On July 6, 2011, the United States Environmental Protection Agency ("EPA") finalized the Cross-State Air Pollution Rule ("CSAPR") to replace the Clean Air Interstate Rule ("CAIR"). Like CAIR, CSAPR is a cap-and-trade program for sulfur dioxide ("SO2") and oxides of nitrogen ("NOx") promulgated to help downwind states attain or maintain National Ambient Air Quality ("NAAQs") for fine particulate matter and ozone. CSAPR, effective January 1, 2012, focuses on the reduction of SO2 and NOx emissions from electric generating units ("EGU") in 27 states, including New York. The CSAPR is more stringent than the existing CAIR program, which will remain in effect through the 2011 compliance period. CAIR credits, as well as the Acid Rain Program and NOx SIP Call / NOx Budget Trading Program credits, cannot be carried over into the new CSAPR program.
Proposed in 2010 as the "Clean Air Transport Rule," CSAPR was designed to address the shortcomings of the CAIR program, which was invalidated in 2008 by the U.S. Court of Appeals for the D.C. Circuit in North Carolina v. EPA. (See H&B Legal Alert dated 7/23/10). As such, CSAPR identifies emission reduction requirements for each state using detailed air quality analysis and modeling, thus defining the portion of emissions from each upwind state that significantly contributes to the ability of downwind states to attain or maintain compliance with the NAAQ standards, and therefore must be reduced. Individual state emission budgets were set by EPA based on a state's significant contribution to the non-attainment of downwind states, the cost of controlling such pollution, and the air quality impacts of the reductions.
States initially do not have the option of implementing the CSAPR program through their State Implementation Plan ("SIP"), as EPA is currently adopting Federal Implementation Plans ("FIPs") for each state in order to expedite implementation of the rule. After a state's FIP is implemented, it will then have the option to develop its own SIP to self-administer CSAPR, and choose the specific sources it wishes to control in order to meet the reductions. EPA has set the state-wide budgets for NOx and SO2, which have been allocated among EGUs, and will be provided to EGUs at no cost by 2012. Starting in 2013, individual states will be able to allocate a portion of their allowances themselves, if they have an approved SIP. Unlike previous interstate trading programs, Federal allocations do not use fuel adjustment factors, or existing Title IV allowances.
Implementation of the new rule will be through a phased approach with initial reductions to occur in 2012, and the second phase of reductions to occur in 2014. Significant NOx reductions will be required for the first phase. In New York, the NOx allowances will remain the same between Phase I and Phase II. New York's emissions budget for annual NOx under the CSAPR will be 17,543 tons and Ozone Season NOx emissions will be 8,331 tons. Compared to current CAIR budgets, under CSAPR, New York will receive significantly fewer NOx and SO2 allowances.
For SO2 reductions only, the CSAPR region is divided into two groups of states. Both groups of states must begin to reduce SO2 emissions in 2012. Additional SO2 reductions will be required beginning in 2014 for "Group 1" states. EGUs in New York will be allocated 27,325 tons of SO2 credits for Phase 1 (2012-2013) and 18,585 tons SO2 for Phase 2 (2014). As a Group 1 state, New York will be required to reduce SO2 emissions by approximately 32% between 2012 and 2014.
CSAPR establishes four trading programs: (1) annual NOx, (2) ozone season NOx, (3) SO2 for Group 1 states, and (4) SO2 for Group 2 states. The SO2 trading programs will be exclusive to each Group. While unlimited trading will be allowed between EGUs within each state, interstate trading will be restricted to within the same program, with provisional state limits to ensure each state meets its control obligations.
According to EPA estimates, by 2014 CSAPR, in conjunction with other federal programs, will reduce emissions from EGUs in the covered area by 73 percent for SO2 and 54 percent for NOX when compared to 2005 data. EPA expects EGUs will meet the new requirements though fuel switching and pollution control equipment, such as low NOX burners or scrubbers, and by maximizing the use of already installed equipment.
Because of the regulatory certainty the rule provides, CSAPR is being supported by EGUs, even though it has the potential to increase operational costs. However, there is also strong opposition to the implementation of the rule, particularly from EGUs that utilize coal, and from the National Association of Manufacturers. Based on opposition to CSAPR, as well as other rules affecting EGUs, the House Energy and Commerce Committee passed the Transparency in Regulatory Analysis of Impacts on the Nation Act of 2011 ("TRAIN") on July 12, 2011, including the Whitfield-Ross Amendment, which would delay the implementation of CSAPR until at least January 2013, and would also delay the maximum achievable control technology ("MACT") rule issued earlier this year. The TRAIN Act is awaiting a full vote in the House.
Please contact us if you would like more information on CSAPR, or other new environmental rules, or if you have questions about how the CSAPR may impact your business.