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CLEAR SKIES: A BETTER WAY TO REGULATE
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CLEAR SKIES BRINGS CERTAINTY |
For the past 20 years, national emissions from powerplants have declined significantly, despite increasing coal use. Sulfur dioxide (SO2) emissions fell approximately 38 percent from 1980 levels through 2001 and will fall an additional 12 percent by 2010. Nitrogen oxide (NOx) emissions have decreased 30 percent from 1980 levels. Companies also have saved hundreds of millions of dollars each year by trading emissions in the marketplace.
Nonetheless, many consider the current regulatory scheme, focusing as narrowly as it does on single emissions, to be overly complex and expensive. Last year's Clear Skies proposal represents an overhaul of the existing program and uses a multi-emissions approach, which requires further reductions of SO2, NOx, and mercury over the next 15 years. Treating the three emissions together eliminates the problem of overlapping regulations, saving (by some estimates) more than $1 billion in compliance costs each year. The program also allows emissions trading. Most important, Clear Skies delivers certainty to utility compliance plans.
Clear Skies is the largest emissions reduction bill proposed by the White House in U.S. history, and its multi-emissions approach is receiving support from many industry stakeholders. (To learn more, visit www.eei.org/issues/enviro/air_results/index.htm.)
Ready for Certainty
Jim Rogers, CEO of Cinergy, supports the approach. Ninety percent of Cinergy's generated electricity comes from the burning of coal—the company has significant SO2, NOx, and mercury emissions and faces regulatory and financial uncertainty about reducing them.
"We find ourselves in a world with conflicting and unknown future emissions requirements," says Rogers. "We know there will be a mercury rule and more requirements for SO2 and NOx sometime in the next 15 years, but we don't know what the specifics are." Rogers says companies need regulatory certainty in order to make good economic and technological decisions for their plants. Otherwise, they can be forced into a series of "sunk-cost decisions that appear to make sense at the time" but often prolong plant lives unnecessarily.
"With certainty we can plan an emissions control strategy that will make sense for customers, the environment, and the economy," he says. "Without it, we have to make decisions on a rule-by-rule basis. That might mean a significant amount of fuel switching to natural gas that would not otherwise occur and delays in health-related benefits."
Certainty helps consumers, too. Companies recover compliance costs in rates, and under the current plan consumers can get hit with higher rates over a shorter period of time. Multi-emissions legislation spreads out those costs, reducing the rate impact.
From an investor perspective, according to Rogers, having more time to recover costs will help companies maintain the integrity of their balance sheets and credit ratings. In the 1990s, Cinergy spent about $650 million in compliance to reduce emissions. It will spend $800 million on NOx reduction alone by 2005 under current regulations. Under the Clear Skies multi-emissions regimen, Cinergy anticipates it would spend $800 million for all three emissions in the program's first phase, which ends in 2010.
Flexibility in Capturing Mercury
The Environmental Protection Agency is due to set a 2008 limit on utility mercury emissions (which came to 48 tons in 2000) under a strict rule based on the maximum achievable control technology. Rogers points out there is no proven technology to remove mercury from either high- or low-sulfur coal. Carbon injection, for example, may not achieve the same reductions from all plants, depending on size and coal variations.
Clear Skies proposes that powerplants reduce mercury emissions by 69 percent from 2000 levels by 2018. Mercury reductions are achievable as "cobenefits" of SO2 and NOx controls—that is, with reductions occurring as unintended results of preexisting emissions technologies. Clear Skies has "synched up" the cobenefits of mercury reductions from SO2 scrubbers, says Rogers. That provides incentive to build expensive scrubbers (at approximately $200 million per installation). Clear Skies also takes into account the time needed to build and integrate such technology into a powerplant. That makes planning more efficient.
Clear Skies also would allow emissions trading. "It's a more efficient way to do things and will translate into more cost-effective reductions," says Rogers. "The SO2 market has been a terrific success, and the NOx market continues to gain liquidity."
Enemy of the Good
The Administration did not include carbon dioxide (CO2) reductions in Clear Skies, developing instead, with the electric power industry and Department of Energy, the voluntary "Power Partners" program to reduce greenhouse gas (GHG) intensity. Cinergy is active in the program.
Still, some Congressional "multi-emissions" initiatives would mandate CO2 reductions. Rogers hopes they won't hold Clear Skies back when it comes time to vote. "I'm aware of how the political process works," he says. "There will be changes and compromises. My hope is that Clear Skies will not be held hostage to the CO2 issue." Rogers notes that some CO2 mandates, among their other economic and operational impacts, would affect some regions of the country disproportionately, like the industrial Midwest and the Southeast.
Overall, Rogers thinks that Clear Skies is fair for the industry and can accomplish all stakeholders' emissions reduction goals: "The reduction levels in Clear Skies over time are equal or close to the reductions in even the most radical proposals." And while Clear Skies may not be ideal to some, it is a huge step forward. "Perfection, sometimes, is the enemy of the good," says Rogers. "You can't expect a perfect solution in the legislative process where there's give and take."
Janneke Bruce is associate editor of Electric Perspectives. |
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