Calm Before a Storm

Congressional quiet on environmental issues is not a sign of things to come

September 2010

With the biggest oil spill in our nation’s history freshly behind us and highly contentious mid-term elections coming up fast, you might expect environmental issues to be near the top of Washington’s political queue. But the economy is definitely a more pressing issue for voters and even already-passed health care legislation seems to be higher on the list of priorities for some lawmakers. All of this leaves the likelihood that Congress will move currently stalled greenhouse gas legislation forward before the end of the year very slim. However, this doesn’t mean we won’t see changes with real implications for the energy sector and soon.

Absent legislative action on greenhouse gas emissions, the energy producing industry faces an existing requirement to evaluate and install best available control technology (BACT) for CO2 emissions at large sources under new and renewed permits beginning in 2011. Initially, this new program may prove to be little more than a small, incremental permitting item. But it marks the beginning of a long regulatory grind ahead.

Meet the new boss
The Environmental Protection Agency currently has all the room it needs to move forward with numerous emissions reduction programs. Two of these programs address greenhouse gasses, but the balance of new and pending requirements focus on conventional pollutants the EPA already regulates. In this space, incrementally stricter standards will continue to shape power generation portfolios for the next decade, and new rules outlining the likely course of that future should become much clearer over the next 6-12 months.

The recently proposed Clean Air Transport Rule and expected National Emission Standards for Hazardous Air Pollutants (NESHAPS, but better known as the upcoming HAP MACT Standards) for electric generating units will replace two Bush-era edicts: the Clean Air Interstate Rule and Clean Air Mercury Rule. These original rules, established in 2005, were designed to work in concert over the 2009-2015 time period but were remanded to the agency (CAIR) or vacated altogether (CAMR) in 2008. The Obama-era EPA needed to replace both programs to address emissions of sulfur dioxide (SO2), nitrogen oxides (NOX) and mercury. The two new rules come in addition to tighter national ambient air quality standards (NAAQS) that the EPA must set periodically under the Clean Air Act. And new rules for waste and water are also on the way. There is a new proposal on cooling water intake structures (CWIS) and a proposal for coal combustion residuals (CCRs) including coal ash, which should be finalized in early 2011.

The increasing cost of doing business
The upgrades that would be necessary for many plants to comply with this long list of environmental challenges may create a situation where other alternatives make more economic sense. As much as 30% of the nation’s 333 GW of investor-owned coal-fired capacity and 30-50 GW of the nation’s independent power producer capacity could face retirement, depending on the environmental standards ultimately set for U.S. power generation.

Based on the court rulings that overturned the Bush EPA’s efforts to make programs more flexible, it is unlikely that individual states or utilities will be able to block or stop these changes. The EPA has maintained that recent court decisions leave it very little flexibility and, while in many important respects the Clean Air Act allows the EPA to consider the costs of compliance, the agency is not required to find cost-free solutions to potential human health problems. It is required to find the best balance between costs of compliance and benefits that include such hard to quantify (and not cheap) values, such as lower incidence of asthma or premature death. On the other side of the coin, the state-level economic regulators who oversee the prices utilities can charge are usually resistant to approving rate hikes. This can place utilities and power generators in a difficult position.

The odds of a solution
Essentially, Congress would have to change the Clean Air Act itself to provide the relief some states, many coal-fired plant owners and coal mining interests currently seek, as only Congress can give the EPA alternate parameters for enforcing the Act. This issue may be addressed in 2011, after the midterm election dust has settled. But whether a bill to address conventional pollutant challenges can succeed will depend heavily on the state of the economy and who is at the helm of the Senate Environment & Public Works committee (Senate EPW).

In summary, as 2010 winds down and prospects for legislative movement remain bleak, the EPA is calling the shots. Coming regulations promise to be strict and the agency is crafting every rule with an eye toward inevitable court challenges. It’s too early to tell whether Congress will ultimately be motivated to address these issues or will ever find the necessary consensus to actually move a bill. And if Congress remains unable to act in 2011, the EPA will continue to dictate the field of play.