Energy Committee Update
August 15, 2011
Staff Contact: Darren Suarez
On July 6, 2011, U.S. EPA finalized Cross-State Air Pollution Rule (CSAPR) which requires twenty seven states to reduce power plant emissions of sulfur dioxide (SO2) and nitrogen oxide (NOX) emissions. The Business Council and its members are concerned the cap and trade rule disproportionately effects New York’s generation and potentially New York electric customers.
The Business Council would like to hear from its members to assist cataloguing the potential adverse effects of CSAPR. The Business Council along with its membership is interested in identifying in a qualitative manner, and to the extent practical to identify the projected quantitative effects of CSAPR on New York’s business community. The Business Council will use this information to strength the call for EPA to reexamine CSAPR.
An Overview of the Issue and Our Concerns
The new rule is intended to replace EPA's remanded 2005 Clean Air Interstate Rule (CAIR). On July 11, 2008 the U.S. Court of Appeals for the D.C. Circuit found "more than several fatal flaws" in EPA's Clean Air Interstate Rule (CAIR) and vacated the rule in its entirety. The common theme of the court's decision was that EPA had failed to connect the CAIR regulations with the statutory authority created by the Act. Read the court decision (PDF)
CSAPR covers power generation units in designated CSAPR States in three programs: NOX in the Ozone Season and annually and SO2 annually in two phases:
- Phase I starts in January 2012; and
- Phase II starts in January 2014.
The Cross-State Air Pollution Rule requires upwind states to significantly reduce pollution contributing to downwind. The individual state reductions are based on the magnitude of the upwind state’s contribution, the cost of controlling pollution from various sources, and the air quality impacts of proposed reductions. Based on these calculations, EPA has established state budgets, which allocate allowances on a state-by-state basis.
- Annual SO2 Budgets, Variability Limits and State Assurance Levels (PDF).
- Annual NOX Budgets, Variability Limits and State Assurance Levels (PDF).
- Ozone Season NOX Budgets, Variability Limits and State Assurance Levels (PDF).
EPA has set aside two percent of each state’s budget for new sources, and the agency will set aside as much as an additional six percent of the budget for new sources to be utilized on a state-by-state basis. The remaining allowances in the state budget are allocated directly to existing sources.
To meet the requirements of this rule, EPA anticipates power plants will:
- Maximize use of installed SO2 and NOX pollution control equipment, including running clean units more than would otherwise occur;
- Use lower sulfur coal, switch fuels; or
- Install or upgrade pollution control equipment, such as low NOX burners or scrubbers (Flue Gas Desulfurization).
Additionally, EPA has allowed for states to submit state implementation programs (SIPs) or abbreviated SIPs to use different allocation methodologies for allowance vintage year 2013 and later.
A significant concern is that the EPA inaccurately modeled the New York electrical system and over-predicted the cost-effective pollution reductions available in the State. Of particular concern was the models failure to adequately represent current emission conditions.
- New York electric generating units significantly reduced emissions in response to New York’s Acid Deposition Reduction Program.
- Annual emissions of SO2 and NOX dropped by 75% and 55% respectively.
- Ozone Season NOX emissions were reduced 41%.
- Current (average of 2008 to 2010) emission rates in New York State are low (0.18 lb SO2 per mmBtu and less than 0.10 lb NOX per mmBtu).
Because it is more expensive to make reductions when emission rates are low, it is unlikely that EPA’s predicted control efficiencies are really “cost-effective.”
The impact of inadequate SO2 and NOX budget will have an effect on New York generators and ultimately consumers of electricity. It is likely that CSAPR may raise concerns about the economic viability of some New York generators. If generation is mothballed or generation is reduced, and/or more costly, this is likely to lead towards, concerns about:
- Increased transmission congestion;
- Effects on the market clearing price;
- Effects on zone pricing;
- Long term contracts;
- Ability to meet power demands;
- New York State resources transferred to other State’s as result of cap and trade;
- A greater dependence upon out of State generation; and
- Effects on large consumers.