Environmental Law ReSource : Environmental Lawyer & Attorney : Reed Smith Law Firm : Climate Change, Sustainability

How We Got Here

Back in December 2000, USEPA announced a finding that it was “appropriate and necessary” to regulate coal- and oil-fired electric utilities under Section 112 of the Clean Air Act. This finding, known as the Utility Air Toxics Determination, triggered a requirement for USEPA to propose regulations to control air toxics emissions. A few years later, on March 15, 2005, USEPA issued the final Clean Air Mercury Rule (CAMR). It established “standards of performance” limiting mercury emissions from new and existing utilities, and created a market-based cap-and-trade program to reduce nationwide utility emissions of mercury in two phases.

At the same time that USEPA issued CAMR, it issued a determination that regulation of electric-generating utilities was not “appropriate and necessary” under Section 112. CAMR instead regulated emissions under Section 111 of the Clean Air Act. The two regulatory actions were appealed by various parties, and CAMR was vacated February 9, 2008, by the United States Court of Appeals for the District of Columbia Circuit. The court also vacated USEPA’s determination that regulation under Section 112 of the Clean Air Act was not required. Last week’s proposed regulation is intended to replace the vacated CAMR, and has been proposed in compliance with the December 2000 “appropriate and necessary” determination.

In addition to replacing the 2005 CAMR, the proposed regulation replaces amendments to
the New Source Performance Standards (NSPS) for particulate matter (PM), sulfur dioxide (SO2), and nitrogen oxides (NOx) that were promulgated February 27, 2006. During the course of litigation over this regulation, USEPA requested, and was granted, voluntary remand without vacatur.

Summary of the Proposed Regulation

The proposed regulation would generally apply to existing and new coal- and oil-fired units that sell electricity equal to more than one-third of their potential electric output capacity, and greater than 25 MWe electrical output to any utility power distribution system. The regulation would also apply to units that burn solid oil-derived fuel (petroleum coke-fired) and units that burn processed coal refuse. In addition, the regulation would apply to integrated gasification combined cycle (IGCC) units that utilize coal or petroleum coke as their energy source.

The proposed regulation would set emission limitations on coal-fired units for total particulate matter (a surrogate for toxic non-mercury metals), hydrogen chloride (a surrogate for toxic acid gases) and mercury. For liquid-oil fired units, the regulated pollutants would be total hazardous air pollutant (HAP) metals (determined through fuel analysis), hydrogen chloride, and hydrogen fluoride. All subcategories would also have a work practice standard for organic HAPs, including emissions of dioxins and furans.

For the revised NSPS, USEPA has an unusual proposed plan. For facilities that begin construction between February 28, 2005 and one day after publication of the proposed new rule, the emission standards set in the 2006 final rule would apply. For new construction after that date, the proposed regulation would apply amended standards for PM, SO2 and NOx.

The regulation contains numerous other provisions, including alternate limitations for demonstrating compliance; new monitoring and testing requirements; new Startup, Shutdown and Malfunction requirements; and the ability to demonstrate compliance through emissions averaging.

The regulation would also require installation of a mixture of control systems. USEPA does not identify a specific set of controls to be installed, as this will be dependent upon the type of fuel being burned, the age of the boiler, the type of boiler, and other site-specific factors. USEPA has identified the types of technologies that are applicable, including wet and dry scrubbers, dry sorbent injection systems, activated carbon injection systems, and baghouses. Each facility will need to make an individual determination of the appropriate control technologies for its system.

Brief Analysis of the Real Costs and Benefits

The proposed regulation is somewhat misleading. The proposal is considered by many to simply be a regulation of mercury emissions by coal-fired power plants which is intended to replace the 2005 Clean Air Mercury Rule. However, an analysis of the facts behind the regulation make it clear that the expected benefits from mercury controls are minimal compared with the other claimed benefits from the regulation. In fact, analysis of the mercury control section of the regulation alone shows a very poor cost-to-benefit ratio. Depending upon the discount rate selected, the estimated benefits from mercury controls are in the range of $450,000 to $5.9 million per year. However, the annual costs for mercury controls are much higher. USEPA puts the annualized costs for Activated Carbon Injection (ACI) control at more than $2 billion per year. ACI technology would only be required for control of mercury emissions.

The main benefit from the new regulation comes from control of particulate matter, in particular, control of very small particles that are less than 2.5 microns in diameter (PM2.5). USEPA estimates that economic benefits from control of PM2.5 would range from $53 billion to $140 billion per year, dwarfing the costs of the new regulation. USEPA obtained these benefits by determining that the controls would prevent 6,800 to 17,000 premature deaths, 11,000 nonfatal heart attacks, 5,300 hospitalizations for respiratory and cardiovascular diseases, 850,000 lost work days and 5.1 million days when adults restrict normal activities because of respiratory symptoms exacerbated by PM2.5. It is interesting to note, however, that USEPA is not specifically regulating PM2.5, but particulate matter in general. The main reason for this is the difficulty in accurately sampling and analyzing particles of that size.

Another interesting and controversial finding (at least in today’s political atmosphere) by USEPA is that the proposed regulation would result in $570 million per year in carbon dioxide-related benefits. By benefits, USEPA of course means a reduction in carbon dioxide emissions. A reduction in carbon dioxide emissions means a reduction in the use of coal to generate electricity. Even though USEPA is projecting only a 2 percent reduction in coal usage as a result of this regulation, and even though it states that it does not expect a major change in the electricity generation mix, it is almost guaranteed that many people will characterize the regulation as a back-door attempt by USEPA to control greenhouse gases and reduce coal usage.

Next Steps

Following publication of this regulation in the Federal Register, the public comment period will run for 60 days. USEPA will also hold public meetings during the comment period. With respect to a final rule, USEPA is operating under a consent decree requiring it to publish a notice of final rulemaking by November 16, 2011. However, look for a very large number of comments and a possible extension of the deadline.

This regulation will have a significant cost impact, both upon the regulated industry and upon the general public. Interested parties are strongly urged to closely review this proposal and the associated documents (such as the Regulatory Impact Analysis), and provide input and comments to USEPA during the review period. Please contact us with any questions.
 

The PA Mercury Rule was published after the passage of two federal rules, one of which removed EGUs from the Clean Air Act (“CAA”) section 112 list of mercury pollution sources (the “Delisting Rule”) and the other that regulated EGUs under section 111 of the CAA (Clean Air Mercury Rule “CAMR”).  In order to regulate sources or categories of sources, EPA must add them to the section 112 list.  EPA had previously listed EGUs under the section 112 list for mercury, and the Delisting Rule removed EGUs from the list.  The Delisting Rule was declared unlawful and vacated in New Jersey v. EPA, 517 F.3d 574 (D.C. Cir. 2008).  Once the Delisting Rule was declared invalid, the court found that the CAMR no longer had a legal basis and it was also vacated.

In the Commonwealth Court decision, Judge Pellegrini found that that since the Delisting Rule and CAMR were void ab initio, the EGUs must have been deemed to have always been listed pursuant to the CAA section 112 list.  Since the Pennsylvania Air Pollution Control Act (“APCA”) specifically prohibits the state’s Environmental Quality Board from regulating sources or categories listed under section 112, the Board had no authority to promulgate the PA Mercury Rule.  The Supreme Court upheld this determination, rejecting the commonwealth’s arguments in favor of retaining the rule.

The commonwealth made several procedural and preliminary arguments.  They argued that PPL Generation had waived its right to challenge the PA Mercury Rule because it did not appeal it when originally published.  The Supreme Court rejected this argument, finding that this case was predicated on the New Jersey decision, not on the rule passage.  The court also rejected arguments regarding procedural irregularities and reasonableness, since those were not the issues evaluated in the lower court rule.  Finally the court rejected an assertion that the Board had the authority to promulgate the PA Mercury Rule pursuant to its general authority, since that argument ignored the specific limitation prohibiting the Board from passing the rule.

The Supreme Court also rejected the commonwealth's substantive arguments.  The commonwealth argued that at the time it passed the mercury rule, it had the authority to do so.  It asserted that subsequent changes in federal law should not affect the validity of the Board’s actions, because to do so would invite extreme regulatory uncertainty.  The court found that in this case, “recognition of the inevitable effect of a federal court’s invalidation of a federal regulation does not presage so much uncertainty that the Board will be prevented from properly exercising its regulatory function.”  The commonwealth also argued that the New Jersey decision did not specifically invalidate state regulations predicated on the Delisting Rule, and argued that the Commonwealth Court should not give the New Jersey decision retroactive effect.  The Supreme Court determined that it could not ignore the effects of a federal decision upon the power of the states to act consistent with the federal Supremacy Clause, observing: “[t]he notion that a state regulation adopted in the interregnum, but which would have future effect, can stand outside the scheme by virtue of some grandfathering principle is unworkable in a federal system.” 

On the issue of pre-enforcement review, the state Supreme Court’s decision also made it quite clear that it still considers the 1984 decision in Arsenal Coal Company v. DER, 477 A.2d 1333 to be good law.  The Commonwealth had argued that PPL Generation was not entitled to pre-enforcement review of the PA Mercury Rule, as it had an adequate administrative remedy available.  The court found that the regulation would have a “direct and immediate” effect on the industry, and that in accordance with Arsenal Coal, a pre-enforcement review of the validity of the regulation was appropriate.

The Pennsylvania Supreme Court’s ruling in this case is significant in several different ways.  First, it clearly supports the argument that the validity of an environmental regulation may be challenged outside of an administrative case before the Environmental Hearing Board.  For significant regulations that have a “direct and immediate” effect, this presents the opportunity to avoid the delay and piecemeal approach of litigating through the administrative tribunal.  Second, the court recognized that environmental regulation in Pennsylvania is inextricably linked to the larger federal regulatory structure.  Significant decisions on federal regulations, which potentially affect state regulations, cannot be ignored.

Reed Smith participated in the Pennsylvania case, both in the commonwealth case and in the appeal, through the filing of an amicus brief on behalf of two utility clients.