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GHG Compliance Complexities

Greenhouse-gas regulation will impose vastly greater compliance difficulties than did the Acid Rain program.

Fortnightly Magazine - February 2008

and similar monitoring technologies. The differences between the programs, however, are far greater than the similarities.

The Acid Rain legislation required electricity generators to reduce annual SO 2 emissions to 8.95 million tons a year by 2010, with intermediate goals set to be met in Phase I by 2000. It also reduced NO x emissions in Phase II, which started in 2000, by 2.1 million tons a year. The target was fixed, the major sources were known, and the technical path forward for utilities—scrubbers—was well understood.

Also some pleasant surprises helped: The price of low-sulfur coal decreased, and rail rates for shipping coal from Wyoming East were greatly reduced following rail deregulation. So utilities had known tools, and known costs for tackling the goals.

The cap-and-trade system was enacted in Title IV of the Clean Air Act to provide the basic regulatory structure. Emissions caps were set by EPA to diminish over time. Allowances were given freely, based on past SO 2 emissions from generating units. Less than 3 percent of the allowances were set aside and auctioned, mainly to establish allowance pricing. Very quickly, 98 percent of the allowances were traded on private markets.

Now, SO 2 and NOx emissions levels are measured precisely with continuous emissions monitoring systems (CEM), and reported into an EPA database. EPA also maintains a database of allocations. Banking of excess allowances is allowed and recorded by EPA. As a result, emissions reductions can be precisely tracked, recorded and documented.

There were no offsets in the Acid Rain program, since all the major sources of SO 2 were known, and the environmental impacts principally affected local or adjacent geographic regions—those also containing the sources of the emissions.

For GHG emissions, current proposed legislation would implement a cap-and-trade system, building on the success of the model that led to the reduction of Acid Rain at what was perceived to be an affordable cost. However, significant differences separate prospective GHG regulation from the Acid Rain program.

First, CO 2 is a byproduct of oxidizing all fuels to produce energy. It cannot be simply scrubbed out of the exhaust stream. This complicates the technical solutions and regulatory structures required to achieve GHG-reduction goals.

For GHG, emission reduction targets will be set by year, as in the Acid Rain program. The formula for allocation of emissions allowances may be strikingly different than that for Acid Rain, with the final allocation formula depending on the outcome of political negotiations in Congress among all the interested stakeholders.

Utilities are only one of several major sources of GHG emissions, where they are the principal source (~66 percent) of SO 2 emissions. GHGs are emitted by many sectors of the economy. Other major sources of GHGs include transportation, manufacturing and processing industries, and agriculture. Lobbyists representing all of these interests are scrambling to write in set-asides for allocation allowances in GHG legislation.

In the Acid Rain legislation, Congress gave extra allocations to utilities in three states with high coal use (Illinois, Indiana, and Ohio) so adjustments for special circumstances are not unprecedented. But a