which allowed for intra-state allowance trading and "limited" interstate trading whereas the onus was on the traders to demonstrate that associated interstate transactions were required to maintain the reliability of the bulk power electric system.  CSAPR not only allows for intra-state trading but also as much state trading that can be done while remaining within the state-specific caps imposed by the new rule, with no other constraints.  

But what is still unclear is the extent to which the state caps will limit interstate allowance trading or the liquidity and functioning of the relevant interstate markets. In the next coming weeks, I will be doing more research and talking to the environmental folks within NeuCo's customer base as this new rule becomes clearer.  I’ll also post a supplemental blog as a follow up to this as we roll up our sleeves, examine the details and crunch the numbers.  

It is fair to say that CSAPR is less in command and control in nature than any of the three alternatives proposed in the Transport Rule, especially the two that essentially ruled out meaningful allowance trading.  For that, those of us concerned with the cost-effectiveness of emissions compliance can be thankful. The DC Circuit Courts ruling that struck down CAIR made it clear that any replacement rule would need state-specific caps.  So from that perspective, my view is that we’ve got a rule which is as good as anything I can imagine to help pass legal muster and be consistent with the Clean Air Act and its amendments.

Yet, what is very clear is the rapidly approaching January 1, 2012 deadline requiring the incremental NOx reductions required by CSAPR to be made in an entirely unprecedented short time-frame. This is especially the case in areas covered by the new rule but not by CAIR, such as Kansas, Western Missouri and Iowa. Many generators in these areas will attest, the less than six months between now and January barely leaves any time for the procurement and installation of low-NOx burners (LNBs), let alone more complex retrofits such as over-fire air/LNB combinations or SNCRs.

My final observation relating more than seven years experience with NOx emissions compliance since the CAAA SIP call and associated Section 326 requirements became effective in early 2004, our industry has moved from viewing optimization as an alternative to boiler modifications to embracing it as a valuable complement to such modifications.  In recognizing that, all such modifications introduce design compromises, complexity and trade-offs ideally suited for comprehensive integrated optimization of combustion processes and boiler cleanliness.  These attributes, combined with the short implementation timeframe required by CSAPR and the efficiency drivers for the additional recent EPA rules on CO2 and embodies in the Utility MACT suggest that we’ll be facing very busy days ahead. 

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