Utilities face huge costs of complying with new EPA standards.
Fortnightly Magazine - October 15 2001


The Brink of Ruin?



Utilities face huge costs of complying with new EPA standards.

How far will utilities be expected to go in complying with new proposed EPA standards, now before Congress, that seek greater reduction targets for emissions of sulfur dioxide (SO2), nitrogen oxide (NOx), mercury (Hg), and carbon dioxide (CO2), in what is to be an unprecedented multi-pollutant reduction bill?

According to a July Supreme Court ruling affirming the EPA's authority in the Clean Air Act, Justice Breyer interpreted that the EPA has the discretion of stopping short of "hurtling" industry over the "the brink of ruin" or even "deindustrialization" when considering economic costs of environmental compliance. I'm sure that's reassuring to those utility executives reading. The EPA can pursue almost any perceived health risk, at any cost, just short of bankrupting the industry.

Moreover, the Justice said the act was expressly designed to force regulated sources to develop pollution control devices that might at the time appear to be economically or technologically infeasible. In the EPA's decision to begin controlling mercury, for example, the agency has in effect put the industry just in that position. Not only have utilities taken issue with the science that links utility mercury emission with health, but they also say the technology has not been made to work properly. Power plants tested with such technology showed mercury removal rates that varied unpredictably from 0 percent to over 90 percent, according to the Electric Power Research Institute. "Due to remaining uncertainties on control technology performance and its potential impacts on power plant operation ... best current estimates are $1 billion to $3 billion annually above the cost of other emissions controls," read a recent EPRI report.

Notwithstanding, it should be mentioned that many previous emission technology controls were thought unattainable and too expensive by utilities, and were later developed and made cost-effective, as the Clean Air Act envisioned.

But now that we know that the EPA won't excuse lack of compliance on the grounds of technology, some of you will be surprised to know that science will not always be the deciding factor.

In an early September interview with EPA Administrator Christine Todd Whitman, TV Host John McLaughlin of the McLaughlin Group, explored the raging debate on whether the EPA should base its environmental policy decisions on objective scientific standards or whether so-called "values" should supercede science.

She affirmed on the show that the stakeholder process, much like the one going on now over the multi-pollutant bill, which brings environmentalists, businessmen and academics together, is not based in science, but is an effort to equalize the interests of those involved. The equalizing of interests over science has led the Sciences Advisory Board (SAS) to warn of the many problems that exist with the stakeholder process which make it inappropriate.

The biggest concern, according to McLaughlin, paraphrasing the SAS view, is that if you give up science in the direction of the stakeholder process or a precautionary emphasis, you're opening up policymaking to all manner of activities that are based on values, views, perceptions, philosophies, all of which can be political as opposed to scientific.

Despite this concern, it appears that environmental policymaking is in fact moving toward being based in"precautionary" science rather than based in science.

Moreover, the current emphasis among environmental groups, the United Nations and the Swedes is on "precautionary" science, according to recent statements. "I would argue that every decision we make is based on precaution," Whitman said, in the interview. "But it doesn't mean that you make the decision first without understanding what actions are doing to denigrate the environment," she added.

For example, she affirms to McLaughlin that there is no scientific consensus that reducing the so-called human-created greenhouse gases will "stop" climate change.

She rightly admits-since human emissions alone will not stop global climate change, as they come from a number of sources-it is a presumption that reducing human emissions can have a significant impact on reducing the rate of climate change and reducing the concentrations. But this does not mean the EPA should lay idle until the science supports action, she says.

"We know how effective we've been with acid rain and the impact that it has had on health and the environment overall. We know we can take steps to make things better; it's a question of how dramatically do you make the changes before you know whether those are the changes that are really going to affect the problem of global climate change?" Whitman says, describing the problem in a nutshell.

Maybe because the utility industry has learned through experience that the EPA will have its way, they have chosen to cooperate with this recent round of proposed environmental controls. As one utility executive put it to me, "We never get anywhere when we pit our scientists against their scientists."

Instead, most arguments voiced to the EPA emphasize how environmental controls should not inhibit the competitiveness of market players by being too costly, bureaucratic or impeding reliability. Most utilities and IPPs have voiced their support for the new EPA proposals, even with the knowledge that they spent $40 billion in low-emission and emission control technologies on previous programs, and may be obligated to spend at least as much.

Meanwhile, the Clean Power Group, whose members include Calpine, El Paso, Enron, NiSource and Trigen, advocate a cap and trade program, with a cap reduction program on all four major pollutants, and removal of the New Source Review program.

The NSR is a preconstruction permit program for new or modified major stationary sources. The program ensures that when large, new facilities are built - or major modifications to existing facilities are made that result in a net emission increase - they include state-of-the-art emissions equipment. It is also a program that seems to be disliked by utilities and IPPs alike.

Paul King, executive vice president, power operations and fuels for Cinergy Power Generation Services, in a press statement, likened the NSR requirements to the EPA imposing additional emissions restrictions without seeking legislation. He said the EPA's current interpretation of NSR would result in "increasingly less efficient and [less] reliable power plants and increased environmental degradation."

The Clean Power Group believes a multipollutant cap and trade program without NSR would yield lower emissions than a conventional program with NSR.

On October 3-4, stakeholders to the multi-pollutant bill will have convened to discuss levels/ timing, technology, trading/ markets, and compliance/ measurements for each of the four pollutants, according to the meeting program.

From those meetings, there will certainly have begun to emerge the financial cost to the industry to meet the new EPA requirements, with or without the benefit of science or the proper technology.

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