NOx compliance and pending regulatory changes

By Kenneth J. Snell, Sargent & Lundy LLC

The U.S. electric power industry will continue to face major uncertainties in growth, deregulation, and environmental compliance challenges. The Energy Information Administration projects that as many as 1,300 new power plants, representing nearly 400 GW of capacity, will be needed by 2020 to meet demand and to off-set plant retirement. The industry not only must plan to meet increased electricity demand, but also must develop these plans during unprecedented industry restructuring and with major regulatory changes looming.

Among these regulatory challenges, air quality management issues continue to be the most prominent. The U.S. Environmental Protection Agency (EPA) is expected to propose New Source Review (NSR) reforms in the near future and decide how it wants to address new facility construction and/or modifications to existing facilities under NSR. As EPA continues to work on NSR reform, the Department of Justice continues with its plans to prosecute suits against utilities for alleged violations of NSR rules. Overlying these regulatory initiatives, states continue to submit modifications to their state implementation plans (SIPs) in response to EPA’s NOx (nitrogen oxide) SIP Call.

In addition to pending regulatory changes, on Feb. 14, 2002, the Bush administration announced its Clear Skies Initiative to cut power plant emissions of “the three worst pollutants-nitrogen oxides, sulfur dioxide, and mercury-by 70 percent.” The stated goal of the initiative is to steadily cut power plant emissions of these pollutants using a market-based approach and to ensure that generating companies will meet ambitious air quality goals, even as they bring new plants on-line to meet demand. At the same time, the Senate Environmental Committee is preparing to take up legislation to reduce power plant emissions for those three pollutants plus carbon dioxide.

Whatever the outcome of these public policy and regulatory initiatives, two things appear certain (or at least almost certain): 1) NOx emissions will continue to be the focus of new regulatory initiatives and increasingly more stringent emission limitations, and 2) new fossil-fuel generating sources will continue to be subject to stringent pre-construction NSR permitting regulations.

NOx regulations

In general two regulatory schemes govern NOx emissions from electric generating facilities: NSR pre-construction permitting and NOx emission caps for new and existing facilities.

Although EPA is considering NSR reforms, it is expected that the cornerstone of NSR will continue to be comprehensive pre-construction assessment and permitting requirements. The type of permit required, and the complexity of the permitting process, depends upon the emission source location and the quantity of pollutants emitted. Under existing NSR rules, a new major stationary source to be located within a nonattainment area is required to install control technology that represents the lowest achievable emission rate (LAER). New units in an attainment area are subject to Prevention of Significant Deterioration (PSD) rules and required to install the best available control technology (BACT).

Nonattainment NSR and LAER

LAER can be defined as the most stringent emission limitation established in a permit, or achieved in practice, by such class or category of stationary source. LAER is an emission rate limitation specified for each class or category of emission units (e.g., combustion turbines, coal-fired boilers, etc.).

Unlike BACT (discussed below), LAER does not consider economic, energy or other environmental factors. An emission limit will not be considered LAER only if the cost of maintaining the level of control is so great that a major new source could not be built or operated due to economic constraints incurred by the technology. However, if a plant in the same category already uses that control technology, then such use constitutes evidence that the control cost is not prohibitive.

Based on a review of recent LAER determinations, the expected LAER emissions limitations for electric generating stations are shown in Table 1. There have been no recent LAER determinations for coal-fired boilers, so LAER limits shown in Table 1 are based on recent BACT determinations.

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Permitting authorities will require a new major combustion source in a nonattainment area to achieve emission rates equal to or lower than the existing LAER standards shown in Table 1.

Attainment area NSR and BACT

BACT is generally defined as an emission limitation based on the maximum degree of reduction for each pollutant subject to regulation that would be emitted from any source which, on a case-by-case basis, is determined to be achievable taking into account energy, environmental and economic impacts and other costs.

In general, a BACT analysis involves the following steps:

  1. Identify all available control options.
  2. Review the technical feasibility of these control options.
  3. Rank all technically feasible options in order of overall control effectiveness.
  4. Evaluate each technically feasible option, beginning with the most effective, for economic, energy and environmental impacts.

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Based on a review of recent BACT determinations, the expected BACT emissions limitations and control technologies for electric generating stations are shown in Table 2.

Permitting a new major source in an attainment area will require the applicant to demonstrate that the chosen control technologies meet BACT criteria. If the applicant plans to use alternative control technology (e.g., advanced combustion controls or alternative post-combustion controls), the control technology will be scrutinized by the permitting agency based on the criteria detailed above. This means that: (1) the control technology will have to achieve emission rates at, or near, current BACT emission rates; (2) the cost of controlling emissions (expressed in $/ton) should be favorable in comparison to other technologies; and (3) the control strategy will not create adverse collateral environmental consequences.

NOx emission caps

In addition to NOx control issues that must be addressed during the pre-construction permitting, both new and existing electric generating units will be subject to increasingly more stringent NOx emission caps. NOx has been identified as a precursor to ground level ozone, thus NOx is the pollutant targeted by the Ozone Transport Commission (OTC) NOx Budget Program and the NOx SIP Call. NOx is also one of the three (or four) pollutants targeted to be addressed in the proposed multi-pollutant regulatory initiatives.

It is likely that NOx control will continue to be encouraged though the implementation of market-based initiatives, or NOx trading programs. NOx emissions trading was implemented under the OTC NOx Budget Program (in certain eastern seaboard states) and will be expanded with the NOx SIP Call. Most multi-pollutant initiatives would also rely on emission trading to accomplish more cost-effective reductions.

In general, NOx trading programs establish emissions caps for affected sources in the form of NOx allowances. One allowance authorizes the emission of one ton of NOx, typically during the “ozone season” (May-September). Existing generating units will be issued allowances based on their actual heat input and a specified NOx control level. Under the NOx SIP call, allowances generally will be allocated to existing units based on a NOx control level of 0.15 lb/mmBtu. It is expected that buying, selling, and trading allowances will be allowed.

New affected sources will be allocated allowances from a portion of each state’s budget set aside for new sources. Under the federal NOx Budget Trading Program, each new unit will be required to obtain allowances equal to the product of either a NOx emission rate of 0.15 lb/mmBtu or the unit’s permitted limit, whichever is less, times their actual utilization for the control period.

NOx trading program compliance must be carefully considered when planning for expansion. For example, it is likely that many existing units will not be allocated a sufficient number of allowances to cover their actual control period NOx emissions. These units will have to limit their control season NOx emissions or obtain NOx allowances from the open market. It is also likely that some states will not have sufficient NOx allowances in their new source set aside programs. Therefore, new units may also have to obtain allowances from the open market.

Although regulatory initiatives and changes are looming, it can be concluded with a fair amount of certainty that NOx emission reductions will be the focus of many regulatory initiatives. New emission sources will continue to be subject to NSR permitting and technology standards, NOx trading programs will expand under the NOx SIP Call, and additional market-based NOx control programs may be developed under the multi-pollutant initiatives.

However the regulatory programs develop, programs to minimize NOx emissions and maximize the value of NOx allowances will be an important part of a facility’s overall compliance strategy.

Note: The definition of major source under PSD regulations and nonattainment NSR regulations are found under 40 CFR 52.21(b)(1) and 40 CFR 52.24(f)(4) respectively. NSR permitting discussed in this article may also apply to major modifications at existing major sources.

Snell is a senior regulatory specialist with Sargent & Lundy LLC. He has more than 20 years experience in the field of environmental management, focusing on NSR permitting, due diligence reviews and power plant siting. He can be reached by e-mail at kenneth.j.snell @sargentlundy.com. Visit www.sargentlundy. com for more information.

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