In his article, "Why Taxes Don't Distort Emissions Trading" (Dec. 1, 1994, p. 37), Michael Thomas suggests that utilities should flow through the proceeds of emission allowance sales to ratepayers...
Will the changes help or harm generators?
New rules revising the New Source Review (NSR) provision of the Clean Air Act recently were published. The action formalized a process begun several years earlier with the objective of bringing greater clarity to the rule. The new rule is aimed at allowing operators to upgrade equipment at existing power plants without triggering NSR. Should NSR apply, operators would be required to retrofit plants, the majority of which are more than 30 years old, with best available control technology to control for regulated emissions.
The new rules on NSR have been controversial from the start. Some proclaim that the revisions constitute a major rollback of clean air laws, while others have stated that they would boost generation efficiency at existing power plants and lower overall emissions. Those in opposition, in part made up of a coalition of attorney generals in 12 Northeastern states, are moving ahead with a legal challenge.
Created through the 1970 Clean Air Act and then expanded in the 1977 amendments, NSR regulations essentially require a review by the Environmental Protection Agency of any plans by electric utility companies to construct new generating capacity or to substantially modify an existing unit that could result in a significant increase in emissions. At the same time, the provision allows generators to perform routine maintenance of their plants to maintain safe and reliable operation.
The new NSR rule helps define "routine maintenance, repair, and replacement" (RMRR) at coal-fired and other generating units. Specifically, the new rule clarifies what constitutes RMRR at power plants and provides coal-fired units exemptions from federal rules that require operators to install pollution-control equipment when they perform upgrades designed to maintain the life of the units. The EPA stated that it issued the ruling to promote projects that increase plant operating efficiency and allow those projects to proceed without triggering NSR. Specifically, the rule will allow plant owners to spend up to 20 percent of the cost of what the agency considers a full "process unit"-the boiler, turbine, generator, and other equipment necessary to generate power.
While the new rule will allow older plants to conduct maintenance to maintain output, operators of those same plants still must meet all provisions of the 1990 Clean Air Act Amendments (CAAA), as well as any state and local regulations governing emissions.
The new rule on NSR and its eventual implementation potentially affects a large number of power plants. In fact, as much as 65 percent of total coal-fired capacity nationwide stands to benefit from the new rules. That group consists of plants built prior to the original Clean Air Act of 1971, or the subsequent amendments in 1977, and that are not equipped with requisite emission control equipment under New Source Performance Standards and Prevention of Significant Deterioration rules. Should NSR be invoked, many of those plants could be forced into premature retirement or be called upon to make costly equipment retrofits.
Implementation of the new NSR rule also is expected to protect the allow-ance trading market, where power plant operators have been