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Why You Should Care About CAIR

New provisions nearly eliminate the financial impacts of the rule’s ozone regulations.

Fortnightly Magazine - January 2007

case where there are no limits on retrofitting NOx controls after 2008. Based on this assumption, we see that CAIR PM2.5 allowance prices would be substantially less compared to an environment in which the amount of NOx controls that can be brought into service by the time CAIR takes effect is limited.

Clearly, the ability of vendors of pollution-control equipment to install SCRs and, to a lesser extent, SNCRs between now and when the CAIR provisions take effect will have a profound impact on CAIR PM2.5 allowance market and the allowance prices in the first few years CAIR PM2.5 is in effect.

Our results up to this point have shown that the presence of CAIR PM2.5 and proper utilization of emission controls essentially eliminates the financial impact of CAIR Ozone. At the outset, however, the way we characterized the interaction between CAIR Ozone and CAIR PM2.5 was that the stringency of CAIR PM2.5 would result in very low allowance prices under CAIR Ozone. To demonstrate this we have posed the following question: What would CAIR Ozone prices be if CAIR PM2.5 had been less stringent? To answer this question, we set the annual cap under CAIR PM2.5 to 1.7 million tons for phase I, 2009 through 2014, and 1.5 million tons thereafter—200,000 tons higher than what is specified under CAIR PM2.5.

Under this hypothetical regulatory regime, we find that allowance prices under CAIR Ozone would be substantially higher than when the actual caps under CAIR PM2.5 are in place, starting at $950 per ton in 2009 and rising to $2,000 per ton by 2025. This can be seen by comparing columns (2) and (8) in Table 4. As we would expect with less stringent CAIR PM2.5 caps, the allowance prices under CAIR PM2.5 would drop dramatically—by 45 percent or more in the early years and by more than 30 percent after 2010. This is shown by comparing the prices in columns (3) and (9) in Table 4.

Another measure of the role CAIR PM2.5 plays in affecting the impacts of CAIR Ozone is the level of NOx emissions from capacity regulated under CAIR Ozone. In the absence of CAIR Ozone, but with the NBP and CAIR PM2.5 in place, we project that NOx emissions during the ozone season from sources regulated under CAIR Ozone would be between 1 to 3 percent higher depending on the year.

We want to emphasize that these results alone should not be interpreted to mean that CAIR Ozone is not an appropriate policy. The value of the CAIR Ozone policy depends on a comparison of the estimated costs it imposes and the estimated benefits that flow from its regulations. The purpose of this analysis merely is to explain how the NOx provisions of CAIR interact with each other and with the NBP.

Planning and Strategic Implications

What are the planning and strategic implications? First, the word is caution for those generators owning plants that are regulated only under CAIR Ozone, which, again, are the plants in Massachusetts, Connecticut, and Arkansas. This includes about 49,700 MW of capacity,