CLEAR SKIES: A BETTER WAY TO REGULATE

Jeff Holmstead is assistant administrator for air and radiation at the Environmental Protection Agency.

CLEAR SKIES: A BETTER WAY TO REGULATE
Multi-emissions regulation-embodied in President Bush's Clear Skies proposal-is the key to effective environmental legislation, says EPA's assistant administrator for air and radiation.

Over the last decade, the public policy community has learned a great deal about the types of programs that Congress and regulatory agencies have developed to address environmental issues. The Clean Air Act, in particular, has created a wide variety of regulatory programs. Some of them have been very effective in providing a given level of environmental protection at the lowest possible cost. Others have been less efficient but have still provided significant environmental benefits.

And we now know that some protection programs-however well intentioned-have actually created perverse incentives that stand in the way of environmental progress.

The Clear Skies Act takes these lessons and applies them to a new approach to environmental regulation.

Among public policymakers, there is increasing support for so-called "multipollutant legislation"-legislation such as Clear Skies that would create a single market-based system for controlling the three major emissions from powerplants. Such a system would address an array of emission concerns associated with power generation-including fine particles, smog, mercury deposition, acid rain, nitrogen deposition, and visibility impairment-at lower cost and with more certainty than currently allowed by the Clean Air Act. The legislation also offers the electric power sector the kind of regulatory certainty and flexible implementation mechanism and timeframe not accorded any other sector of the nation's economy.

With the passage of legislation come many winners, including the environment, public health, power generators, and consumers. While the power sector and the Environmental Protection Agency (EPA) have discussed multi-emission regulation several times over the last decade, it seems at long last as though forces may be aligned to make this compelling policy scenario a reality. The President has placed Clear Skies legislation before Congress and backed it up with a strong commitment in January's State of the Union address. Stakeholders across the political spectrum support this concept, handing the 108th Congress a rare opportunity to improve the effectiveness and efficiency of environmental policy for an entire sector-and for the American people.

Unfinished Business-Building on the Acid Rain Program
In 1990, Congress passed the Clean Air Act Amendments to combat the effects of air pollution, particularly sulfur dioxide (SO₂). The Amendments created the Acid Rain Program (Title IV), an emissions trading program designed to reduce annual emissions of SO₂ from powerplants to half of 1980 levels. This market-based program set a limit-a "cap"-on SO₂ emissions and then allowed sources the flexibility to reduce emissions through numerous alternatives, including trading emission allowances with other sources. The Acid Rain Program has exceeded expectations, achieving major SO₂ emissions reductions quickly and cost-effectively.

With its unparalleled emissions reductions and environmental achievements, the program is widely viewed as a resounding success. Yet, we now realize that we need further reductions of SO₂, nitrogen oxides (NO_x), and mercury emissions in order to fully address air quality-related public health and environmental concerns. In addition to SO₂ emissions, power generation contributes a significant portion of all NO_x and mercury released into the environment by human activity. Once released, these pollutants, together with the gases and particles they form in the atmosphere (ozone and particulate matter, for example), can travel long distances before being inhaled or deposited on land or water. Some research indicates that public health and environmental problems resulting from emissions of SO₂, NO_x, and mercury can be dramatic and widespread, including cardiovascular and respiratory diseases and premature death, neurological disorders in developing fetuses, acidification of lakes and streams, coastal eutrophication, and regional haze.

Clear Skies Legislation
Clear Skies attempts to expand on the success of the Acid Rain Program by taking a multi-emission approach, reducing SO_2, NO_x, and mercury by approximately 70 percent. The proposed legislation would amend Title IV of the Clean Air Act to create a national emissions trading program requiring significant reductions and mandatory caps on the three pollutants from electric generating facilities. The new program lays out a clear timeline of reductions. (See Table 1.)

Mercury.With a 69-percent reduction, Clear Skies establishes the first-ever national cap on powerplant mercury emissions. Emissions would be reduced from a 1999 level of 48 tons to a cap of 26 tons in 2010. Further reductions are achieved with a 15-ton cap in 2018.

The Promise of Clear Skies
A legislative effort as ambitious as the Clear Skies Act cannot be entered into lightly. In fact, we have undertaken an unprecedented level of technical analysis in support of developing the legislation. As a consequence, we have a deep and broad understanding of the potential results of Clear Skies, including costs, economic impacts on industry, technology development, benefits, and environmental results.

Based on projections from EPA's Integrated Planning Model—a highly detailed electric utility model used to estimate air emission changes, incremental electric power system costs, changes in fuel use and prices, and other impacts of various approaches to air pollution control—industry's annual costs of the Clear Skies Act would range between approximately $3.5 billion and $6.5 billion when fully implemented. That may seem high, but in the absence of Clear Skies legislation, existing statutory provisions will require EPA and states to impose additional requirements—and, thus, additional costs—on power generators between now and 2020. Our experience with the Acid Rain Program demonstrates that compliance costs would be significantly lower than predicted, as sources take advantage of the flexibility provided by a nationally implemented cap-and-trade program to achieve the reductions. Because a cap-and-trade approach is more efficient than the approaches we are required to use under the existing regulatory authorities, Clear Skies will likely result in cost savings when compared to these Clean Air Act requirements.

In terms of costs to consumers, retail electricity prices are expected to decline gradually, with or without Clear Skies, because of efficiency improvements and ongoing restructuring in the electricity generating sector. Clear Skies would allow this trend to continue and would maintain our reliance on cheap and abundant domestic sources of fuel. (See Figure 1.) 

 

Clear Skies should also spur technological innovation. Under the proposal, 85 percent of all coal-fired generation in 2020 is projected to come from coal with advanced SO₂ and NO_x controls. We project that minor amounts of capacity will have to be retrofitted with mercury-specific controls (such as activated carbon injection). Still, particularly in the first 10 years of the program, sources are likely to meet the required mercury reductions largely through the installation of controls for the other two emissions. (See Figure 2.)



Also by 2020, we project coal production to shift toward Eastern bituminous coals, increasing overall coal production slightly. (See Figure 3.) The reason for this is that the majority of coal-fired units will comply with the Clear Skies SO₂ cap through scrubber installation, rather than a reliance on low-sulfur Western coals. This reverses the trend seen under the Acid Rain Program, where units complied with Phase I of the program through coals primarily from Wyoming's Powder River Basin. Because emissions reductions under Clear Skies are more stringent than those under the Acid Rain program, sources cannot rely primarily on coal-switching to achieve the required reductions. Scrubbers allow more flexibility in choice of sulfur content of coal because they can achieve over 95-percent reduction in sulfur emissions. This shift toward Eastern bituminous coals is the result of many emissions sources, particularly those in the eastern part of the country, electing to use lower-cost, higher-sulfur coals with a scrubber installation.

Our analysis projects that, by 2020, the Clear Skies Act would result in health-related improvements that total $93 billion per year. A more conservative alternative methodology for estimating health-related benefits projects $11 billion. Under either estimate, the benefits far exceed the $6.5 billion cost of achieving the reductions.



Clear Skies would also make a substantial contribution toward meeting the National Ambient Air Quality Standards (NAAQS) for fine particles and ground level ozone, marking a dramatic improvement in the nation's air quality—particularly in the East, where powerplant emissions are most significant. Even in areas where reducing those emissions alone would not enable counties to meet the NAAQS, the projected regional air quality improvements under Clear Skies would reduce the amount and cost of the remaining controls state and local authorities would need to develop in order to demonstrate attainment. In these areas, state and federal agencies would work together under other provisions of the Clean Air Act to further reduce air pollution.

In terms of other environmental results, Clear Skies would make great strides toward solving numerous persistent environmental problems. Visibility improvements from Clear Skies in our national parks and wilderness areas in 2020 would be valued at over $3 billion each year.

In addition, Clear Skies would virtually eliminate the most severe impacts of acid rain in the Northeast. Currently, nearly a quarter of all lakes in the Adirondack Mountains suffer significant effects from acid rain; Clear Skies would reduce acid rain so dramatically that only 3 percent of all Adirondack lakes would remain chronically acidic.

Clear Skies would also improve the health of nitrogen-sensitive forests and coastal ecosystems throughout the East.

Mercury: Learning from Past Environmental Regulation
The use of a cap-and-trade system has already proven to be an effective regulatory tool for achieving NO_x and SO₂ reductions. Cap-and-trade can provide incentives for industry innovation, thus lowering costs and emissions.

Those incentives are particularly compelling this year as we approach the task of reducing mercury emissions from the power industry.

Industry faces a new, rapidly approaching regulatory constraint in the form of the utility mercury maximum achievable control technology (MACT) standard. By the end of 2003, EPA must propose a MACT standard that every utility plant in the country would have to meet. The Clean Air Act requires that the limit be met plant by plant by the end of 2007, but such an approach limits flexibility and could raise the costs to the industry of reducing mercury emissions. It also creates greater uncertainty: Industry would be driven to install mercury-specific controls with which it is only starting to gain experience; and the environment would suffer, since uncertainty over the MACT standard ensures years of litigation over the proper approach.

REMOVING MERCURY

Results suggest that significant amounts of mercury can be removed with fabric filter and wet scrubber systems. Current research to improve the performance of wet scrubbers includes adding reagents to increase mercury capture to over 90 percent and developing catalysts for the conversion of elemental mercury to a more soluble form to remove more than 95 percent. Combining technologies may prove even more effective than stand-alone systems. By promoting the oxidation of elemental mercury to water-soluble forms, selective catalytic reduction systems installed for controlling nitrogen oxides may substantially enhance the mercury removal achievable by wet scrubber systems. Recent testing shows great promise, particularly with bituminous coals. Mercury-specific controls involve the use of sorbents (typically, activated carbon, though other sorbents also are being considered) that are injected into the flue gas to adsorb mercury and subsequently collected in particulate control devices. This approach has been used successfully to reduce mercury emissions at medical and municipal waste combustors. Application to coal-fired boilers has been demonstrated in recent tests resulting in over 90-percent mercury removal in some cases.

EPA must determine what plants currently achieve the best mercury performance and impose regulatory requirements consistent with that information. However, we are learning more each day about the costs and performance of technologies that can remove mercury. The existing regulatory process would serve to stifle that research, rather than encourage it. Alternatively, a multipollutant approach would take advantage of current research and provide greater incentives for technologies and emission reductions.



Despite the absence of mercury control requirements for coal-fired powerplants, considerable work has been undertaken to identify and develop potential control technologies, including optimizing existing NO_x, SO₂, and particulate matter (PM) controls; improving the performance of mercury-specific technologies; and developing other multipollutant control technologies. In addition, numerous add-on control devices already in use for other emissions are being tested for their ability to remove mercury. These activities suggest that a variety of control options likely will become available, provided that regulatory or other incentives are sufficient to sustain interest in the ongoing development of these technologies.

The legislative approach in Clear Skies has the particular advantage of encouraging the industry to adopt controls that reduce more than one pollutant at a time, resulting in cost savings and also achieving multiple environmental benefits over a shorter timeframe. (See the sidebar, "Clear Skies Brings Certainty.") Recent work by both EPA and the Department of Energy have shown that current controls on the power sector for SO₂, NO_x, and PM result in significant amounts of mercury reduction. EPA estimates that an overall 36-percent mercury reduction was achieved by the existing controls on electric generating units in 1999—and it was achieved without any regulations to remove mercury.

As part of its 2002 Clear Skies analysis, EPA examined the marginal costs for mercury control assuming different removal assumptions for combinations of NO_x and SO₂ control technologies. (See Figure 4.) Using a model that assumed less mercury removal from those controls, the analysis concluded that Clear Skies cap levels were cost-effective even with these less optimistic assumptions.

The Clear Skies mercury emissions reduction requirement would give plants an incentive to optimize mercury removal, resulting in significant improvements in control technology and cost reduction. Designed correctly, legislation can provide the incentive that spurs technological innovation. When stringent yet flexible mechanisms exist, substantial technological improvements and steady reductions in control costs almost always follow. This dynamic has occurred even when control options were limited or largely untested at the time regulations were introduced.

Past implementation of power sector environmental regulation supports this conclusion. For example, Acid Rain Program implementation was accompanied by improved scrubber costs and performance, as well as an overall reduction in program compliance costs. Consequently, SO₂ emission reductions cost significantly less than originally projected, dropping from a 1990 estimate (by ICF Resources) of $5.9 billion per year to the most recent annualized compliance cost estimate (by Dallas Burtraw of Resources for the Future) of approximately $1 billion per year. Similarly, NO_x reduction requirements stimulated overall improvement in performance of many combustion control technologies and selective catalytic reduction (SCR). Prior to the call for state implementation plans (SIPs) for NO_x, SCR had been used in Europe for years, generally achieving a 70- to 80-percent reduction. In response to the SIP call, SCR systems routinely achieve greater than 90-percent reduction.

A Better Approach
The current Clean Air Act provides few incentives to reduce emissions until rules are final and litigation is complete. As we have seen many times in the past, this can take years. The NO_x SIP call experience is a good example. Designed to reduce ozone-forming emissions by 1 million tons across the eastern United States, the SIP was based on consultations (begun in 1995) among federal entities, states, industry, and nongovernmental organizations. A federal rule was proposed in 1997 and finalized in 1998. As a result of litigation, the 2003 compliance deadline was moved by the court to 2004 for most states; the court dropped one state from the control requirement; and the remaining states may begin their emissions reductions in 2005 or later. And the litigation continues. The process has made planning for emission control installations difficult, raised costs to industry and consumers, and delayed health and environmental benefits.

In contrast, Clear Skies uses a cap-and-trade approach, clearly recognized as a vehicle for significant reductions, and couples it with potential cost savings and a host of other positive incentives, including early reductions and development of innovative technologies. Moreover, consolidating requirements in the form of emission caps with trading provisions provides a cost-effective and environmentally sound policy option, while ensuring the regulatory certainty that industry requires. The flexibility, cost savings, and proven environmental results associated with cap-and-trade programs make them appealing and politically feasible to policymakers.

Over the last few years, the extraordinary track record of the Acid Rain Program has spurred Congress to consider broader applications of cap-and-trade programs in the context of legislative proposals to curb emissions of multiple air pollutants. The common elements of most proposals are mandatory caps on emissions of multiple pollutants from the power generation sector, implemented through allowance trading programs modeled after the Acid Rain Program. Clearly, a multipollutant approach to reducing powerplant emissions, such as the President's Clear Skies Act, is the best way to address the numerous human health and environmental problems caused by air pollution. Momentum is growing—from environmental groups to coal companies, there is increasing, broad-based support demonstrating that multipollutant legislation is a concept whose time has come. In a telling show of support, organizations comprising our nation's governors, may-ors, and state and local air officials each have passed resolutions collectively voicing support for this approach.

With the introduction of the Clear Skies Act of 2003, the 108th Congress is presented with a rare opportunity, both to reduce the electric power industry's emissions significantly and to improve the cost-effectiveness and results of environmental policy. The President has declared that Clear Skies is a top legislative priority. Coupled with broad, bipartisan support for multipollutant legislation, the prospects for passage of legislation are bright—and that is good news for all Americans.

© 2008 Edison Electric Institute