TCS Daily


Power Plant Pollution and Environmentalists' Power

By Joel Schwartz - September 2, 2005 12:00 AM

"New Rules Could Allow Power Plants to Pollute More" according to Wednesday's Washington Post.[1] The Post story focused on a draft Bush-administration regulation that would make it harder to trigger New Source Review (NSR), a Clean Air Act provision requiring state-of-the-art pollution controls at new and upgraded industrial plants.

The Post article, which is based on internal administration documents leaked to the Natural Resources Defense Council (NRDC), is just the latest example of how public debate on air pollution continues to confuse regulatory arcana with actual emissions. Total power plant pollution has been dropping for years and declining pollution caps, unaffected by NSR, ensure these improvements will continue for years to come.

On the other hand, NSR has actually slowed progress on air pollution by increasing the costs of new and upgraded facilities relative to existing ones. At the same time, NSR raises the costs of industrial pollution control, increasing the costs of the goods and services Americans purchase.[2] We could have cleaner air for less money if we simply did away with NSR entirely and relied on declining, system-wide pollution caps to ensure continued air quality improvements.

NSR is currently triggered if actual annual emissions at a facility are projected to be higher after an upgrade than before the upgrade. The administration's proposal would instead trigger NSR only if potential hourly emissions at the plant could be higher after the upgrade than before. This means a given plant could conceivably increase its total emissions if an upgrade allowed it to operate more hours each year, even if its potential hourly emissions stayed the same or even decreased.

NRDC has made this the top issue on its web page under the headline "Permission to Pollute: Bush Administration to Propose Gutting Clean Air Act Safeguards."[3] Of course, if NRDC is to be believed, the Bush administration has already gutted the Clean Air Act several times over the last few years.[4] What you won't see in NRDC's press releases or reports is information on how much actual power plant pollution has declined over the last few years or how much it will continue to decline in the future. NRDC also won't tell you that changes to NSR will have no effect on total emissions from power plants.

Power plant nitrogen oxides (NOx) emissions dropped 28 percent in just the five-year period from 1998 to 2003.[5] In 2004, EPA completed implementation of its NOx "SIP Call" regulation in the eastern half of the U.S., where coal is a major electricity fuel, resulting in an additional 25 percent decline in power plant NOx during the May-September ozone season.[6] EPA's Clean Air Interstate Rule (CAIR) will extend the SIP Call reductions year-round in 2009.[7] Total power plant NOx emissions are capped and can't go up, regardless of changes to NSR.

Power plant sulfur dioxide (SO2) emissions declined 31 percent between 1990 and 2003 under the Clean Air Act's Title IV acid rain program.[8] The CAIR requires an additional 53 percent reduction by 2010 and a 70 percent reduction by 2020, with an ultimate cap 77 percent below 2003 emissions.[9] Power plant SO2 emissions are capped and will continue to go down, regardless of changes to NSR.

Ignoring the reality of continuing declines in power plant air pollution, NRDC makes the ridiculous claim that "The weaker requirement in the [Bush administration's] draft [NSR] proposal would allow every power plant in the country to increase air pollution."[10]

It is true that the administration's changes could conceivably result in some individual power plants increasing their emissions, but only if there are offsetting reductions at other plants, such that total emissions remain under the cap. Pollution trading of this sort elicits concerns over the potential for "hot spots" at facilities that increase their emissions. This concern is misplaced. First, there are no hot spots for NOx or SO2, pollutants for which virtually the entire nation complies with federal health standards with plenty of room to spare. Second, pollution trading actually tends to reduce emissions preferentially at the most polluting facilities, because they are the ones with lowest marginal costs of pollution control.[11]

The greatest irony in environmentalists' battle-to-the-death over NSR is that NSR is bad for the environment. The idea behind NSR when Congress created the provision in 1977 was that emissions would be reduced over time as existing facilities reached the end of their natural useful lives and were replaced by new or upgraded equipment with state-of-the-art pollution control technology.

It didn't work out that way. By increasing the costs of new and upgraded plants relative to existing ones, NSR predictably encouraged businesses to put their R&D efforts into keeping old plants running as long as possible without triggering NSR's requirements. Rather than a way to reduce pollution from old power plants, NSR is a key reason these decades-old, high-polluting facilities are still in operation.

Contrast this with pollution trading under a declining cap. Unlike NSR, cap-and-trade programs ensure that pollution reductions occur on a predetermined schedule, rather than whenever a plant happens to decide to upgrade. And because it is focused only on how much a facility emits, rather than whether it is old or new, cap-and-trade removes the disincentives to upgrading old facilities or building new ones. NSR is also one of the most expensive means of controlling air pollution, while cap-and-trade is among the cheapest.[12]

So why do activists love NSR and hate pollution trading with declining caps? A likely explanation is that the private interests of environmentalists in maintaining their power and funding trump their concern for air quality. NSR, with its many administrative decision points and ongoing opportunities for lawsuits and micromanagement of private decisions by third parties, confers great power on environmentalists and creates ready-made public relations morality tales that generate media coverage and fundraising opportunities.

In contrast, under a pollution trading program the key political decision-how much to reduce pollution-is made up front and covers a wide range of facilities. From then on the pollution reductions occur quietly on a predetermined schedule, driven by the incentives created by the declining cap at each facility, and without the opportunity or need for micromanagement. The much higher costs of NSR relative to cap-and-trade are also an advantage for environmentalists, since one of their goals is to make fossil fuel energy production as expensive as possible.

Eliminating NSR would not only reduce the costs of the Clean Air Act with at worst no effect on air quality, but would also remove a key source of activists' and regulators' power to interfere in and control Americans' private decisions.

New Source Review was never good for the environment, the economy, or individual liberty, but it is wonderful for those whose power and funding depend on a micromanaged, process-driven regulatory system. Rather than tinkering around the edges, the Bush administration should be seeking to eliminate NSR from the Clean Air Act, knowing that cap-and-trade will continue to eliminate most remaining industrial emissions.

Joel Schwartz is a visiting fellow at the American Enterprise Institute.



 

[2] See, for example, J. List, D. Millimet and W. McHone, "The Unintended Disincentive in the Clean Air Act," Advances in economic analysis & policy 4 (2004): Article 2, http://www.bepress.com/bejeap/advances/vol4/iss2/art2/; B. Swift, "Grandfathering, New Source Review, and NOx--Making Sense of a Flawed System," Environment Reporter 31 (2000): 1588-96, http://www.elistore.org/reports_detail.asp?ID=10705&topic=Energy_and_Innovation; B. Swift, "How Environmental Laws Work: An Analysis of the Utility Sector's Response to Regulation of Nitrogen Oxides and Sulfur Dioxide under the Clean Air Act," Tulane Environmental Law Journal 14 (2001): 309-425, http://www.epa.gov/airmarkets/articles/noxsoxelireprt.doc.

[6] Environmental Protection Agency, Evaluating Ozone Control Programs in the Eastern United States: Focus on the NOx Budget Trading Program 2004, August 2005, http://www.epa.gov/airtrends/2005/ozonenbp.pdf#page=1.

[8] See EPA emissions trend tables at http://www.epa.gov/air/airtrends/aqtrnd04/econ-emissions.html. Environmental Protection Agency, EPA's Acid Rain Program: Results of Phase I, Outlook for Phase II October 2001, http://www.epa.gov/airmarkt/articles/phase2factsheet.pdf.

[10] NRDC, "EPA Proposal Would Exempt Power Plants from Key Clean Air Act Standard," August 31, 2005, http://www.nrdc.org/media/pressreleases/050831a.asp.

[11] B. Swift, "Emissions Trading and Hot Spots: A Review of the Major Programs," Environment Reporter 35 (2004), http://www.epa.gov/airmarkets/articles/hotspots2004.pdf.

[12] See Swift, "Grandfathering, New Source Review, and NOx," and Swift, "How Environmental Laws Work."


 

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