Just because the U.S. Court of Appeals for the District of Columbia Circuit vacated EPA’s Cross-State Air Pollution Rule (CSAPR), the coal-fired power sector should not assume that EPA’s Mercury and Air Toxics Standards (MATS) will also be thrown out, Bernstein Research said in a recent analysis.
The D.C. Circuit vacated Cross-State on Aug. 21, finding it violates federal law, and remanded the rule back to EPA. The Obama administration’s Cross-State rule was meant to replace the Clean Air Interstate Rule (CAIR), which was issued during the George W. Bush administration.
Ironically, the D.C. Circuit has kept CAIR in effect for affected Eastern states until EPA drafts a suitable replacement.
“Critically, the Court’s decision does nothing to modify the EPA’s Mercury and Air Toxics Standards (MATS). All coal fired generators nationally must comply with MATS by 2015, or cease to operate,” according to the commentary issued by a Bernstein team led by Senior Vice President Hugh Wynne. Bernstein Research is part of Sanford C. Bernstein & Co.
Both Cross-State and CAIR required significant cutes in SO2 and NOx emissions. The Cross-State deadline would have been 2014, while the CAIR deadline is 2015.
But many observers, including those at Bernstein, have suggested that compliance with the mercury rule and its deadlines will be at least as challenging as Cross-State. Both sets of rules have been challenged in court, and the MATS decision has not been issued yet.
MATS on firmer legal ground than Cross-State?
Because MATS compliance is expected to require the installation of costly flue gas desulfurization equipment and particulate matter controls, MATS is expected to force the retirement of some 50 GW of older, smaller generating units by 2015, Bernstein said in its report.
Furthermore, just because industry lawyers were successful in defeating Cross-State is no reason to assume they will also prevail in the MATS litigation, Bernstein said. “The arguments used successfully by petitioners against CSAPR, moreover, are unlikely to be effective against MATS, in our view,” the firm said.
The air pollutants regulated by Cross-State (SO2 and NOx) and the hazardous air pollutants regulated by MATS (mercury and other toxic metals, acid gases, and toxic organic compounds) are subject to different sections of the Clean Air Act, which stipulate fundamentally different regulatory approaches. These differences are such that most of the arguments advanced by petitioners to stay Cross-State” have little or no applicability to the Mercury and Air Toxics Standards,” the Bernstein analysts maintain.
“In large part, this reflects the highly prescriptive nature of the Clean Air Act with respect to the regulation of hazardous air pollutants,” Bernstein said. The key structural elements of the EPA’s Mercury and Air Toxics Standards – in particular, the requirement that all sources of hazardous air pollutants be controlled within three years to meet emissions limits set by reference to Maximum Achievable Control Technology – are stipulated by Sec. 112 of the Clean Air Act,” they note.
“Generally speaking, the EPA finds itself on much firmer ground when setting emissions limits on hazardous air pollutants, as it did in the case of MATS, than when setting limits on state emissions of SO2 and NOx to ensure compliance with National Ambient Air Quality Standards, as it did in the case of CSAPR,” according to the Bernstein review.
An exception would be challenges to the levels at which EPA has set the emissions limits under MATS, or challenges to the surrogates used by EPA to measure these emissions. “Challenges of this nature, however, are more likely to result in minor modifications to the rule than in a structural change,” the firm said.
To comply with MATS, power plants must meet limits on emissions of mercury; particulate matter, as a surrogate for other toxic metals; and hydrogen chloride, as a surrogate for acid gases. MATS also stipulates work practice standards designed to minimize emissions of toxic organic compounds. Plants failing to comply with MATS will be required to cease operation after April 2015.
The EPA expects that four years will be sufficient time for most generating units to be upgraded with the necessary emissions controls or be replaced with new generation or transmission capacity. In cases where more time is required, however, the EPA has the authority under the Clean Air Act (Section 113 (a) (4)) to issue an administrative order providing up to one additional year for compliance, effectively extending the compliance period to five years, Bernstein said.
As for Cross-State, American Electric Power (NYSE: AEP), NRG Energy (NYSE: NRG) and Edison International (NYSE: EIX) would have been among those most affected by Cross-State’s 2012 limit on annual SO2 emissions, Bernstein said.
Privately held Energy Future Holdings would have faced the most onerous compliance obligation, with CSAPR requiring a 49% reduction in annual SO2 emissions relative to the last 12 months, the firm said.