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Clean Air Rules: A New Roadmap for the Power Sector

How new market-based regulations fit with today’s programs.

Fortnightly Magazine - June 2007

in the national trading program at the time. This more limited market represents states that allocated close to 69 percent of the initial budget of mercury allowances and comprises more than 700 units representing more than 200 GW of capacity—nearly equivalent to the number of coal-fired units in the successful NO X Budget Trading Program across a larger number of states. As with the NO X Budget Trading Program, EPA expects a viable market will result.

Based on this modeling, prices for mercury allowances are expected to be the same or lower as in a full national market. This is because several high-demand states such as Pennsylvania and Illinois will not be participating. Overall, however, states opting to participate in the trading program generally are characterized by larger percentages of coal-fired generation.

Moreover, twenty-one states submitted state plans to EPA by the November 2006 CAMR deadline and additional state plans have been received since. The remaining states actively are working on plans. Of all affected jurisdictions, 33 states and two tribes are planning on participating in the CAMR trading program. Thirteen states have indicated they will not participate in the trading program, and at least one state is still undecided. Three states (Idaho, Vermont, and Rhode Island) and the District of Columbia do not have any coal-fired EGUs and thus have zero budgets.

States not participating in the trading program must ensure they meet their state budget with other methods, often through control requirements implemented through percent-reduction provisions based on an analysis of control options states have evaluated as feasible. Some states have chosen to do this in phases like EPA has, though the start of the second phase is in some cases accelerated. Unlike a capped program, percent-reduction programs do not necessarily guarantee emissions will remain below a state’s budget, often because of the uncertainty of new source growth over time. Therefore, states are often coupling these programs with caps to ensure the state’s budget will be maintained.

Where mercury trading programs are enacted, EPA expects overcontrol in 2010. This is because sources are likely to optimize the controls installed for CAIR to reduce as much mercury as possible in anticipation of increasing prices for mercury allowances under the lower second-phase cap.

In December 2006, EPA proposed a CAMR federal plan to be finalized in states that either fail to submit a CAMR state plan or whose state plan is somehow deficient. EPA is evaluating comments but has not finalized a CAMR federal plan. The proposal would put into place a cap-and-trade program in any State in which the federal plan is finalized.

The Clean Air Visibility Rule

CAVR supplements the emission reductions of CAIR by requiring emission controls known as best available retrofit technology (BART) for industrial facilities emitting air pollutants that reduce visibility by contributing to regional haze. The pollutants include PM2.5 and their precursors, such as SO 2, NO X, volatile organic compounds and ammonia. The BART requirements apply to facilities built between 1962 and 1977 that have the potential to emit more than 250 tons