The U.S. Environmental Protection Agency recently published a final regulation known as the Clean Air Interstate Rule. CAIR will permanently cap sulfur dioxide (SO2) and nitrogen oxide (NOX) emissions in 28 eastern states and the District of Columbia. Under CAIR, each state will have the option to require that power plants participate in EPA-administered emission trading programs.
CAIR is intended to help states comply with the National Ambient Air Quality Standards for ozone and fine particulate matter. Annual emissions of SO2 and NOX will be controlled as fine particulate matter precursors, and during ozone season, which runs May through September, emissions of NOX will be controlled as ozone precursors.
The impact on each state is shown in Figure 1, Click here to view Table of CAIR regional and state emission budgets, in tons. while the emission budgets for each state and the 28-state region are summarized in Table 1. Affected states are required to comply with the emission budgets shown in Table 1, but each state can decide how to achieve the required emission reductions.
EPA believes the most cost-effective approach is to establish interstate emission trading programs for electrical generating units (EGUs) with a capacity of 25 MW or more. Therefore, CAIR provides model trading programs that states can adopt for annual SO2 emissions, annual NOX emissions, and seasonal NOX emissions. Most states are expected to participate in these programs, but a state could choose not to allow emission trading or to require emission reductions from sources other than the EGUs.
SO2 annual trading program
The CAIR SO2 trading program will supplement the existing Acid Rain Program (ARP) SO2 cap-and-trade system. ARP SO2 allowances will continue to be allocated to EGUs per the 1998 reallocation of allowances. CAIR reduces the net value of the ARP allowances for emissions in CAIR states as follows:
Each allowance of vintage 2009 and earlier will continue to be worth 1 ton of SO2.
Each allowance of vintage 2010 through 2014 will be worth 0.5 ton of SO2.
Each allowance of vintage 2015 and later will be worth 0.35 ton of SO2.
ARP allowances of all vintages will retain their full value for emissions in non-CAIR states. Unlike the NOX trading programs, the states will not have discretion in distributing CAIR SO2 allowances; they will be allocated to the original ARP allowance recipients.
Phase I of the CAIR SO2 annual trading program will be in effect from 2010 through 2014. The Phase I regional budget of 3.6 million tons per year represents a 62 percent reduction from 2003 emissions. Phase II will be in effect from 2015 and thereafter. The Phase II regional budget of 2.5 million tons per year represents a 73 percent reduction from 2003 emissions.
NOX annual trading program
The CAIR NOX annual trading program is a completely new cap-and-trade program. CAIR provides model procedures for the states to use in allocating NOX allowances to individual EGUs, but the states have discretion to distribute NOX allowances as they see fit. The model allocation procedure is based on fuel-adjusted historical heat input data.
The regional NOX budgets shown in Table 1 are based on a regional heat-input baseline value multiplied by 0.15 lb/mmBtu for Phase I and by 0.125 lb/mmBtu for Phase II. The process for apportioning the regional budgets among the states used a different heat-input baseline. The state budgets are based on fuel-adjusted average heat input values, using fuel adjustment factors of 1.0 for coal, 0.6 for oil, and 0.4 for gas.
CAIR creates a Compliance Supplement Pool (CSP) to provide incentives for early annual NOX reductions. Affected states can distribute allowances from the CSP for annual NOX emission reductions achieved in the years 2007 and 2008. CSP allowances can be also be distributed to facilities that demonstrate need.
Phase I of the NOX annual trading program will be in effect from 2009 through 2014. The Phase I regional budget of 1.5 million tons per year represents a 53 percent reduction from 2003 emissions.
NOX ozone season trading program
For EGUs, the NOX ozone season trading program will largely replace the existing NOX Budget Trading Program established under the NOX State Implementation Plan call. The CAIR program allows the use of pre-2009 NOX Budget Trading Program (NBP) banked allowances at a 1:1 ratio. NBP allowances will not be issued to CAIR EGUs in 2009 or thereafter.
The seasonal NOX regional and state budgets shown in Table 1 were determined as described above for the NOX annual budgets, except that ozone season heat input values were used. As with the annual program, the CAIR model trading program provides procedures for the states to use in allocating seasonal NOX allowances to individual EGUs, but the states have discretion to distribute NOX allowances as they see fit.
Phase I of the CAIR NOX ozone season trading program will be in effect from 2009 through 2014. The Phase I regional budget of 570 thousand tons per season represents a 46 percent reduction from 2003 ozone season emissions.
The 28 CAIR states must submit SIPs that will achieve the required emission reductions by Sept. 11, 2006, within 18 months after issuance of the final rule. EPA has two years to approve each SIP or to issue a Federal Implementation Plan instead.
Russ Light is an environmental engineer in Sargent & Lundy’s Environmental Technologies Division. He has 20 years of experience in environmental compliance and permitting. He may be reached at (312) 269-2732 or at firstname.lastname@example.org.
Tim Krause is an environmental biologist with more than 30 years of experience in the power industry. He can be reached at (312) 269-6616 or at email@example.com.