P O W E R & P O L LU T I O N

A SUCCESSOR TO THE CLEAN AIR ACT
RESEARCH PAPER PHILIP ADOLWA PAUS 8531

S U M M A RY

Electrical power generation through coal fired plants accounts for 55% of the total electricity consumed in the United States. (DOE 2004) This process of electrical power generation also produces significant amounts of pollution which result in both health and environmental damages to society. These costs are not accounted for in the price of electricity. In 2002, President George W. Bush proposed the Clear Skies Initiative (CSI). This legislative framework was intended to provide a platform for achieving significant health and environmental benefits through pollution reduction and provide the energy sector with predictability in pollution abatement costs and requirements. The initiative’s outcomes would be better health and environment, cheaper electricity, and a sustained diverse fuel mix in electricity production. (White House, 2002). The CSI is one of the pending legislations that attempt to replace the Clean Air Act Amendments of 1990, which are widely viewed by both the environmental community and the energy industry as successful. The Clean Air Act introduced the use of market based instruments in power plant pollution control. The Clear Skies Initiative provides excellent legislative framework for enhanced market efficiency, that will minimize the legal challenges to pollution regulation and agency action currently experienced, but the proposed legislation falls short on the pollution reduction targets proposed. The pollution caps are set to be lower than the goals under the existing law. The role back in emission reduction targets will not be viewed favorably by the environmental community. This challenge to the proposed law’s environmental benefits will hinder its chances of adoption. This paper provides an analysis of the viability of Clear Skies Initiative as a successor to the. Clean Air Act Amendments of 1990. The analysis states the objectives of CSI, describes the cap and trade market based mechanism and the multi pollutant approach proposed in the CSI. The analysis also will highlight the major deficiencies of the CSI, as put forward by its critics. The analysis provides a definition to the power plant pollution problem describing the scope and impacts of power plant pollutants. The analysis proposes efficiency, cost effectiveness environmental performance, equitable distribution and the political feasibility as evaluation criteria for CSI. CSI is evaluated against the existing legislative framework to determine if it will be an improvement in power plant pollution control.

INTRODUCTION

Under current technology, electricity is critical to economic development, security, education, health, entertainment and almost all other facets of life as we know it today. While electricity powers economic growth, unintended results from the preferred means of power generation can have undesirable effects to health and the environment. According to the Department of Energy more than 5000 coal-fired power plants are responsible for ensuring reliable and sufficient power supply. (DOE, 2005) These power plants emit significant amounts of air pollution: 67 percent of all sulfur dioxide (SO2) emissions, 40 percent of carbon dioxide, 37 percent of mercury (Hg) emissions and 25 percent of all nitrogen oxide (NOx) emissions. (EPA, 2004) These pollutants significantly contribute to fine particle and ozone pollution associated with a variety of environmental problems, such as smog, acid rain, nitrogen deposition and visibility impairment. An American Cancer Society study (Pope et al, 2002) has linked respiratory and cardiovascular mortality to the fine particulate (PM25) levels.1 These pollutants have been associated with reduction in air quality, global warming, public health concerns and environmental and infrastructure degradation. Coal provides a cheap source of energy. The U.S has a quarter of the world’s coal reserves and at current extraction and usage rates coal will last for centuries. The burning of fossil fuel is the predominant method of power generation in the U.S. Coal burning generates 55% of the electricity in the U.S. About 10% of electricity currently comes from natural gas, which pollutes the air at far lower levels than coal. Oil provides only about 2% of electricity in the U.S.2 (DOE, 2004). The rest of the electricity demand is met mainly through nuclear power generation and green alternatives like wind and solar power. (DOE, 2004) The total costs including damage to the environment and human health are borne by society, but are not reflected in the cost of electricity. These costs are paid for in other ways: higher health insurance premiums, long-term depletion of resources and infrastructure. Reducing the extent of theses external impacts or incorporating these external costs into the price of electricity to give consumers accurate information on the true costs of electricity is one of the most important challenges in creating an efficient market and sustainable energy future. On 14 February 2002, President George W Bush proposed the Clear Skies Initiative (CSI). This initiative is meant to provide a platform for achieving 70 percent cuts below year 2000 emission levels in power plants more quickly, and in a more cost-effective manner, than the current Clean Air Act programs.
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An American Cancer Society study by Pope et al in 1995 established a significant correlation between exposure to fine particulate matter at PM25 with mortality. This study formed the basis for the mortality reduction benefits under Clear Skies Act. 2 See Energy Information Administration, Official Energy Statistics from the US Government available at http://www.eia.doe.gov/fuelelectric.html

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The Clean Air Act is widely viewed as successful by both the environmental community and the energy industry. The Environmental Protection Agency (EPA) and the White House describe CSI as “by far, the most aggressive action ever proposed by any President to reduce emissions from power plants” The outcomes of the new proposal would be, improve air quality throughout the country, using a proven market-based approach that will save American consumers millions of dollars, spur economic growth and preserve a diverse fuel mix. This evaluation will use the impacts on market efficiency, cost effectiveness, environmental performance and political feasibility to evaluate this proposal against the existing legislation that this proposal seeks to replace.
BACKGROUND AND PROBLEM DEFINITION

The air we breathe contains many impurities that are produced through industrial, agricultural and transport processes. These impurities affect human health, damage fragile ecosystems, reduce visibility, and even damage property. There is also evidence though disputed that these anthropogenic additives to air have profound impacts on global climate. (Jones et al, 1986) The earth’s atmosphere consists mostly of nitrogen (78%) and oxygen (21%), has always contained many trace chemicals and particles.3 Natural processes have always had an impact on the composition of our atmosphere, volcanoes release large amounts of ash and sulfur dioxide into the air and lakes produce green-house gases such as methane and carbon dioxide4, wind and other natural processes raise dust into the atmosphere, and even the natural botanical and zoological growth processes emit small amounts of chemicals into the atmosphere. (USGS, 2004)

But when the word “pollution,” is used, it generally applies to humanrelated emissions that degrade the environment or cause harm to humans. These human activities include agricultural, industrial, commercial, transportation and residential processes. The common and most significant air pollutants include:
Mercury Mercury moves through the environment as a result of both natural and human activates and the highest emitting source for anthropogenic mercury is the burning of coal by electrical utilities. This group accounts for at least
3

See Introduction to the Atmosphere, Atmospheric composition Physicalgeography.net available at http://www.physicalgeography.net/fundamentals/7a.html 4 See U.S. Geological Survey Fact Sheet 002-97: What Are Volcano Hazards? Available at http://pubs.usgs.gov/fs/fs002-97/ , Last modified: October 13, 2004

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40% of the human generated emissions of mercury in the U.S. 5 (EPA, 2006) Typically, the air concentrations of mercury is low, but through deposition in water and a process known as bioaccumulation in aquatic life, mercury can reach toxic levels. Human exposure to mercury primarily occurs thorough eating contaminated fish. Exposure to mercury contamination has been associated with neurological and developmental disorders ranging from subtle loss of sensory or cognitive ability to convulsions and death. (USGS, 2002) Nitrogen oxide Nitrogen oxides (NOx), are mixture of gases that contain nitrogen and oxygen in varying amounts. Nitrogen oxides are released to the air from the exhaust fumes of cars, the burning of coal, oil, or natural gas, and during various industrial processes. The main pollution sources of NOx are transport emissions and electric utilities. According to the EPA, electrical utilities account for 22 percent of the NOx emissions. Negative impacts of NOx range from health and environmental to visibility impairment causing accidents on roads in large cities (smog). Smog has been associated with asthma in children.6 Individuals with extended outdoor activity susceptible negative effects such as damage to lung tissue and reduction in lung function. (ATSDRCDC, 2002) Other impacts from ozone include damaged vegetation and reduced crop yields. NOx and sulfur dioxide react with other substances in the air to form acids which fall to earth as acid rain. Acid rain causes deterioration of cars, buildings and historical monuments; and causes lakes and streams to become acidic and unsuitable for many fish.7 Sulfur dioxide Sulfur dioxide is a colorless gas, which is odorless in low concentrations, but pungent at high levels.8 (ATSDR-CDC, 1998) On a global scale, most of the sulfur dioxide (SO2) is produced by natural sources, mainly volcanoes and decaying organic material. This natural sulfur dioxide is mainly emitted high into the atmosphere or far from populated centers; therefore concentration of gas in ground level air is quite small. 9Sulfur is prevalent in many raw materials, including crude oil, coal, and ore that contains common metals.
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See Environmental Protection Agency, Mercury, Basic Information available at http://www.epa.gov/mercury/about.htm Last updated on Friday, March 3rd, 2006
6

See LA Times Article by Miguel Bastillo; Smog harms children’s lungs for life. Available at http://healthandcleanair.org/resources/latimesarticle.pdf 7 See Clean the Air, The National Campaign Against Dirty Power, Sulfur Dioxide and the Environment. Available at http://www.cleartheair.org/relatives/18780.pdf
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See Agency for Toxic Substances and Disease Registry (ATSDR). 1998: U.S. Department of Health and Human Services, Public Health Service available at http://www.atsdr.cdc.gov/toxprofiles/tp116.html

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Sulfurous gases are formed when fuel-containing sulfur, such as coal and oil, is burned, and when gasoline is extracted from oil or metals are extracted from ore. sulfur dioxide dissolves in water vapor to form acid, and interacts with other gases and particles in the air to form sulfates and other products that can be harmful to people and their environment. The main anthropogenic source of sulfur dioxide in the United States of America is the combustion of coal. Coal contains 1 to 9% sulfur, depending on the geographic region from which it was mined. 10According to the Environmental Protection Agency over 65% of sulfur dioxide released to the air, or more than 13 million tons per year, comes from electric utilities, especially those that burn coal. (EPA, 2003) According to the Center for Disease Control (CDC), the major health concerns associated with exposure to high concentrations of sulfur dioxide include effects on breathing, respiratory illness, and aggravation of existing cardiovascular disease. Children, the elderly, and people with asthma, cardiovascular disease or chronic lung disease, are most vulnerable to adverse health effects linked with exposure to sulfur dioxide. (CDC Public Health Statement, 2004) Additionally, there are a varieties of environmental concerns associated with high concentrations of sulfur dioxide. Because sulfur dioxide, along with NOx, are the major components of acid rain it contributes to the acidification of soils, lakes, and streams and the resulting impacts on soil and water organisms and ecosystems. Sulfur dioxide exposure to vegetation can increase leaf injury, decrease plant growth, and yield, and decrease the number and variety of plant species in a given community.11 (EPA, 2006) Particulate matter, Not all air pollutants are gases. Particulate matter is a collective term used for very small solid and/or liquid particles found in the atmosphere. The EPA defines Particle pollution as the “term for a mixture of solid particles and liquid droplets found in the air”. (EPA, 2006) One of the major characteristics of particulate matter is particle size. Particles can range in size from 0.005 500 micrometers or microns (um), which is equal to one-millionth (10 -6) of a meter. Particles less than 2.5 microns in diameter are known as "fine" particles; those larger than 2.5 microns are known as "coarse" particles. 12
9

See U.S. Department of the Interior, U.S. Geological Survey, Menlo Park, California, USA http://volcanoes.usgs.gov/Hazards/What/VolGas/volgas.html Contact: VHP WWW Team Last modification: 10 January 2006
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See the US Department of Energy, Energy Information Administration, US Coal Reserves: An Update by heat and sulfur content., Feburary 2003. Available at http://tonto.eia.doe.gov/FTPROOT/coal/052992.pdf 11 See Environmental Protection Agency, Sulfur dioxide, Basic Information available at http://www.epa.gov/air/urbanair/so2/chf1.html Last updated on Thursday, March 2nd, 2006 12 See Environmental Protection Agency, Fine Particulate Matter, Basic information: Available at http://www.epa.gov/air/particlepollution/basic.html

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Particulate matter impact both heath and visibility. Power production significantly contributes to the production of both primary and secondary particles. As mentioned previously both NOx and SO2 play critical roles in the development of particulate matter and the study by America Cancer Society established correlations between fine particulate pollution (less than 2.5 microns) and mortality. (Pope, et al, 1995) Carbon dioxide The EPA originally viewed carbon dioxide as a product of "perfect" combustion, but now views CO2 as a pollution concern. Carbon dioxide does not directly impair human health, but it is a greenhouse gas that traps the earth's heat and contributes to the potential for global warming. (EPA, 2002) Most of these emissions, about 82%, are from burning fossil fuels to generate electricity and power our cars.13 Rising global temperatures are expected to raise sea level, and change precipitation and other local climate conditions. Changing regional climate could alter forests, crop yields, and water supplies. It could also affect human health, animals, and many types of ecosystems. Unfortunately, many of the potentially most important impacts can not be reliably projected for specific areas.14 Challenges to the Impacts of power plant pollution A significant number of related, unintended negative impacts arising from pollution have been sited in the process of electricity generation using fossil fuels. The EPA tracks the emission sources and the amount of these pollutants through established national emission monitoring and inventory. Therefore the quantities of the pollution produces are not challenged. The common challenge is on the impact of the pollution levels and placing monetary value on these impacts. The energy industry contends that the impact of these pollutants on health and environment has not been scientifically established. The George W. Bush administration has made attempts to uncouple carbon dioxide and global warming and challenge the science behind global warming.15 (PBS, 2004) With no regulation for CO2 there has been an increase in the quantity of CO2 emitted, according to the EPA the annual CO2 emissions from power plants increased by 9 percent nationwide from 1995 to 2003, with an increase at 59 percent for the nation’s “dirtiest” power plants.16 (EPA, 2003) The EPA highlights the uncertainty relating to the impact of green-house gases on the earths complex systems. (Last updated on Thursday, March 2nd, 2006) 13 See Environmental Protection Agency, In Brief; Greenhouse Gas Inventory. Available at http://yosemite.epa.gov/oar/globalwarming.nsf/UniqueKeyLookup/RAMR5CZK VE/$File/ghgbrochure.pdf 14 See Environmental Protection Agency, Global Warming, Climate, Uncertainties. Available at http://yosemite.epa.gov/oar/globalwarming.nsf/content/ClimateUncertainties. html Modified on Friday, January 7th, 2000 15 See PBS, Newshour: Environmental Reversal, March 14, 2004 Available at http://www.pbs.org/newshour/bb/environment/jan-june01/co2_3-14.html

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Uncertainties in both the effects of air pollution and its valuation are a constant issue in clean air regulation. Uncertainty comes into play in translating emissions into ambient air quality in estimating the costs of the adverse effects on health, agriculture, and the environment. A second challenge is estimating the compliance costs incurred by the power plants in meeting any standards legislated. Power plants have an incentive to overstate the costs to comply with regulation reducing the perceived cost effectiveness of any regulatory action

G OA L S A N D C R I T E R I A

Success in pollution control within the energy industry can be measured in four ways. One is cost-effectiveness - does the policy facilitate attainment of environmental standards at minimum abatement costs? The second is market efficiency - does the policy internalize of resulting social costs of energy production into the prevailing prices of electricity? The third being distributive – does the policy unfairly distribute the environmental and health benefits within society or the compliance costs to the individual plants. Finally, environmental performance - does the policy facilitate acceptable environmental performance under current knowledge of environmental and health damages? Both the energy industry and the environmental community would provide ample challenge to any legislation that is viewed to either weak on environmental performance or involve high compliance costs. These are the criteria used in the paper to compare the two power plant pollution control alternatives.

P O L I C Y A LT E R N AT I V E S

Prior to the Acid Rain Programs of 1990 under the amendments of Title IV of the Clean Air Act, the regulations for electric power plants were exclusively prescriptive in nature, employing first an emissions-rate standard (prohibiting each regulated generating unit from exceeding a certain uniform emissions rate) and then a technology standard (mandating that each unit remove a certain percentage of pollution from emissions, essentially requiring an endof-pipe abatement technology). Experience with these programs of prescriptive regulation highlighted the limits or inability that regulators have to prescribe source specific emission reduction. The information requirements for this approach are restrictive; the regulating body would need to determine the appropriate pollution levels, the best technology to employ to reduce the pollution in addition to monitoring the compliance of each pollution source to
16

See EPA, Inventory of Greenhouse gases emissions and sinks 1990 – 2003; available at http://yosemite.epa.gov/oar/globalwarming.nsf/UniqueKeyLookup/RAMR69V52 8/$File/05executivesummary.pdf

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ensure that these requirements are met. Experience with approach was riddled will legislative challenges to agency action. (Winters, 2002)

Market Based Instruments Acid Rain Program initiated an experiment in incentive-based environmental regulation by tradable allowances for emission of sulfur dioxide by electric generating facilities. Under Acid Rain Program, the EPA distributes allowances (permits) equal to the cap amount while the sources (that is the power plants) have flexibility to choose how to meet their limits – by reducing their own emissions or purchasing allowances from other sources. Electricity generators must continually monitor and report their emissions, and must have sufficient allowances to cover their emissions or significant automatic penalties will apply for noncompliance. The number of allowances that are distributed are reduced over time. 17 Market-based instruments are advocated because of their presumed lower economic cost in comparison with prescriptive regulatory instruments. (Ellerman, 2003) These allowances can be traded freely therefore providing an incentive for innovation in the market. Power plants that cannot reduce emissions have the flexibility in this market framework to buy additional allowances without undermining air quality. Incentives for electricity generators to reduce their emissions further and more quickly than the law requires through early implementation and over-compliance are created through the banking aspects of the trading program, where power plants will do more now as an investment for the future (Winters. T, 2002). There are a variety of mechanisms for compliance under Acid Rain Program in addition to allowance trading including intra-firm reallocation of emission allowances, fuel switching and/or blending, installing scrubbers (flue gas de-sulfurization), retiring plants, re-powering plants, energy conservation, reduced utilization and substitution among facilities. (EPA, 2006) Therefore, an active allowance market was not a necessary condition for cost effectiveness. Success of Clean Air Act Amendments The Acid Rain program has been overwhelmingly successful from a market efficiency, cost effectiveness and environmental performance perspective: a vigorous trade in allowances, widespread benefits, and lower-than expected compliance costs. The pollution hotspots expected due to uneven distribution in pollution reduction have not been evident therefore challenging the notion that MBI will result in the inequitable distribution of damages. Four features best described environmental effectiveness of the Acid Rain Program. A large reduction in emissions was achieved relatively quickly. Second the schedule of emission reduction was accelerated significantly because of banking, and
17

See, Environmental Protection Agency, Air Markets; Acid Rain Program available at http://www.epa.gov/airmarkets/arp/overview.html Last updated on Thursday, March 2nd, 2006

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third, no exceptions or relaxation from the programs requirements were granted. Fourth and finally the pollution hot-spots resulting from a concentration of allowances purchased into a region as a result from emission trading that were feared did not appear. (EPA, 2004), (Ellerman, 2003) One of the four aspects of environmental performance noted above can be attributed to a specific design feature in Acid Rain Program. The over compliance can be attributed to the banking provision of the amendments. The remaining environment features-quick implementation, 100% compliance and the absence of hot spots reflect a more fundamental characteristic of the program namely a flexible decentralized property rights system. (Ellerman et al., 2000) Critics of MBI argue that adoption of the incentive-based regulation such as in the Acid Rain Program reflect a public policy experiment in an inappropriate domain - the environment. The challenges of valuing environmental and health benefits, the impact of uncertainty are viewed by the environmental community as sufficient reasons to minimize pollution to its lowest minimum possible level. The result of the cap-and-trade program under Title IV suggests that this form of MBI is more environmentally effective than the prescriptive regulation is in addition to being more economically efficient. (EPA, 2003) The Clear Skies Act as a Successor to the Clean Air Act Clear Skies Initiative is meant to provide a platform for achieving 70 percent cuts below year 2000 emission levels in power plants more quickly, and in a more cost-effective manner, than the current Clean Air Act programs. The Environmental Protection Agency (EPA) and the White House describe CSI as “by far, the most aggressive action ever proposed by any President to reduce emissions from power plants.” The benefits of the new proposal would be, improve air quality throughout the country, using a proven market-based approach that will save American consumers millions of dollars, spur economic growth and preserve a diverse fuel mix. The EPA describes four main approaches to achieving these objectives through CSI: • First establishing federally enforceable emissions limits (or "caps") for three pollutants NOx, SO2 and Mercury. CSI NOx and SO2 requirements affect all fossil fuel-fired electric generators greater than 25 megawatts that sell electricity. Mercury requirements affect only the subset of these units that are coal-fired. The caps will be reduced in two phases by 2018. The second phase reduction in 2018 will be subject to review for new scientific technologies and cost information. Two trading zones have been established based on the reduction needs. (EPA, 2003) •Secondly, a key goal of the proposed multi-pollutant legislation is to improve on the current regulatory framework by giving industry greater regulatory predictability and certainty about compliance requirements. By adopting a, multi-pollutant approach as opposed to current law which tends to address each environmental problem independently. The national

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program would take advantage of the benefits that would result from controlling multiple pollutants at the same time. Whereas in the past each pollutant was addressed through a separate regulatory program. (EPA, 2003) •Thirdly, the EPA will apply the Cap and Trade mechanism used successfully in the Clean Air Act programs. In the Acid Rain program, this approach produced near perfect compliance (99%), early implementation and huge cost saving running up to 75% below the projected cost. The EPA distributes allowances equal to the cap amount while the sources (that is the power plants) have flexibility to choose how to meet their limits – by reducing their own emissions or purchasing allowances from other sources. (EPA, 2003) • Lastly by setting firm caps while offering flexibility in how utilities can meet those caps, the CSI would preserve a diverse fuel mix, more so enabling continued use of abundant domestic fuel sources – coal. Therefore providing reasonable prices energy and supporting economic growth. The firm caps also provide adequate lead time creating a predictable climate for long term planning and capital investment in power generation. (EPA, 2003) The main criticisms of CSI focuses on the move to end the distinction between old and new sources of emissions found in New Source Review and the level of the caps placed. The existing law holds plants built after 1970 had to have the best emission control technology available at the time they were built, and old plants that were substantially upgraded would have to meet the same standard. The goal in 1970 was that large future reductions in emissions would be made as old plants were retired and replaced by new plants. (Smock R., 2002) But two problems hindered implementation. Existing plants increased in value due to more stringent requirements on new plants. The difficulty of setting new plants has made old plants less likely to be replaced, coupled with dramatic technological advances have reduced maintenance costs and made it possible to extend the life of old plants. Determining when an updated old source should have to meet new source standards has also proved difficult. NSR mechanism, reviews the expenditures on existing plants to see whether a plant has crossed the line between old and new. The lack of clarity on this distinction discourages power plant owners from improving existing units for fear of triggering the new source requirements. It has also led to lengthy litigation over what is and isn't "new." (Winters T, 2002). The emission reduction targets set by the Clear Skies Initiative are far less aggressive if compared to the mandates found in the current Clean Air Act. Analysis of reductions to SO2, NOx and mercury, by the Clear The Air indicate that enforcing the Clean Air Act requirements would reduce pollution emissions more quickly than the cap and trade plan in the Clear Skies legislation. Current law requires that power plants reduce mercury, sulfur and nitrogen no later than 2010. Clear Skies Initiative sets new emission targets for pollutants, allowing five times more mercury emissions, one and a half

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times more sulfur dioxide emissions and hundreds of thousands more tons of the smog-forming nitrogen oxides than allowed under current law and extends the period for compliance to 2018. In eliminating the NSR the Clear Skies Legislation would allow an extra decade for the more than 400 grandfathered power plants built before the Clean Air Act, to be retrofitted with pollution controls technologies. (NRDC, 2004), (Winters, 2002) Pollutant Cap comparison of the Clear Skies Act against the existing programs under the Clean Air Act 18 P has e Clean Air Act (CAA) Existing Programs Clear Skies 1 Act (CSI) Two step 2 Approach Pollution 1 Increase allowed by 2 CSI over CAA Percentage 1 increase of 2 CSI over CAA Delay in achieving the CAA levels allowed by CSI 2.1 million ton cap by 2008 1.7 million tons by 2018 850,000 tons 450,000 tons 68% 36% Up to 8 years 4,5 million ton cap by 2010 3 million ton cap by 2018 2.5 million ton 1 million 125% 50% Up to 6 years 26 tons per year by 2008 15 ton by 2018 21 tons 10 tons 420% 200% Up to 10 years Nitrogen Oxides 1.25 million ton cap by 2010 Sulfur Dioxide Mercury

2 million ton cap by 2012

5 tons per year by 2008

Courtesy of the Clear the Air, 2003

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Analysis by Clear the Air – A national public education campaign to combat global warming available at http://www.cleartheair.org/relatives/20340.pdf

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COMPARATIVE ANALYSIS MATRIX
POLICY ALTERNATIVES

Goals Efficiency

Impact Category Property Rights

Clean Air Act (Current policy) Good Provides a market for SO2 but has prescriptive regulation for NOx and Mercury

Ease of Enforcement

Medium – Process riddles with legal challenges against agency action Medium – Prescriptive component maintained in the control of NOx and Mercury

Flexibility

Clear Skies Act (Proposed) Excellent improvement on the status quo Assigns property rights and creates a market for NOx and Mercury Maintains the existing SO2 market Excellent – power plants own the right to pollute based on permits and the NSR requirements slackened Excellent - The emitters are allowed varying pollution rates based on the Cap established the technology used to abate pollution is left to the emitters Low and determined by market mechanisms

Cost Effectiveness

Abatement Costs

Medium - prescriptive regulation will reduce the incentive for innovation and will maintain higher abatement cost. High - Law has been successful in reducing all pollutants with the exception of CO2 which is not regulated

Environmental Performance

Emission reduction

Low- Caps set lower than those that would be achieved under existing law

Equitable Distribution

Pollution Hotspots

No evidence of pollution hotspots has occurred with this legislation.

Possibility of Mercury hot spots in plants with older technology exempted from the NSR Medium - With the pollution cap set at lower levels than those of the existing law this proposal will face a steep challenge from the environmental community

Political Feasibility

Likelihood for successful adoption

High – this is the existing law

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R E C O M M E N D AT I O N A ND C O N C LU S I O N

The multi-pollutant approach and expansion of the Cap and Trade to include NOx and Mercury under the Clear Skies Initiative provides a better legislative platform to achieve market efficiency, cost effectiveness and the environmental performance required, while avoiding the reliance on courts for resolution. Once the property rights for ambient air are assigned through the permits and rules for the rights to pollute are established through caps and a permit market is established, then market based decisions will price the right to pollute. The Clear Skies Initiative maintains the status quo and signals the George W Bush Administration’s approach to emission control. The proposed law provides greater flexibility to the energy industry in controlling pollution in a cost effective way. There is little for the environmental community to support, knowing that the elements of enforcement under the New Source Review will be taken from the EPA. A promise to go beyond the current requirements with the reductions in Phase Two by 2018 is a distant objective of little current value. This is particularly true since many of the original deadlines for the 1990 Clean Air Act have already passed by. (Winters T, 2002) Waiting another 20 years to achieve the new objective is unlikely to be interpreted as “the most aggressive” by the environmental community. Adjusting the caps to reflect more aggressive reduction in pollution would move closer to accounting for the existing social costs or reduce environmental and health damages. In its current state the Clear Skies Act would be a step back from the Clean Air Act in terms of environmental performance. The analysis recommends an attempt to amend the Clear Skies Act to reflect the more aggressive reductions. In the absence on these adjustments, adoption of this excellent framework that will have significant impact on cost effectiveness and efficiency will be an uphill task due to its weak environmental performance.

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REFERENCES

1. Electric Power Annual 2004: USA Department of Energy, November 2005 http://www.eia.doe.gov/cneaf/electricity/epa/epa_sum.html 2. Technical Addendum: Program elements in the Clear Skies Act of 2003, U.S. EPA, July 2003 3. Pope CA, Dockery DW. Health Effects of Particulate Air pollution: Time for Reassessment, Environ Health Perspective 1995; 103: 472 – 480 4. Jones, P.D., Wigley, T.M.L. & Wright, P.B. Global temperature variations between 1861 and 1984; Nature 322, 430−434 (1986) 5. Office of the Press Secretary, “President Announces Clear Skies & Global Climate Change Initiatives”, Feb 2002 http://www.whitehouse.gov/news/releases/2002/02/clearskies.html 6. Ellerman, A. Denny. 2003. Are cap-and-trade programs more environmentally effective than conventional regulation? Unpublished manuscript obtained from the MIT Center for Energy and Environmental Policy Research website. http://web.mit.edu/ceepr/www/2003-015.pdf 7. Winters Tobey, Clear Skies Initiative: New beginning or Bait and Switch, The Electricity Journal, July 2002 Vol. 15 Issue 6, page 56-63 8. Smock. Robert, Coal Revival requires lower emission caps, Power Engineering Aug, 2002 Vol. 106 Issue 8 9. Clean Air and the Politics of Coal. By: John, Dewitt; Paddock, Lee. Issues in Science & Technology, Winter2003/2004, Vol. 20 Issue 2, p63 10.Center for Communicable Diseases ToxFQA for Nitrogen Oxides, Agency for Toxic Substances and Disease Registry (ATSDR), Last updated on April 2002 http://www.atsdr.cdc.gov/tfacts175.html

11. Center for Disease Control, Agency for Toxic Substances Disease
Registry “Public Health Statement for Sulfur Dioxide” Last updated on November 22, 2004

http://www.atsdr.cdc.gov/toxprofiles/phs116.html
12.Ellerman, A. Denny. 2003. Are cap-and-trade programs more environmentally effective than conventional regulation? Unpublished manuscript obtained from the MIT Center for Energy and Environmental Policy Research website. http://web.mit.edu/ceepr/www/2003-015.pdf

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13.See, Environmental Protection Agency, Air Markets; Acid Rain Program available at http://www.epa.gov/airmarkets/arp/overview.html Last updated on Thursday, March 2nd, 2006

14. Clean Air Markets: Acid Rain U.S. EPA, Last updated on Wednesday, 15. Office of the Press Secretary, “President Announces Clear Skies &
Global Climate Change Initiatives”, Feb 2002

September 22nd, 2004 URL: http://www.epa.gov/acidrain/index.html

http://www.whitehouse.gov/news/releases/2002/02/clearskies.ht ml 16. Krewski D, Burnett R, Jerrett M, Pope CA, Rainham D, Calle EE, Thurston
G, Thun MJ. Mortality and long-term exposure to ambient air pollution: ongoing analyses based on the American Cancer Society cohort. J Toxicol Environ Health 2005

17. US Department of Interior, US Geological Survey, Mercury in the
environment fact sheet 146-00 http://www.usgs.gov/themes/factsheet/146-00/index.html Page Last Modified: 26-Sep-2002

18. Agency for Toxic Substances and Disease Registry (ATSDR). 1998: U.S.
Department of Health and Human Services, Public Health Service

http://www.atsdr.cdc.gov/toxprofiles/tp116.html 19. Clear the Air, Comparison of Bush administration’s “ Clear Skies “
Power Plant Initiative with Existing Clean Air Act programs, Available at:

http://www.cleartheair.org/relatives/20340.pdf

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