Variable safety valve pricing may eliminate mercury impasse


Aug. 26, 2003 — A modification of Clear Skies from fixed to variable safety valve pricing could appeal to all sides in the mercury debate, according to the McIlvaine Co.’s weekly analysis of power plant developments.

Furthermore, variable safety valve pricing may be the most cost-effective way to achieve the maximum reduction in the least amount of time. This is the conclusion reached in its weekly analysis of power plant developments in a service titled, Power Plant Knowledge System.

According to the McIlvane Co., the major dispute holding up passage of Clear Skies is the quantity of mercury which can be economically removed from power plant emissions. Optimists believe that 43 of the 48 tons of mercury emitted by utilities could be removed by 2007 at a price of less than $5,000/lb. Pessimists believe the cost could be much higher, and that it will be difficult to install technology at this early date. Clear Skies sets a safety valve price of $35,000/lb. and proposes a cap of 26 tons in 2010.

A mercury MACT to be proposed in December 2003 is likely to require 90 percent mercury removal and an implementation date of December 2007. MACT regulations do not have trading options. If Clear Skies is enacted first, a MACT proposal will not need to proceed.

The variable safety valve price provision would include lower safety valve prices in earlier years. The cap could be progressively reduced, and the price progressively increased, or the cap could be set at its final point early with only the price changing with time. One example of how it might work would be with a cap all the way down to 5 tons in 2007 and a safety valve price of $5,000/lb. This should please the optimists (environmentalists) since the utilities would opt to reduce mercury at a cost less than $5,000/lb. rather than buy the safety valve allowances.

Many utilities and coal companies would like to see the safety valve price set at $5,000/lb. in 2007 and $9,000/lb. in 2010. The costs would be less than they anticipated even with the higher cap of 26 tons. A more optimistic scenario believes 90 percent of the mercury will be removed in 2007. A worst case scenario for the pessimists would be a safety valve payment of 86,400 lbs. x $9,000 or $777 million. This would only be approximately 0.4 mils/kWh, McIlvane Co. said. It is also less than the 40,000 lbs. x $35,000/lb. or $1.4 billion pessimistic scenario with the present Clear Skies.

If these safety valve payments went directly into a development program administered by the utility industry, there would be much more rapid improvements in technology than with the present proposal, the company said.

If the supplier industry had an incentive to make technology available by 2007, then it is likely that the cost-effective solutions would be developed. There are a number of very promising products and a number of approaches which have been commercially proven in other industries such as waste incineration and metal smelting.

For both suppliers and utilities there would be certainty regarding the opportunity, the cost (revenue), and the timing.

So variable safety valve pricing of allowances could eliminate the impasse and help accelerate the development of technology.

Clear Skies update

Originally introduced in 2002, the Clear Skies program was reintroduced in the US House of Representatives (HR 999) and the US Senate (S. 485) as the Clear Skies Act of 2003 on February 27, 2003.

The Senate Committee on Environment and Public Works Subcommittee on Clean Air, Climate Change, and Nuclear Safety currently is working with its version of the Clear Skies Act. The committee had a hearing on July 29 to discuss climate change and mercury.

Committee Chairman James Inhofe’s position is that based on the best, most objective science available, predictions of catastrophic global warming are baseless and should be rejected. “I am mystified that some in this body, and in the media, blithely assert that the science of global warming is settled–that is, fossil fuel emissions are the principal, driving cause of global warming,” he said in an address July 29.

Dr. Leonard Levin, technical leader of the Electric Power Research Institute (EPRI), testified that most of the mercury in the U.S. atmosphere may originate in other countries. “Recent studies by EPRI have shown that the mercury depositing into the U.S. from the atmosphere may originate at very distant points,” he testified.

“Model assessments show that, for 3/4 of the area of the continental United States, more than 60% of the mercury received originates outside U.S. borders, from other countries or even other continents. Only 8% of U.S. territory receives 2/3 or more of its mercury from U.S. domestic sources, and less than 1% of U.S. territory gets 80% or more of its mercury from sources within the U.S. One implication of this dichotomy between mercury sources and the U.S. areas impacted is that there may be a “management floor” for U.S. mercury, a level below which the amount of mercury depositing to the surface cannot be reduced.”

In the House, the bill (HR 999) was referred to the House Committee on Energy and Commerce’s Subcommittee on Energy and Air Quality. There has been no major activity on the House’s version in the past few months.

About Clear Skies in general

The proposed Clear Skies legislation would create a mandatory program that would dramatically reduce power plant emissions of sulfur dioxide (SO2), nitrogen oxides (NOx), and mercury by setting a national cap on each pollutant.

Clear Skies was proposed in response to a growing need for an emission reduction plan that will protect human health and the environment while providing regulatory certainty to the industry. The program was submitted as proposed legislation in the US House of Representatives on July 26, 2002 and in the US Senate on July 28, 2002.

Comprehensive technical analyses of the 2003 legislation are now available at this link:

http://www.epa.gov/air/clearskies/technical.html
Passing Clear Skies legislation this year would provide immediate health benefits – emissions trading under Clear Skies provides incentives for power plants to reduce emissions early, EPA said.

Clear Skies is a mandatory program that would dramatically reduce and cap emissions of sulfur dioxide, nitrogen oxides (NOx), and mercury from electric power generation to approximately 70% below 2000 levels.

Nationwide, Clear Skies would deliver emissions reductions from the power sector without significantly affecting electricity prices for American consumers. Clear Skies would deliver certainty and efficiency, achieving environmental protection while supporting economic growth.

The mandatory emission reductions using Clear Skies’ market-based cap and trade programs build on Clean Air Act programs to facilitate achievement of human health and environmental goals. Clear Skies will enable many state and local governments to meet national standards for fine particles and ozone.

Components of the Clear Skies Act of 2003

The Clear Skies Act:

* Establishes federally enforceable emissions limits (or “caps”) for all three pollutants. Clear Skies’ NOx and SO2 requirements affect all fossil fuel-fired electric generators greater than 25 megawatts (MW) that sell electricity. Mercury requirements affect only the subset of these units that are coal-fired.

* Uses a dynamic regulatory approach – emission caps and trading – that provides power plants with flexibility to reduce emissions in the least costly way.

* Maintains the authority of state and local government to set source-specific emissions limits for sources within their borders to ensure that ambient air quality standards are met.

See the table below for a comparison of emissions caps.

Clear Skies Benefits for Public Health

* Clear Skies would begin delivering benefits to human health and the environment beginning with its passage. Human health benefits that EPA can quantify grow to approximately $110 billion per year by 2020, substantially outweighing the annual costs of $6.3 billion.

* EPA projected that, by 2020, the public health benefits from Clear Skies would include 14,000 avoided premature deaths. An alternative methodology for calculating health-related benefits projects over 8,400 premature deaths prevented and $21 billion in health benefits – still far greater than the costs.

* Americans would also experience approximately 30,000 fewer visits to the hospital and emergency room and 12.5 million fewer days with respiratory symptoms (including work loss days and school absences) each year under Clear Skies by 2020.

* Under Clear Skies, more than 18 million additional people would be breathing air that meets the national ozone and fine particle standards in 2020. In the remaining counties, Clear Skies would achieve additional reductions in fine particles that would further protect human health.

Clear Skies Benefits to the Environment

* The benefit of improvements in visibility in our national parks and wilderness areas would total $3 billion per year by 2020 and this represents only certain regions EPA can quantify.

* Clear Skies would also:

o Reduce nitrogen loads to the Chesapeake Bay and other waters along the East and Gulf Coasts;
o Help lakes, streams, & forests recover from acid rain damage (including elimination of chronic acidity in Adirondack region lakes by 2030); and
o Reduce mercury in the environment.

Clear Skies Attempts to Simplify Requirements

* Clear Skies would expand and strengthen a proven, mandatory market-based approach and reduce reliance on complex, less efficient requirements.

* Clear Skies would help state and local governments attain the National Ambient Air Quality Standards (NAAQS) for fine particles (PM2.5) and ozone:

o By 2010, an estimated 42 additional counties would meet the fine particle standard, and an estimated 3 additional counties would meet the 8-hour ozone standard.
o By 2020, an estimated 35 additional counties would meet the fine particle standard, leaving only 8 counties nationwide out of attainment with the fine particle standard. An additional 3 counties are projected to meet the 8-hour ozone standard.

Clear Skies and Energy Diversity and Security

* Clear Skies would enable continued use of abundant domestic fuel sources.

* Clear Skies would also benefit energy consumers by enabling power generators to continue to provide cost effective electricity for America’s energy needs.

For more information, visit the EPA’s Clear Skies page at:

http://www.epa.gov/air/clearskies/


Check on the status of the legislation using this link:

http://www.epa.gov/air/clearskies/legis.html


McIlvaine Co.’s web site can be reached at www.mcilvainecompany.com.

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