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FOR IMMEDIATE RELEASE
August 31, 2005
Press contact: John Walke, 202-289-2406
If you are not a member of the press, please write to us at nrdcinfo@nrdc.org or see our contact page.

EPA PROPOSAL WOULD EXEMPT POWER PLANTS FROM KEY CLEAN AIR ACT STANDARD

An Environmental Protection Agency draft document obtained by the Natural Resources Defense Council reveals that the Bush administration is essentially preparing to exempt the nation's power plants from a central clean air program that federal and state officials are currently using to prosecute polluting coal-fired power plants. That program, called "new source review," now requires a plant undertaking construction activities that will increase its total annual pollution to install state-of-the-art pollution controls. Under this new rulemaking proposal, a power plant would only have to install controls if it increased its maximum potential hourly pollution. One result of this change is that power plants could overhaul their equipment in a way that enables them to operate -- and to emit more pollutants -- for many more hours per year without installing any new pollution controls.

If EPA adopts this new rule, it would be endorsing the legal position taken by defendant utility companies in all of the enforcement cases brought by EPA, states and citizens -- even though EPA and its litigation partners have consistently opposed that position. In fact, this new proposal is so extreme that none of the power plant enforcement cases currently being prosecuted would have been possible had this weaker approach been the law when the violations occurred.

The Bush administration itself formally rejected adoption of this industry-promoted approach as recently as 2002, on grounds that it "could lead to unreviewed increases in emissions that would be detrimental to air quality and could make it difficult to implement the statutory requirements for state-of-the-art [pollution] controls." Just two months ago, the federal appeals court in Washington, D.C., supported that contention in a decision that found the industry position would violate the Clean Air Act. The draft proposal obtained by NRDC reveals that the agency is planning to reverse course, adopting the approach that this binding court decision rejected. The resulting legal inconsistency is so extreme that the leaked draft obtained by NRDC contains a placeholder for EPA to figure out how to explain its rejection of the court's reasoning.

The weaker requirement in the draft proposal would allow every power plant in the country to increase air pollution. Under this new proposal, it would have been perfectly acceptable for the utility company defendants to emit the 1.75 million tons of sulfur dioxide (SO2) and 629,000 tons of nitrogen oxides (NOx) that EPA enforcement officials have targeted in enforcement cases already filed or under investigation. The draft proposal attempts to justify this outcome by pointing to other recent EPA rulemakings that the agency pretends will be sufficient to protect Americans from power plant pollution. However,

  • those other rulemakings do not cover every power plant in the country;
  • EPA has estimated that under those other rules, over 200 power plant units need not install any pollution controls;
  • those rulemakings require absolutely no pollution controls for the next five years;
  • under those rules, states could choose not to control power plants at all; and
  • EPA has admitted that even after those rules are in place by 2015, more than 30 million Americans will still be breathing unhealthy air, with much of that harmful air quality due to power plant pollution.


Background: What is New Source Review?

Congress added the "new source review" (NSR) requirements to the Clean Air Act in 1977, after finding that the "new source performance standard" (NSPS) requirements, added to the Act in 1970, were inadequate to protect public health. NSR requires the owner of a major air pollution source, such as a coal-fired power plant, to adopt pollution controls before undertaking any "modification." "Modification" is defined in the act as any physical or operational change in the source "which increases the amount of any air pollutant emitted by such source." 42 U.S.C. § 7411(a)(4). To get a permit for such a change, the owner must, among other things, demonstrate that, after the change, the source will use the most advanced and effective pollution control equipment available. Facilities also must make sure air quality will not significantly worsen in areas with healthy air. In areas with unhealthy air, facilities must find pollution reductions to make the air cleaner than before the change.


What Part of New Source Review is at Issue Here?

The NSR cleanup requirement is triggered if a physical or operational change at a facility (source) reasonably would be expected to "increase the amount of any air pollutant emitted by such source." 42 U.S.C. § 7411(a)(4). EPA's proposed rulemaking concerns the amount of air pollution emitted.


How Does EPA Currently Calculate an Emissions Increase?

What is critical to understand about the existing NSR rules is that they regulate increases in annual pollution. "Under [our current major NSR regulations], we compare an emissions unit's 'baseline actual emissions' [in tons-per-year] to the emission unit's projected actual emissions [in tons-per-year] after the change." Draft Proposal. If annual emissions after a change are 40 tons-per-year or more greater than annual emissions before a change,1 today's law requires power plants (and other industries) to adopt pollution controls.


How Is EPA Now Proposing to Calculate Emissions Increases?

The draft EPA proposal reflects a radically weaker test that would allow massive annual pollution increases from power plants -- so long as they don't increase pollution above their maximum hourly pollution rates. "The EPA (we) is proposing to revise the applicability test for existing electric generation units (EGUs) that are subject to the [new source review requirements]…. For existing EGUs, we are proposing to compare the maximum hourly emissions achievable at that unit during the past five years to the maximum hourly emissions achievable at that unit after the change to determine NSR applicability. This maximum achievable hourly emissions applicability test would apply to emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from existing EGUs." Draft Proposal (emphasis added).


Why Does the Difference Between the Existing and the Proposed Approach Matter?

The fundamental difference between the two approaches is that the proposed new approach would allow enormous increases in actual annual pollution to escape pollution controls, while today's law would require such controls. The proposed approach weakens current law in two key respects. First, by only controlling pollution increases if they exceed a power plant's highest potential pollution levels from the past, the new approach would allow massive increases in actual pollution levels to escape control. Second, by only controlling pollution increases that increase hourly pollution rates, even if overall annual pollution levels rise due to increased operation or other factors, the new approach would further allow massive increases in actual pollution levels to escape control.

The result of the new proposal would be an exemption so broad that there are few if any power plants that would ever trigger the new test. The new proposed approach essentially eliminates NSR for existing power plants.

To illustrate: A common way that construction activities increase emissions is by enabling a facility to increase the number of hours it operates in a year. For example, old or deteriorated power plant equipment often cannot operate year-round. Utility owners undertake major capital construction projects to allow the equipment to operate more hours per year and produce more electricity -- and more pollution.

If a facility is already operating the maximum possible number of hours-per-year, a change could still increase its actual annual emissions by increasing its hourly emissions rate. But if a facility is already running at the highest hourly emissions rate that it physically can manage and for the highest number of hours-per-year that it can operate, then a change could only increase its hourly (and annual) emissions by increasing maximum hourly emissions, a.k.a., emissions capacity , a.k.a., potential emissions. Such changes are exceedingly rare. Thus, if EPA declares that NSR is not triggered unless a change increases maximum hourly emissions, then NSR would almost never be triggered and pollution controls would never be required.


Examples Illustrating the Difference between the Two Approaches

1. A power plant unit currently emits 1 ton of pollution per hour, and operates 40 percent of the year. Therefore the unit currently produces 3,500 tons of pollution per year. Before the unit began to deteriorate, its maximum potential to pollute -- its "maximum hourly emissions achievable at that unit" -- during the past five years was 1.5 tons of pollution per hour. The plant operator undertakes a non-routine construction project to allow the unit to operate more (say, 90 percent of the year) and to operate more efficiently (say, lowering its pollution rate to 3/4 of a pound of pollution per hour). The result is to increase the unit's annual pollution to 5,900 tons per year -- an increase of 2,400 tons per year over its pre-construction levels. EPA's new weaker approach would not require the plant to control these extra 2,400 annual tons of pollution . The current NSR rules would require pollution controls.

2. A power plant unit currently emits 1 ton of pollution per hour, and operates 40 percent of the year. Thus the unit currently produces 3,500 tons of pollution per year. Before the unit began to deteriorate, its maximum potential to pollute -- its "maximum hourly emissions achievable at that unit" -- during the past five years was 1.5 tons of pollution per hour. The plant operator undertakes a non-routine construction project to allow the unit to operate more frequently (say, 90 percent of the year) while increasing its hourly pollution rate to 1.5 tons of pollution per hour. The result is to increase the unit's annual pollution to 11,826 tons per year -- an increase of 8,326 tons per year over its pre-construction levels. Even though the construction caused the plant's actual hourly emissions rate to increase, because the rate did not increase above the plant's maximum hourly emissions rate (1.5 tons per hour in this example), EPA's new weaker approach would not require these extra 8,326 annual tons of pollution to be controlled. The current NSR rules would require pollution controls.


History: The Evolution of the Weaker Approach to Calculating Emissions Increases

In 1980, EPA settled a lawsuit with industry that required the agency to take public comment on the emissions increase test now under consideration. EPA posted this approach for public comment in 1996 in a notice in which the agency roundly criticized the industry-favored approach.


EPA's Criticism of Approach in 1996

EPA noted in 1996 that this approach would allow a source to evade NSR even when it increases its actual emissions substantially, thereby harming public health. 61 Fed. Reg. 38250, 38270/2 (July 23, 1996). The agency wrote that "one of the most troubling side effects" of the approach was that "it could ultimately stymie major new source growth by allowing unreviewed increases of emissions from modifications of existing sources" to overload air sheds with pollution, thereby foreclosing new and cleaner sources from being built:

If a major new source with state-of-the-art emission controls proposes to locate in an area in which the increment [-- the difference between healthy and unhealthy air levels --] has been consumed in this manner, it would be barred from building unless and until the increment problem was resolved. At the same time, older plants would continue to be able to make changes resulting in significant unreviewed, and possibly uncontrolled, actual emission increases. Id.


States' Opposition to Approach

When EPA took comment on the approach in 1996, two national associations of state and local air pollution officials -- STAPPA and ALAPCO -- formally opposed adoption of the approach.


EPA's Opposition to Weaker Approach under Bush Administration

EPA's opposition in ongoing enforcement cases: EPA has consistently opposed the industry pollution increase approach since the original 1999 NSR enforcement cases against coal-fired power plants. Government briefs filed by the Bush administration, in some instances as recently as this month, oppose this approach.

EPA's opposition in a just-completed lawsuit in which the D.C. Circuit Court of Appeals sided with the agency in rejecting the approach: In December 2002, EPA adopted NSR reforms that specifically refused to adopt the industry-promoted approach now under consideration. In that rulemaking, the Bush administration justified rejection of the approach by explaining that it "could lead to unreviewed increases in emissions that would be detrimental to air quality and could make it difficult to implement the statutory requirements for state-of-the-art [pollution] controls."2 EPA pointed out the obvious harmful environmental consequences of the approach:

For one, you could modernize your aging facilities (restoring lost efficiency and reliability while lowering operating costs) without undergoing preconstruction review, while increasing annual pollution levels as long as hourly potential emissions did not change.3

EPA also cited approvingly objections by commenters that the approach "could virtually eliminate NSR in most modification cases" for existing pollution sources.4

In a June 2005 decision, New York v. EPA, the U.S. Court of Appeals for the D.C. Circuit rejected industry arguments that EPA's NSR rules covered only maximum achievable hourly emissions increases. In addition, critically, the court ruled that calculating emissions increases based upon potential emissions, the maximum emissions allowable by a source, violated the Clean Air Act's requirement that actual emissions increases must be controlled: "the plain language of the CAA indicates that Congress intended to apply NSR to changes that increase actual emissions instead of potential or allowable emissions…."5

This court ruling is critical because the legal basis for the industry-favored approach that EPA is now proposing depends on ignoring massive increases in actual pollution, so long as a power plant does not increase its pollution above its maximum potential to pollute, its "maximum achievable hourly emissions" under EPA's draft proposal. Because this proposal contradicts the D.C. Circuit Court's conclusion that such an approach would violate the Clean Air Act, the draft EPA proposal resorts to the following placeholder: "[Placeholder for statement on our position re NY v. EPA as regards emissions increases.]"

EPA adopts utility industry defendants' positions in embracing approach: In reversing course and considering a maximum achievable hourly rate test for emissions increases, EPA is embracing a recent Fourth Circuit decision in an enforcement case that ruled against EPA and in favor of the utility defendant. That decision, U.S. v. Duke Energy,6 concerns 29 modifications at Duke Energy Corporation's eight power plants in North Carolina and South Carolina. EPA sued the company, contending that because the 29 modifications allowed the plants' coal-fired generating units to "increase their daily hours of operation"7 -- and, in turn, to increase their annual emissions -- the company should have obtained Clean Air Act permits requiring installation of pollution controls. The Fourth Circuit rejected this argument, instead adopting the industry's contention that the agency may only consider pre- and post-change hourly emissions rates to determine whether a modification has increased pollution from a facility. Calling the case "wrongly decided" and "fundamentally flawed in its analysis of the NSR [statute]," EPA asked the court to reconsider its holding. On August 29, 2005, the court denied that request.

At the same time EPA was seeking a rehearing in the Duke case, the agency was simultaneously drafting its proposal to adopt a maximum hourly emissions achievable test for future cases involving modifications at power plants (and other sources). That is, while one EPA office was arguing for the far more protective actual annual test before the Fourth Circuit, another office at the same agency was planning to abandon that test in favor of industry and the Fourth Circuit's grossly weaker approach. Moreover, even though the D.C. Circuit's New York decision governs the entire country, and the Fourth Circuit's decision only covers five states (Maryland, Virginia, West Virginia, and the Carolinas), the EPA now plans to use the latter decision to support its proposed reversal of course. Specifically, the draft proposal argues that in the name of "nationwide consistency" the agency should embrace the Fourth Circuit's view and extend the industry-friendly approach to the entire country.


NSR Enforcement Cases against Coal-Fired Power Plants

In 1999, EPA and state attorneys general mounted a national enforcement initiative against nine of the country's largest coal-fired utility companies, whose plants were responsible for about 40 percent of the electricity produced in the United States.8 EPA enforcement officials estimated that enforcing NSR requirements against just these nine defendants would result in "projected emission reductions of 1.75 million tons of SO2 and 629,000 tons of NOx" annually.9

Meanwhile, further enforcement investigations revealed that approximately 70 percent of coal-fired power plants in the country were in violation of NSR rules. EPA therefore began to explore enforcement cases against more power plants that would represent an additional 40 percent of electricity generation nationwide.10 According to some observers, "if the NSR power plant enforcement initiative had been permitted to run its course, it would have resulted in annual emissions decreases of 7 million tons of SO2 and 2.4 million tons of nitrogen oxides, until the year 2020."11

While EPA's enforcement office and the Justice Department were prosecuting these enforcement cases, however, EPA's air program -- at the White House's behest -- began to weaken the NSR rules in ways designed to undermine the pending cases. In October 2003, EPA adopted a rule to allow power plants and other industries to rebuild up to 20 percent of the cost of replacing their entire facility, increase pollution massively, and not have to install pollution controls. EPA enforcement officials objected to no avail, and the impact on the enforcement cases was predictably harmful: Utility company defendants walked away from the negotiations table with government enforcement officials and refused to enter into settlements. As EPA's inspector general found:

The October 2003 NSR rule change has seriously hampered [EPA enforcement office] settlement activities, existing enforcement cases, and the development of future cases. …

[EPA enforcement] officials stated that the new rule will seriously undermine [their] efforts in enforcing NSR requirements against coal-fired utilities and would result in significant amounts of lost emissions reductions.12

The Bush administration's political appointee in charge of EPA enforcement in 2002 and 2003, J.P. Suarez, would later say about the purpose of the NSR reforms:

It became clear to me, fairly early on, that the NSR reform was focused solely on power plants. It also became clear to me, during my tenure at EPA, that the goal of NSR reform was to prevent any enforcement case from going forward. Some people thought the [NSR power plant enforcement initiative] should never have been brought. The reform was really designed to thwart our ability to do it.13


The Consequences of the Weaker Approach: More Pollution

It is hard to overstate the extent to which EPA's proposed approach would undermine the new source review program for the nation's power plants.

Our analysis indicates that none of the emissions reductions obtained by EPA in enforcement settlements with coal-fired power plants to date -- and none of the remaining emissions reductions that EPA, states and citizens continue to pursue in court -- would have been obtainable if the proposed approach had been the law at the time of the violations. To date, EPA's enforcement cases against coal-fired power plants have reduced harmful air emissions in this country by nearly 1 million tons-per-year. In September 2004, EPA's inspector general reported that the agency's enforcement office had estimated that EPA's unconcluded cases against coal-fired power plants (those cases in court, plus those cases referred to the Justice Department, plus those cases ready to be referred to the Justice Department) would reduce sulfur dioxide emissions by more than 1.75 million tons-per-year and nitrogen oxides emissions by more than 628,000 tons-per-year.14

In addition, our analysis indicates that every power plant in the country would be allowed to pollute more under this approach. The irrefutable fact is that power plants -- and all industrial polluters -- can pollute more under an approach that only requires pollution controls when they exceed their maximum hourly emissions achievable.

Notably, the draft proposal does not identify a single historic example of a power plant modification that would have required adoption of pollution controls under this grossly weaker approach. EPA appears to lack evidence that power plants have ever undertaken modifications that increased their maximum achievable hourly emissions, even as they increased actual annual emissions by hundreds of thousands of tons. NRDC put this very same question once to the EPA career official in charge of administering the NSR program, and he responded that he was unaware of any industrial plant ever having increased its pollution above its maximum achievable hourly emissions. In other words, EPA knows that this test has not been triggered in the past, and will not be triggered in the future. It is a loophole that completely obliterates NSR's cleanup standards.


EPA's Claimed Benefits to the New Approach

EPA's draft proposal discusses four benefits associated with this approach to emissions increases -- none of which have anything to do with air quality, public health or environmental protection. All are industry-driven benefits to reduce burdens and increase "flexibility."


A Federal Court Just Rejected the Industry Position in the EPA Draft Proposal

On Monday, August 29, the U.S. District Court for the Southern District of Indiana addressed which emissions-increase test governs for NSR. The court sided with the EPA enforcement attorneys (and the states of New York, Connecticut and New Jersey, and two environmental groups) against the defendant coal-fired power plant owners (CINERGY Corp., PSI Energy, and Cincinnati Gas & Electric Co). In so doing, the court rejected the "hourly rate at maximum operating capacity" test that the Fourth Circuit Court of Appeals had adopted in U.S. v. Duke Energy, and that EPA is now about to propose for all power plants. If EPA issues this new proposed rule, it will be rejecting the more protective "actual annuals" test that it just convinced the federal district in Indiana to adopt in favor of the weaker industry standard that it just convinced the Indiana court to reject.

The key passage from this ruling follows:

"The Court disagrees with both Cinergy and the Duke Energy court that the EPA's definition of 'actual emissions,' means that 'a net emissions increase can result only from an increase in the hourly rate of emissions.' See Duke Energy , 278 F.Supp.2d at 640. Consistent with the 1980 rule defining 'actual emission,' in an actual-to-projected-actual comparison, the projected actual emissions would be measured using projected actual operating hours and projected actual production rates. Thus, if a physical change will result in a unit increasing its operating hours, the projected actual operating hours would include the increase." Ruling at 10 (emphasis added).

The Natural Resources Defense Council is a national, nonprofit organization of scientists, lawyers and environmental specialists dedicated to protecting public health and the environment. Founded in 1970, NRDC has more than 1 million members and online activists nationwide, served from offices in New York, Washington, Los Angeles and San Francisco.



Notes

1. If pollution sources make changes that result in fewer than 40 tons-per-year, the NSR program does not require pollution controls for this increase, due to an already-generous exemption in EPA rules. (This 40-ton threshold is lower in some areas with dirtier air quality, and higher in some areas with better air quality, but in general this figure applies.)

2. 67 Fed. Reg. at 80205 (Dec. 31, 2002).

3. Ibid.

4. Ibid.

5. New York v. EPA (June 24, 2005), slip opinion at 64.

6. 411 F.3d 539 (4th Cir. 2005).

7. Ibid at 544.

8. Joel A. Mintz, "'Treading Water': A Preliminary Assessment of EPA Enforcement During the Bush II Administration" ("Treading Water" article), 34 Environmental Law Reporter 10933, 10938 (Oct. 2004).

9. EPA Office of Inspector General, "New Source Review Rule Change Harms EPA's Ability to Enforce Against Coal-fired Electric Utilities," (Sept. 2004) (EPA OIG report), at ii-iii, available at http://www.epa.gov/oigearth/reports/2004/20040930-2004-P-00034.pdf.

10. "Treading Water" article, at 10938.

11. Ibid.

12. EPA OIG report, at ii, 10-11.

13. "Treading Water" article at 10939.

14. EPA OIG report, at 25.

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