Furthering its use of the “good neighbor” provision, and its focus on coal-fired electric generating power plants, U.S. EPA recently proposed the Transport Rule.  This proposed regulation is intended to be a replacement for the Clean Air Interstate Rule, which was struck down by the D.C. Circuit in 2008.  The proposed rule is more stringent and expensive than CAIR and, according to EPA, will result in greater emissions reductions.

HOW THE PROPOSED RULE WORKS

The rule applies only to EGU’s - electric generating units - above a certain size.  And it applies only if those EGU’s are located in one of 31 states or the District of Columbia, primarily located in the northeast and midwest.  The proposed rule’s primary targets are sulfur dioxide and nitrogen oxide, considered by the EPA to be among the primary pollutants emitted by the burning of coal.  Power plants are required to reduce SO2 and NOX emissions in two phases, beginning in 2012 and 2014.  The emissions reductions are relatively dramatic – a 71% reduction of SO2 and 52% for NOx.

Under CAIR, similar reductions were to be achieved through a regional cap and trade program.  EPA’s preferred version of the Transport Rule limits the ability to trade, however, and sets up a series of “regions” based on emissions type and state achievement.  Annual allowances could be traded but, at least in some cases, only within a region.  EPA has listed two other alternative approaches it will consider:

• trading is limited to EGU’s within the same state and EPA would set a budget for each state
• EPA would set a budget for each state – and specify emission limits for each plant.  A company could average emission for each of its units to achieve compliance, but no trading would be allowed.

To the extent the limited trading of allowances would not allow a company to achieve compliance, EPA expects other actions will be required, including the installation of additional pollution control equipment and the burning of low sulfur coal.

EFFECTS OF THE PROPOSED RULE

Perhaps signaling its understanding of the changes from the CAIR rule, when it announced its proposed rule, EPA said it expects that power companies will achieve compliance by operating installed pollution control equipment more frequently, burn lower sulfur coal and install more pollution control equipment.  EPA estimates industry’s annual cost of compliance with the proposed rule will be $2.8 billion by 2014.

EPA believes the proposed rule will have significant health benefits, particularly for the “down wind” states.  It estimates that the proposal will avoid 14,000 to 36,000 premature deaths, improve the visibility in state and national parks, and increase protection for sensitive ecosystems, including Appalachian streams and red maple forests.

EPA is currently accepting comments on the proposed rule.  It expects the rule to be final in August 2011, although the recently filed litigation may affect that prediction.  Additional information from EPA is available at www.epa.gov/airtransport.

For more information about the Transport Rule, please contact Bob Clark or any member of Taft’s Environmental Practice Group.