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UPDATING AND EXPANDING THE RANKINGS

For power plant owners or potential buyers, carbon dioxide clearly is among the most important potential sources of future environmental liability, but it is not the only one. It is our hope in updates of these rankings to account also for emissions of fine particles and selected toxic pollutants.

Fine Airborne Particles And Ozone

In addition to global warming, recent scientific findings on the health effects of fine particle pollution are adding to pressure to clean up electricity generation. While coal-fired power plants are a significant direct source of particulate matter, they are even more important as a source of precursors that form fine particles after being emitted into the atmosphere. Sulfur dioxide emissions are transformed through atmospheric processes into sulfate particles, which are the largest component of fine particles sampled in the Eastern U.S.; nitrogen oxide emissions result in formation of nitrate particles, which are a significant fraction of fine particles found in the West.

Visible soot particles were the first air pollution problem to be addressed, and success at cleaning up these coarse particles has created for some the mistaken impression that particulate pollution is no longer a major concern. In fact, fine particulate pollution has recently been identified as a significant cause of increased hospital and emergency room admissions and premature mortality. Based on two important long-term epidemiological studies published in the last few years, a 1996 NRDC analysis of major metropolitan areas estimates that particulate pollution is causing more than 64,000 people to die prematurely from cardiopulmonary diseases. These lives are not just being shortened by days or weeks, but by an average of one to two years in the most polluted cities. Most of these deaths are occurring in regions that meet the current federal health standards.^[19] These health standards are currently being reviewed, and EPA is expected to propose revisions before the end of this year.

Excessive concentrations of both fine particles and ozone have been shown to cause lung damage and to exacerbate asthma in sensitive individuals (here we are discussing ozone at ground level, as opposed to upper atmospheric ozone, which screens out harmful ultraviolet radiation). Although it is difficult to establish a direct link between air pollution and increases in the total number of asthma cases, the data are alarming. Asthma diagnoses have surged over the past thirty years. The reported number of asthmatic children increased by 58 percent between the early and late 1970's and by almost 44 percent between 1982 and 1990. In addition, more people are being hospitalized and are dying as a result of asthma attacks. For children and teenagers, asthma is now the most frequent reason for hospitalization due to chronic disease. Power plants are again a key target for pollution controls, this time because NOx emissions play a key role in ozone formation.

Toxic Air Emissions

Power plants are also a significant source of toxic air emissions. Of particular concern are persistent bioaccumulating toxics, such as mercury and cadmium. These heavy metals are trace constituents in coal and oil and are emitted into the environment when these fuels are extracted and burned to generate electricity. High levels of mercury are associated with neurological damage, developmental disorders, and reduced populations of fish, bald eagles, river otters, and mink.

Prospects For Additional Environmental Regulation

As this discussion indicates, financial risks from future environmental regulation are not limited to carbon dioxide emissions. Substantial reductions in power plant emissions of sulfur dioxide, nitrogen oxides, and mercury will be required to meet existing and expected health-based air and water quality standards. For example, EPA has determined that nitrogen oxide emissions in the eastern half of the United States from electric power plants will have to be reduced from current levels of about three million tons during the summer ozone season to less than one million tons in order to prevent continued violations of the existing ozone health standards in areas such as the Northeast and Upper Midwest.^[20] Revisions to the ozone standard are being considered that could cause many areas of the Southeast also to be classified as out of attainment. Similarly, intensifying pressures to reduce mercury emissions are emerging from the excessive concentrations in many water bodies, including the Great Lakes, and expected promulgation of a new standard for fine particle concentrations would trigger new requirements to reduce SO2 emissions.

Under existing Clean Air Act provisions, states have the primary responsibility for adopting implementation plans to bring all areas into compliance with health-based standards. If states fail to act, EPA has the authority to impose Federal Implementation Plans. Historically, air pollution control strategies have addressed each pollutant individually. Recently, however, EPA has opened discussions on a "Clean Air Power Initiative," which recognizes that the most effective control strategies can be devised by considering multiple pollutants simultaneously rather than in a piecemeal fashion. The goal is

to develop an integrated regulatory strategy for three major pollutants emitted from electric power generators; namely, sulfur dioxide, nitrogen oxides, and mercury. Major reductions in these pollutants are needed to reduce the detrimental health effects of ground-level ozone, fine particles, and hazardous air pollutants and to reduce the environmental effects of acidification, eutrophication, ecosystem, crop, and materials damage, and regional haze....The power generating industry is facing major structural changes and could benefit from greater certainty in being able to plan for and reduce costs of future environmental regulations....The Clean Air Power Initiative will utilize existing Clean Air Act authority where possible; however, new congressional authority may ultimately be required.^[21]

EPA has analyzed cases involving further emission reductions of up to 65 percent in NOx emissions, up to 60 percent in SO2 emissions and up to 75 percent in mercury emissions. Whether implemented through state-by-state, pollutant-by-pollutant controls, a comprehensive program devised under EPA's Clean Air Power Initiative, or through legislation, there should be no doubt that electric power generators will face tightening environmental requirements as we enter the 21st Century. As they assess generating units individually and in portfolios, prudent managers and investors need to begin weighing the financial implications of those requirements.

Implications For The Current Environmental Liability Rankings

Incorporating airborne particles and toxic releases into the liability assessment should not, in the near term, significantly affect utilities' relative rankings as reported here. These emissions are associated most strongly with coal-fired plants, which also have the highest emissions of carbon dioxide. For all these pollutants, the strategies with the largest risk reduction payoffs will involve less coal combustion and more reliance on non-fossil alternatives. Chapter 6 addresses such strategies in greater detail.

Notes

19. D. Shprentz, Breath Taking: Premature Mortality Due to Particulate Air Pollution in 239 American Cities (Natural Resources Defense Council, May 1996).

20. Letter from Carol M. Browner, Administrator of EPA to Kathleen A. McGinty, Chair of the Council on Environmental Quality, May 13, 1996.

21. Environmental Protection Agency, Office of Air and Radiation, EPA's Clean Air Power Initiative (April 1996). Although CO2 emissions were not explicitly included in the original description of the initiative because EPA wanted to focus on pollutants for which it has clear existing authority under the Clean Air Act, CO2 emissions have been included in the analysis done to support the initiative. Furthermore, recent developments in the Administration's position on global warming as well as comments by NRDC and others make it clear that CO2 emissions must also be considered as part of an integrated strategy.