Implementing Acid Rain Legislation - NLE
Total Page:16
File Type:pdf, Size:1020Kb
CRS Report: IB91035 - Implementing Acid Rain Legislation - NLE Redistributed as a Service of the National Library for the Environment* Implementing Acid Rain Legislation Larry Parker Environment and Natural Resources Policy Division Congressional Research Service Updated November 15, 1994 IB91035 CONTENTS SUMMARY MOST RECENT DEVELOPMENTS BACKGROUND AND ANALYSIS ● P.L. 101-549, Title IV -- Provisions of Acid Rain Law -- Implementation -- SO2 -- Allowances -- Emission Caps -- Implementation -- NOx -- Excess Emissions -- Clean Coal Technology -- Studies and Reports ● Implementation Schedule ● Implementation Questions -- Regulatory Issues: How Will Allowance Transactions Be Regulated? -- Unfinished Rulemaking -- Operational Issues SUMMARY The broad-ranging provisions in Title IV of The Clean Air Act Amendments of 1990 (P.L. 101-549) raise myriad implementation issues, particularly with respect to the system of tradeable "allowances." This system provides an economic mechanism by which emitters of sulfur dioxide (SO2) can determine the most cost-effective way to meet reduction requirements. Issues include the role of States, particularly public utilities commissions; unfinished rulemaking, including defining repowering technologies and developing revised fossil fuel utility SO2 and NOx New Source Performance Standards (NSPS); and operational issues, including pricing of allowances, auctions, and the Phase 1 allowance pool. The allowance system represents a new turn in environmental policy in directly addressing the issue of pollution control costs. In doing so, it presumes that cost-effectiveness will be the driving factor in SO2 control decisionmaking http://cnie.org/NLE/CRSreports/Air/air-8.cfm (1 of 10) [6/8/2002 10:53:48 AM] CRS Report: IB91035 - Implementing Acid Rain Legislation - NLE by utilities, State regulators, and Federal agencies. While the economics of this new system has been extensively debated, the legal, regulatory, and industry structure contexts in which the new system of tradeable allowances will operate may need further definition if various conflicts develop. For example, the industry structure is designed to focus first on the reliability of electricity supply; to the extent that the uncertainty of the allowance system interferes with that priority, it may be bypassed. Title IV, Acid Deposition Control, sets goals for Jan. 1, 2000, of reducing annual sulfur dioxide (SO2) emissions by 10 million tons and annual nitrogen oxides (NOx) emissions by 2.0 million tons from 1980 levels. Beginning in the year 2000, total utility SO2 emissions are limited to 8.9 million tons and total industrial SO2 emissions are limited to 5.6 million tons. Title IV is implemented through a two-phase process. Under Phase 1, owners/ operators of 110 facilities listed in the law are required to reduce emissions by about 3.5 million tons annually by Jan. 1, 1995. Under Phase 2, all utility facilities greater than 25 megawatts (Mw) are affected by the bill. To maintain emission reductions beyond the Phase 2 compliance date (Jan. 1, 2000), the law essentially caps SO2 emissions at existing individual sources through a tonnage limitation, and at future plants through the offset requirement. The mechanism for achieving the reductions is a comprehensive permit and emission allowance system. An allowance is a limited authorization to emit a ton of SO2. Facilities receive allowances based on specific formulas contained in the law. These allowances may be traded or banked for future use or sale. Allowance sales and auctions are to be held to ensure liquidity in the allowance market. Despite debate about the economics of this new system and the addition in the statute of various provisions -- such as the auction systems -- to improve the potential for success of the allowance system, difficulties and conflicts have emerged. Such conflicts could be sufficiently serious to interfere with the economic logic underlying the allowance system. MOST RECENT DEVELOPMENTS In October, EPA released a report updating progress on implementing the acid rain provisions of the Clean Air Act. By August 1, all utilities had met permitting deadlines; EPA issued 182 permits for sulfur dioxide emissions. In addition, EPA has also received compliance plans from all the utilities subject to reductions. Finally, EPA-approved continuous emission monitors have been installed on 247 of the 292 units required to install such equipment. BACKGROUND AND ANALYSIS P.L. 101-549, Title IV -- Provisions of Acid Rain Law The broad-ranging provisions in Title IV of The Clean Air Act Amendments of 1990 (P.L. 101-549) raise myriad implementation issues. As enacted, Title IV sets goals for Jan. 1, 2000, of an annual reduction of 10 million tons of SO2 and of 2.0 million tons of NOx emissions below 1980 levels. Total utility SO2 emissions are limited to 8.9 million tons beginning in 2000 and total industrial SO2 emissions are limited to 5.6 million tons. (Total SO2 emissions in 1980 were approximately 24 million tons; utility SO2 emissions were approximately 16 million tons.) Implementation -- SO2 Title IV is being implemented through a two-phase process. For Phase 1, the statute lists 110 of the largest and most polluting electric utility facilities; those have a generating capacity of more than 100 megawatts (Mw) and emit at a rate greater than 2.5 lb. of SO2 per million Btus (mmbtu). By Jan. 1, 1995, the owners/operators of these facilities must curtail SO2 emissions based on a 2.5 lb. SO2 per mmbtu rate times their annual average fuel consumption during 1985-87 (called the baseline). It is anticipated that this will reduce SO2 emission by about 3.5 million tons. (See Table 1.) Phase 2 lowers the threshold emissions rate from 2.5 lb. to 1.2 lb. per mmBtu and the facility size affected to 75 Mw, which will increase the number of affected facilities by about an order of magnitude (these facilities are often called http://cnie.org/NLE/CRSreports/Air/air-8.cfm (2 of 10) [6/8/2002 10:53:48 AM] CRS Report: IB91035 - Implementing Acid Rain Legislation - NLE the "big-dirties," or Group 1 units). In addition, powerplants at lower emissions rates and smaller facilities (between 25 and 75 Mw), also face limits on emissions. Generally, powerplants emitting at less than 1.2 lb. of SO2 per mmbtu are permitted to multiply the lesser of the actual or allowable 1985 SO2 emission rate by their 1985-87 baseline times 1.2 (then divided by 2000 to convert into tons), or replace their 1985-87 baseline and the 1.2 multiplier with a baseline number based on fuel consumption at a 60% capacity factor (from 2000-2009 only; after that, the first calculation is the only option). Small units (from 25 Mw to 75 Mw) must meet tonnage limitations based on either 1.2 lb. of SO2 per mmBtu times their 1985-87 baseline if the utility system is greater than 250 Mw or the lesser of their actual or allowable 1985 SO2 rate times their 1985-87 baseline if the utility system is less than 250 Mw. Units under 25 Mw and simple combustion turbines are exempted from the reduction requirements, although they may opt in the program if they so desire. Overall, when the Phase 2 reductions are in place on Jan. 1, 2000, total emissions should meet the statutory-required limits. Table 1. SO2 Utility Emission Reductions Under P.L. 101-649 Facility Comply By Reduction/Cap (emission rate = lbs. per mmbtu) > lOOMw and >2.5 lb. SO2(2.5 x Phase 1 Jan. 1, 1995 3.5 million ton reduction baseline)* > 75Mw and > 1.2 lb. SO2 (1.2 x Phase 2 Jan. 1, 2000 8.9 million ton cap baseline)* >75Mw and < 1.2 lb. (lesser of actual or allowable emission rate in 1985 x baseline x 1.2 or use different baseline based on consumption at a 60% factor -- latter option from 2000 to 2009 only)* 25Mw to 75 Mw (either 1.2 x baseline if whole system is >250Mw or lesser of actual or allowable 1985 rate x baseline if whole system is <250Mw)* (<25Mw exempt from reductions) cap existing units; offsets for new units; After Phase 2 all facilities>25Mw NSPS for new units *Baseline = annual average fuel consumption during 1985-1987. Formulas require division by 2000 to convert to tons. Note that there are many cases where different formulas, specified in the law, apply. Allowances To introduce some flexibility in the distribution and timing of reductions, the law creates a comprehensive permit and emissions allowance system. An allowance is a limited authorization to emit a ton of SO2 emissions for a calendar year; facilities receive allowances either under statutory formulas, or by purchase or trade in a market to be set up by EPA regulation. For existing powerplants -- those in operation at enactment -- allowances are issued by EPA; the allowances will be allocated in accordance with the formulas discussed above (Table 1). New powerplants -- those which commence operation after enactment -- will receive no allowances, except under specific limited circumstances. (Also, as discussed later, EPA is to revise New Source Performance Standards (NSPS) for future powerplants.) In order to operate after the year 2000, when emissions are capped, the se new units will have to obtain allowances (offsets) from http://cnie.org/NLE/CRSreports/Air/air-8.cfm (3 of 10) [6/8/2002 10:53:48 AM] CRS Report: IB91035 - Implementing Acid Rain Legislation - NLE those units allocated allowances. The allowances may be traded nationally during either phase, or may be banked for later use or sale. The law also permits industrial sources and powerplants to go under the allowance system and to sell allowances to utility systems under regulations to be developed by EPA. NOx-for-SO2 trading is to be studied, but is not permitted. Special adjustments to allowances. Powerplants with emissions rates between 1.2 lb.