Chapter 8. Acid Deposition Control

Theodore L. Garrett and Sonya D. Winner

Editors' Summary: In this second of a three-part series on the Clean Air Act and the 1990 amendments, the authors analyze the background of several key Clean Air Act sections, including the prevention of significant deterioration (PSD) program, new and modified source review, the national emission standard for hazardous air pollutants (NESHAP) program, acid deposition control provisions, and mobile source controls. The authors explore the evolution of the PSD program from its origins in Sierra Club v. Ruckelshaus, 2 ELR 20656, to its current focus on requiring preconstruction review of major sources and modifications to ensure that deterioration is prevented and appropriate control technology is used. The authors next analyze how the Clean Air Act utilizes the review and permitting of new and modified sources as basic planning and control features for regulating such sources and their impact on attainment and maintenance of the national air quality standards. The authors next explore the regulation of hazardous emissions, from the pre-1990 NESHAP program to the ramifications of the 1990 amendments. Finally, the authors analyze the new acid deposition control provisions added by the 1990 amendments, including the new allowance program, and how the amendments impact Title II of the Clean Air Act, which governs emissions from mobile sources.

Theodore L. Garrett is a partner in the law firm of Covington and Burling in Washington, D.C. Mr. Garrett has coordinated the firm's environmental practice and has been extensively involved in litigation and administrative proceedings. A former U.S. Supreme Court law clerk to Chief Justice Burger, Mr. Garrett has served as a featured speaker at numerous environmental law and litigation programs, and has written widely in the environmental area. He is a coauthor of the ALI-ABA book A Practical Guide to Environmental Law and the ABA book Environmental Litigation. Mr. Garrett is vice-chairman of the Solid and Hazardous Waste Committee of the ABA Section of Natural Resources, Energy, and Environmental Law; a member of the Steering Committee of the Environment, Energy, and Natural Resources Section of the District of Columbia Bar; a member of the Editorial Board of the Environmental Law Reporter, and a member of the Advisory Committee on Hazardous Waste of the Center for Public Resources.

Sonya D. Winner is a partner in the law firm of Covington and Burling, where she practices in the areas of environmental law, international trade, and antitrust. She is a graduate of Michigan State University (B.A. 1979) and Harvard Law School (J.D., magna cum laude, 1982). After graduation, she served as a law clerk to Judge Louis F. Oberdorfer of the U.S. District Court for the District of Columbia. She is a member of the adjunct faculty at the American University Washington College of Law, where she has taught courses in international commercial arbitration and legal ethics.

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One of the new titles added by the 1990 amendments to the Clean Air Act is Title IV, which regulates emissions that lead to acid deposition, commonly referred to as acid rain. Acid rain and its environmental impacts have been the subject of increasing controversy over the last decade. For a variety of reasons, the emissions that give rise to acid rain have been largely unregulated under the Clean Air Act. The new Title IV is designed to correct this omission.

I. Background

Acid rain is the result of emissions of sulfur dioxide (SO₂) and various oxides of nitrogen (NO_x), primarily from the burning of fossil fuels.¹ The U.S. Environmental Protection Agency (EPA) has established national ambient air quality standards (NAAQS) for both SO₂ and NO₂ under Title o the Clean Air Act, and most of the country has fully attained those standards. However, upon continued contact with oxygen in the upper atmosphere, SO₂ and NO_x are transformed into sulfates and nitrates, which in turn react to become sulfuric and nitric acid when combined with water. The p9e-1990 NAAQS were not designed to take into account these chemical transformations or the resulting environmental impacts.

Nor did other aspects of the pre-1990 Act provide an effective basis for controlling acid rain. The Clean Air Act focuses primarily on regulation at the state level, with only limited attention to interstate (and international) pollution — of which acid rain is a prime example.² Efforts to invoke the existing statutory provisions dealing with interstate and international pollution to address acid rain have been largely unsuccessful.³

Acid rain has been connected with acidification of lakes and streams, particularly in the northeastern United States and Canada, with resulting damage to fish and wildlife, as well as damage to various elements of the natural and man-made environments. Although the extent and severity of these effects have been much disputed — as have the precise types and combinations of emissions that ultimately cause them — the 1990 amendments assume that such effects exist, that they serious, and that they should be addressed.⁴

II. The New Allowance Program

Despite continuing debate about the precise sources of emissions that are most directly responsible for acid rain, Congress designed Title IV of the 1990 amendments to address the most obvious and largest sources: electric utility generating units that burn fossil fuels.⁵ The goal of the administration's proposed bill, which was incorporated into the final amendments, was to reduce total SO₂ emissions from these sources by 10 million tons from 1980 levels. Annual NO_x emissions are to be reduced by approximately two million tons.⁶

The amendments seek to achieve these goals through a complex regulatory program featuring stringent controls on both existing and new plants and a system of market-based allowances.⁷ The new program will consist of two phases. In the first phase, which begins January 1, 1995, 111 plants will be provided specific emission allowances for SO₂ based on each plant's annual average baseline fuel consumption in 1985-87.⁸ In the second phase, beginning January 1, 2000, utilities will be allocated reduced SO₂ allowances, based on application of various statutory formulas to baseline fuel consumption figures.⁹

The total amount of Phase II allowances allocated will be subject to an overall statutory cap of 8.9 million tons.¹⁰ If the total number of allowances otherwise authorized under the statute (except those specifically exempted from the cap) exceeds this figure, EPA must reduce each facility's allowance ona pro rata basis until the total is reduced to 8.9 million tons.

An allowance gives the facility holding it the right to emit SO₂ in a specified amount. The allowance may either be used by the facility to which it is issued or transferred to another facility. To make overall emission reductions cost-effective, facilities will be allowed to purchase and sell allowances on the open market.¹¹ Facilities will also be [22 ELR 10254] allowed to carry unused allowances forward into future years. Allowances carried forward in this manner will be exempted from the 8.9 million ton cap.¹²

EPA is directed to allocate initial allowances to each existing facility based on the level of emissions that facility is allowed under the statute. These allowances are to be reallocated annually. Allowances will be allocated both to existing facilities and to new facilities that begin operation between 1990 and 2000.¹³ After 2000, new facilities will be required to acquire all of their allowances from other facilities.

Formulas for calculating allowances for different types of facilities during both Phase I and Phase II are set out in §§ 404, 405, 406, 409, and 410 of the Act. Initial Phase I allowances are set out in Table A to § 404 and will be effective on January 1, 1995. A unit may obtain a two-year extension of this deadline by installing "qualifying Phase I technology"¹⁴ or by reassigning its Phase I reduction requirement to a unit that uses such technology.¹⁵ Units that qualify for this extension will then receive extra allowances for 1995 and 1996.¹⁶

Section 405 establishes formulas for calculating allowances in Phase II. Most facilities are to receive allowances equivalent to an emissions rate of 1.2 lbs/mmBtu. However, separate formulas (and, in many cases, special requirements, extensions, and/or exemptions) are provided for a variety of units, including the following:

* units with a generating capacity of at least 75 megawatts (MWe) and actual 1985 emissions of at least 1.2 lbs/mmBtu;

* units with a capacity factor below 60 percent;

* units fueled with lignite coal;

* units ordered to convert from oil to coal in the early 1980s;

* units with less than 75 MWe generating capacity and an actual 1985 emissions rate of at least 1.2 lbs/mmBtu and owned by utilities with overall capacities of at least 250 MWe;

* certain units in operation before January 1, 1966;

* coal-fired units with 1985 emissions between 0.6 lbs/mmBtu and 1.2 lbs/mmBtu;

* coal-fired units with a 1985 emissions rate less than 0.6 lbs/mmBtu;

* oil- and gas-fired units with a 1985 emissions rate between 0.6 lbs/mmBtu and 1.2 lbs/mmBtu;

* oil- and gas-fired units with a 1985 emissions rate less than 0.6 lbs/mmBtu;

* certain units that began (or will begin) operation between 1985 and December 31, 1995;

* oil- and gas-fired units consuming less than 10 percent oil;

* one individual utility in Michigan; and

* certain small municipally owned units.

In addition, § 405(g)(6) exempts from the Title IV allowance requirements any "qualifying small power production facility" or "qualifying cogeneration facility" as defined under the Federal Power Act,¹⁷ as well as certain "new independent power production facilities," as defined under § 416 of the Clean Air Act.¹⁸

In addition to individual allowances specified in the statute or calculated according to statutory formulas, certain units will be eligible to receive extra allowances at various times. During Phase I, utilities in Illinois, Indiana, and Ohio, which, compared to other states, have older units with relatively high emissions, will receive additional allowances to ease their transition to reduced emission levels.¹⁹ During Phase II, 50,000 extra allowances a year (above the 8.9 million-ton cap) will be available for allocation to units in 10 states in the Midwest and South.²⁰ These extra allowances are, again, intended to alleviate what was perceived to be a disproportionate burden on units in those states.

The granting of additional allowances to midwestern states caused considerable controversy during consideration of the 1990 amendments. Representatives from high-growth states and states whose utilities had installed lower-emitting technology (the so-called "clean states") argued strenously against special treatment for the Midwest. As part of a compromise on this issue, § 406 authorizes bonus allowances to be issued during Phase II to accommodate growth in states with statewide average emissions below 0.8 lbs/mmBtu.²¹

The Phase II allowance formulas will become effective for most units on January 1, 2000. However, an existing unit that intends to "repower" by switching to a "qualifying clean coal technology" may receive a three-year extension of this deadline.²² To take advantage of this option, a unit [22 ELR 10255] must demonstrate to the applicable permitting authority by December 31, 1997, that it will make the change. If all necessary demonstrations are made and accepted, the unit will receive the additional allowances necessary to enable it to continue operating during the extension period.²³

Thus, beginning in 1995, each utility will have a choice of (1) emitting at the level of its allowance, (2) reducing its emissions below the level of its allowance, carrying the remaining portion forward to future years or selling it to another facility, or (3) emitting at a level higher than its allowance, purchasing an allowance amount sufficient to cover its excess emissions. The possession, purchase, sale, and use of allowances are to be governed by regulations to be promulgated by EPA.²⁴

Finally, Title IV creates new incentives for the development and use of "clean coal technology." In addition to a potential extension of the deadline for Phase II, facilities that install such technology may, under certain circumstances, enjoy exemption from some new source performance standards (NSPS) requirements, and the statute encourages EPA and the states to give such sources expedited treatment in the permitting process.²⁵

III. Permits and Special Sanctions

The new allowance program is to be implemented through a combination of general regulations and source-specific permits. These permits, which will specify, inter alia, the allowances available to each source, are to be issued initially by EPA for units regulated under Phase I.²⁶ Phase II permits will be issued by the states under permit programs approved by EPA pursuant to Title V.²⁷

Beginning in 1995, it will be a violation of the Act for any utility subject to Title IV to emit more SO₂ than the quantity for which it holds allowances. Sources with emissions that exceed their allowances will be subject to both (1) the usual civil and criminal penalties for violation of the Clean Air Act and (2) a special "excess emissions penalty" of $ 2,000 per ton and an "excess emissions offset," pursuant to which the quantity of excess emissions in one year will be subtracted from the facility's allowance for the following year. EPA is directed to promulgate regulations making both of these sanctions self-executing. Penalty payments will be payable "without demand" by EPA, and the facility must apply for a revision to its permit to provide for the necessary offsets. Failure to comply with these requirements will constitute an independent violation of the Act.²⁸

Section 413 states that compliance with the requirements of Title IV cannot excuse a failure to comply with any other provision of the Act.²⁹ This provision highlights a concern that was expressed during consideration of Title IV that some requirements of that title duplicate requirements established under other provisions of the Act and may create conflicting obligations for regulated sources.³⁰ Not all areas of potential conflict were deleted from the statute as it was enacted, leaving it to EPA and the states, in implementing the Act, to resolve any remaining inconsistencies.

IV. Units Subject to the Allowance Program

The Phase I and Phase II allowance programs apply only to utility units with a capacity greater than 25 MWe that generate electricity with fossil-fuel-fired combustion devices.³¹ A unit that cogenerates steam and electricity is considered a utility unit only if it supplies more than one-third of its potential electrical output capacity and more than 25 MWe of electric output to a utility power distribution system for sale. A cogeneration unit that does not exceed this one-third/25-MWe threshold is defined as a "nonutility unit" or an "industrial source" and is not subject to the allowance requirements of Title IV.³² However, a nonutility unit (or a utility unit with a capacity of less than 25 MWe) may opt into the allowance program if it wishes to do so in order to receive allowance allocations.³³

A unit that opts into the allowance program will be eligible for allowances based on its actual or allowable emissions in 1985.³⁴ However, unlike utilities, sources that opt into the program may not transfer or carry forward excess allowances produced as a result of reduced utilization or shutdown.³⁵

Opting into the Title IV allowance program will be attractive primarily to cogeneration facilities that anticipate future increases in their sale of electricity. If such a unit is expected to exceed the one-third/25-MWe threshold after the beginning of Phase II, it will be able to receive allowances for this purpose only if it has previously opted into the allowance program. Otherwise, it will be treated as a new facility and will be required to purchase all of its allowances on the open market.

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V. NO_x Controls

Emissions of NO_x are to be regulated under Title IV primarily through improved control technology. Section 407 directs EPA to establish emission limits for various types of utility boilers and to issue revised NSPS under § 111 of the Act for nitrogen oxide emissions from fossil-fuel-fired steam generating units.³⁶

A source that cannot meet these new requirements may apply for a permit establishing alternative emission limitations, provided it can demonstrate that it has installed the appropriate control equipment and has operated it properly.³⁷ Utilities that operate two or more units may petition for permit conditions that authorize compliance with the standards by averaging the emissions from those units.³⁸

Section 403(c) directs EPA to study the potential effects of allowing NO_x reductions to be traded for SO₂ allowances, but the statute, as currently written, does not authorize such trading.

VI. Implementation of Title IV

Although Phase I does not begin until January 1, 1995, Title IV has been identified as requiring considerable early action by EPA and industry. The statute requires the promulgation of detailed regulations on a variety of topics, including requirements for the adoption of qualifying Phase I technology, requirements for repowering with clean coal technology, and the details of how allowances are to be allocated and traded. Many of the major technology decisions that depend on those regulations require years of lead time, thus increasing the pressure on EPA to complete its regulations in time for effective implementation by industry. One of EPA's early actions in preparing for implementation of the 1990 amendments was the creation of the Acid Rain Advisory Committee to assist it in developing appropriate regulations.³⁹

Apart from the significance of the acid rain problem, Title IV is regarded as an important experiment in large-scale market-based approaches to environmental problems. Thus, the program's success will be judged both for its effectiveness in eliminating the problem of acid rain (for which it is unlikely to provide a complete solution) and for its administrative efficiency as an alternative to the traditional command-and-control strategy on which most other Clean Air Act programs are based.

1. Approximately two-thirds of SO₂ emissions come from electric utility power plants, with approximately 75 percent of that coming from large plants emitting at least 10,000 tons per year. H.R. REP. NO. 490, 101st Cong., 2d Sess., pt. 1, at 357 (1990). About one-third of NO_x emissions comes from electric utilities, while 43 percent of such emissions are estimated to come from the use of fossil fuels in mobile sources, such as cars and trucks. Id. at 358; see also S. REP. NO. 228, 101st Cong., 1st Sess. 261-62 (1989).

2. The sources of the emissions that ultimately cause acid rain are often located far away from the affected areas. As a result, for example, EPA has long taken the position that it is unable to identify the specific sources of emissions that cause the transboundary acid rain pollution of which Canada complains. See Her Majesty v. EPA, 912 F.2d 1525, 20 ELR 21354 (D.C. Cir. 1990).

3. See, e.g., id. EPA declined to apply either § 115 of the Act (dealing with international pollution) or § 126 (dealing with interstate pollution) in the absence of a definitive identification of the specific sources responsible for the problem.

4. See generally H.R. REP. NO. 490, supra note 1, at 355-64; S. REP. NO. 228, supra note 1, at 261-301.

5. The principal requirements of Title IV are directed at electric utility generating units with a capacity of at least 25 megawatts (MWe). Other units may opt in to the program in order to obtain emission allowances. See infra notes 31-35 and accompanying text.

6. Clean Air Act (CAA) § 401(b), 42 U.S.C. § 7651(b), ELR STAT. CAA 148; see H.R. REP. NO. 490, supra note 1, at 355-56. Other provisions of the bill, particularly those concerning mobile sources, are also projected to lead to significant decreases in emissions of both SO₂ and NO_x.

7. The provisions of Title IV that establish this new allowance program are unusually detailed and complicated, and a comprehensive description of their requirements (some of which are specified down to an individual plant basis) will not be provided here. Instead, what follows is an overview of the general components of the new program.

8. The initial allowances for each plant are listed in the statute. CAA § 404(a) table A, 42 U.S.C. § 7651c(a) tbl. A, ELR STAT. CAA 153-56.

9. See CAA § 405, 42 U.S.C. § 7651d, ELR STAT. CAA 156. Different formulas are provided for different categories of units with varying generation capacities, 1985 baseline emission rates, and fuel types.

10. CAA § 403(a), 42 U.S.C. § 7651b(a), ELR STAT. CAA 150.

11. CAA § 403(b), 42 U.S.C. § 7651b(b), ELR STAT. CAA 150-51. Thus, for example, a facility that achieves reductions at a relatively low cost may be able to achieve extra reductions and sell its excess allowance to a facility whose control costs are higher.

12. CAA § 403(a), 42 U.S.C. § 7651b(a), ELR STAT. CAA 150.

13. Id. Existing sources that are removed from operation after the date of enactment of the 1990 amendments will continue to receive annual allowances under this provision. Id.

14. Such qualifying technology, which will usually involve the installation of scrubbers, is defined as "a technological system of continuous emission reduction which achieves a 90 percent reduction in emissions of sulfur dioxide from the emissions that would have resulted from the use of fuels which were not subject to treatment prior to combustion." CAA § 402(19), 42 U.S.C. § 7651a(19), ELR STAT. CAA 149.

15. CAA § 404(d), 42 U.S.C. § 7651c(d), ELR STAT. CAA 152-53. Such transfers of reduction obligations are authorized under § 404(c). 42 U.S.C. § 7651c(c), ELR STAT. CAA 152.

16. Such units may also receive additional allowances to the extent that they reduce emissions below 1.2 lbs/mmBtu in 1997-99. CAA § 404(d)(6), 42 U.S.C. § 7651c(d)(6), ELR STAT. CAA 153.

17. 16 U.S.C. §§ 791a-828c (1988).

18. 42 U.S.C. §§ 7651d(g)(6), 7651o, ELR STAT. CAA 158-59, 165-67; see 136 CONG. REC. S3026-28 (daily ed. Mar. 22, 1990).

19. CAA § 404(a)(3), 42 U.S.C. § 7651c(a)(3), ELR STAT. CAA 152. Extra allowances will also be available during Phase I for plants that reduce emissions below 1.2 lbs/mmBtu using qualifying Phase I technology or that reduce emissions through the use of qualified energy conservation measures or renewable energy. CAA §§ 404(d)(6), 404(f), 42 U.S.C. §§ 7651c(d)(6), 7651c(f), ELR STAT. CAA 153, 155.

20. CAA § 405(a)(3), 42 U.S.C. § 7651d(a)(3), ELR STAT. CAA 156.

21. 42 U.S.C. § 7651e, ELR STAT. CAA 159. The statute permits the governor of each such state to choose among alternative methods of calculating bonus allowances for units within that state. Id. In addition, § 405(i) authorizes additional allowances for units in certain "high growth states." 42 U.S.C. § 7651d(i), ELR STAT. CAA 159. However, the only state that fits the definition in that section of a high-growth state is Florida.

22. CAA § 409, 42 U.S.C. § 7651h, ELR STAT CAA 162-163. The technologies that will qualify under this section are listed in § 402(12). 42 U.S.C. § 7651a(12), ELR STAT. CAA 149.

23. CAA § 409(c), 42 U.S.C. § 7651h(c), ELR STAT. CAA 162. These extra allowances are not transferable.

24. CAA § 403(b), (d), 42 U.S.C. § 7651b(b), (d), ELR STAT. CAA 150-51.

25. CAA § 409(d), (e), 42 U.S.C. § 7651h(d), (e), ELR STAT. CAA 162-63.

26. CAA § 408(c), 42 U.S.C. § 7651g(c), ELR STAT. CAA 161. Complete permit applications and compliance plans must be submitted to EPA within 27 months of enactment of the 1990 amendments. Id.

27. CAA § 408(d), 42 U.S.C. § 7651g(d), ELR STAT. CAA 161. Phase II permit applications and compliance plans are due by January 1, 1996, and permits are to be issued by December 31, 1997. Id.

28. CAA § 411, 42 U.S.C. § 7651j, ELR STAT. CAA 163-64.

29. 42 U.S.C. § 7651l, ELR STAT. CAA 164.

30. For example, Title IV creates a separate permitting requirement, as well as special monitoring and reporting requirements, that may duplicate requirements established under Titles I and V. See CAA §§ 408, 412, 42 U.S.C. §§ 7651g, 7651k, ELR STAT. CAA 160, 164.

31. See CAA § 402(15), (17), 42 U.S.C. § 7651a(15), (17), ELR STAT. CAA 149. Smaller units are exempt from the allowance program unless they choose to opt in under § 410. 42 U.S.C. § 7651i, ELR STAT. CAA 163.

32. See § 402(17), (24), (25), 42 U.S.C. § 7651a(17), (24), (25), ELR STAT. CAA 149-50. Such units may be subject to other requirements of Title IV, such as the NSPS and other requirements for industrial boilers that are to be promulgated under § 407. 42 U.S.C. § 7651f, ELR STAT. CAA 159-60.

33. CAA § 410, 42 U.S.C. § 7651i, ELR STAT. CAA 163.

34. A subsequent year may be used if the unit did not operate in 1985.

35. CAA § 410(f), 42 U.S.C. § 7651i(f), ELR STAT. CAA 163. However, if the reduction in utilization or shutdown is the result of a replacement of energy from the unit at issue with energy from another unit subject to regulation under Title IV, excess allowances may be transferred to that other unit. Id.

36. 42 U.S.C. § 7651f, ELR STAT. CAA 159-60. These revised standards are to be issued for both utility and nonutility units.

37. CAA § 407(d), 42 U.S.C. § 7651f(d), ELR STAT. CAA 160. Sources that are unable to comply with a standard because the necessary control equipment is in short supply may receive a 15-month extension of the compliance deadline. Id.

38. CAA § 407(e), 42 U.S.C. § 7651f(e), ELR STAT. CAA 160.

39. See 55 Fed. Reg. 32134 (1990).