Clean Air Interstate Rule (CAIR) and Clean Air Mercury Rule

1. Clean Air Interstate Rule (CAIR) andClean Air Mercury Rule Summary and Update Beth Murray Clean Air Markets Division May 2006

2. Nonattainment areas for 8-hour ozone pollution only Nonattainment areas for fine particle pollution only Nonattainment areas for both 8-hour ozone and fine particle pollution Areas Designated Nonattainment for Ozone and PM2.5 NAAQS in 2004 126 ozone nonattainment areas with 474 counties 47 PM2.5 nonattainment areas with 224 counties

3. Electric Power Generation: A Major Source of Emissions SO2 Emissions NOx Emissions 10.9 Million Tons Power Sector 4.5 Million Tons 69% 5.0 Million Tons 16.3 Million Tons Other 31% Total: 20.8 Million Tons Total: 15.9 Million Tons Source: SO2 and NOx data is from EPA’s 2003 National Emissions Inventory. “Other” sources of pollutants include transportation and other mobile sources and industrial sources.

4. The CAIR Approach • Determine if a significant contribution is projected from individual states on ozone and PM nonattainment in 2010, to define geographic boundaries covered by the rule. • Analyze sources of highly cost effective reductions of SO2 (for PM2.5) and NOx (for PM2.5 and ozone). • Create a two-phase program with declining emission caps for NOx in 2009 and 2015, and for SO2 in 2010 and 2015 based on application of highly cost effective controls to large EGUs.. • Develop an emissions budget for each state that chooses to achieve it emission reduction requirements based on reductions from EGUs. Create parallel emission reduction targets for States that choose to control other source categories. • Create an optional cap-and-trade program similar to current Acid Rain Program for SO2 (Title IV) and the NOx SIP call.

5. States controlled for fine particles (annual SO2 and NOx) States controlled for ozone (ozone season NOx) States controlled for both fine particles (annual SO2 and NOx) and ozone (ozone season NOx) States not covered by CAIR CAIR: Affected Region and Emission Caps CAIR Emission Caps* (million tons) 2009/20102015 Annual SO2 3.7 2.6 (2010) Annual NOx 1.5 1.3 (2009) Seasonal NOx .58 .48 (2009) *For the affected region. CAMR Emissions Caps (tons) 20102018 Mercury 38 15

6. Ozone and Particle Pollution: CAIR, together with other Clean Air Programs, Will Bring Cleaner Air to Areas in the East - 2010 Nonattainment areas for 8-hour ozone pollution only Nonattainment areas for fine particle pollution only . Nonattainment areas for both 8-hour ozone and fine particle pollution Ozone and Fine Particle Nonattainment Areas (March 2005) Projected Nonattainment Areas in 2010 after Reductions from CAIR and Existing Clean Air Act Programs 14 ozone nonattainment areas 20 PM2.5 nonattainment areas 104 ozone nonattainment areas with 408counties 43 PM2.5 nonattainment areas with 211 counties Projections concerning future levels of air pollution in specific geographic locations were estimated using the best scientific models available. They are estimations, however, and should be characterized as such in any description. Actual results may vary significantly if any of the factors that influence air quality differ from the assumed values used in the projections shown here.

7. Ozone and Particle Pollution: CAIR, together with other Clean Air Programs, Will Bring Cleaner Air to Areas in the East - 2015 Nonattainment areas for 8-hour ozone pollution only Nonattainment areas for fine particle pollution only Nonattainment areas for both 8-hour ozone and fine particle pollution Ozone and Fine Particle Nonattainment Areas (March 2005) Projected Nonattainment Areas in 2015 after Reductions from CAIR and Existing Clean Air Act Programs 104 ozone nonattainment areas with 408 counties 43 PM2.5 nonattainment areas with 211 counties 5 ozone nonattainment areas 14 PM2.5 nonattainment areas Projections concerning future levels of air pollution in specific geographic locations were estimated using the best scientific models available. They are estimations, however, and should be characterized as such in any description. Actual results may vary significantly if any of the factors that influence air quality differ from the assumed values used in the projections shown here.

8. Emission Reductions Occur through Projected Installation of Advanced Air Pollution Control Technology in 2010…

9. Emission Reductions Occur through Projected Installation of Advanced Air Pollution Control Technology in 2020

10. Coal Fired Power Plants in the U.S. • Existing controls: • Almost all units have particulate matter (PM) control devices • About one-third of capacity has sulfur dioxide (SO2) scrubbers • Most have initial nitrogen oxides (NOx) controls (low-NOx burners) • About one-third of the capacity (primarily in the east) will have advanced NOx control (SCR) when NOx SIP-call is fully implemented • Future controls: • About two-thirds of the capacity (primarily in the east) will have SO2 scrubbers when CAIR is fully implemented • About one-half of the capacity (primarily in the east) will have advanced NOx control (SCR) when CAIR is fully implemented • • Affected facilities: • –About 1,300 coal-fired • generation units (~ 500 coal-fired • power plants), representing about • 305 GW of generation capacity

11. Key Elements of CAMR • CAMR establishes “standards of performance” limiting mercury emissions from new and existing coal-fired power plants and creates a market-based cap-and-trade program that will reduce nationwide utility emissions of mercury in two distinct phases. • The first phase cap is 38 tons and emissions will be reduced by taking advantage of “co-benefit” reductions – that is, mercury reductions achieved by reducing sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions under CAIR – the new Base Case. • In the second phase, due in 2018, coal-fired power plants will be subject to a second cap, which will reduce emissions to 15 tons upon full implementation. • New coal-fired power plants (“new” means construction starting on or after January 30, 2004) will have to meet new source performance standards in addition to being subject to the caps. • CAMR sets an emission reduction requirement for each State and Indian country, by distributing the national emissions cap among the States and Indian country. • Provides an optional cap-and-trade program based on successful Acid Rain and NOx Budget Trading programs as a method to implement the necessary reductions. • Allows States flexibility on how to achieve the required reductions, including whether to join the trading program.

12. New Source Requirements • New coal-fired power units (Subpart Da electric utility steam generating units) constructed after January 30, 2004 will have to meet new source performance standards in addition to being subject to the caps. • Because new sources are included in the cap, new sources will also need to hold allowances equal to their emissions. • Compliance with the NSPS is determined on a 12-month rolling average basis, using data from a CEMS or sorbent trap monitoring system. • Performance Specification 12-A (certification procedure for the mercury CEMS required under Subpart Da) was also promulgated as part of the CAMR rule package. New Source NSPS Limits:

13. Projected 2020 Mercury Emissions for Power Plants Under CAMR CAMR New Base Case: CAIR Original Base Case 5.5 tons on PA in Original Base Case Scale: 5.5 tons in Pennsylvania under CAIR

14. Current and Projected Coal Production for the Power Sector with CAMR National Coal Production for the Power Sector: Continued Growth with CAMR Appalachia 2000 2003 2010 2015 2020 West 2000 2003 2010 2020 2015 2000 Interior 2003 2010 2015 2020 Scale: Appalachia 2000 = 299 million tons By 2020, nationwide coal production is projected to increase by 20%, with growth occurring in all major supply regions. Notes: Coal production for the power sector. These data are from the Final CAMR Regulatory Impact Analysis.

15. CAIR and CAMR Implementation Timeline CAIR Phase I: CAIR NOx Programs (ozone-season and annual) (09) Early reductions for CAIR NOx ozone-season program and CAIR SO2 program begin immediately because NOx SIP Call and title IV allowances can be banked into CAIR CSP Early Emission Reduction Period (annual CAIR NOx program) (07 and 08) FIP (June 06) SIPs due (Sep 06) Phase II: CAIR NOx and SO2 Programs Begin (15) Phase I: CAIR SO2 Program (10) CAIR Rule signed 08 05 06 07 09 10 11 12 13 14 15 16 17 18 CAMR Rule signed Phase II: Hg Program (18) SPs Due (Nov 06) Regional Haze SIPs Due (Dec 07) Phase I: Hg Program (10) CAVR States develop SPs (18 months) CAMR Note: Dotted lines indicate a range of time.

16. CAIR Model Rules • EPA has designed 3 model rules that States may choose to use to implement the mandated CAIR reductions • States can participate in one or more of the EPA-administered cap and trade programs • States that wish to participate in the EPA-administered cap and trade programs must use the model rules, with a few exceptions. These exceptions include: • Allocation of CAIR NOx allowances. • Choice to include the model rule individual unit opt-in provision. • Option to include existing NOx SIP Call trading units in ozone season program • The model rules parallel the existing NOx SIP Call model trading rule structure and are designed to work with the Acid Rain program

17. General Overview of the Model Rule Requirements • Require Part 75 monitoring for all sources for SO2 and NOx emissions • Part 75 was not modified in this rulemaking. All current monitoring options and procedures continue to apply as in the NOx SIP Call and Acid Rain Programs • Allowances cannot be traded between annual and ozone season NOx programs and there is no interpollutant trading • Allowance transfers, allowance holdings, permitting procedures, etc. are like the NOx SIP Call

18. CAIR SO2 Program and the Acid Rain Program Rule Changes • Effective 7/1/2006 • Many changes throughout rule to allow source-level compliance and eliminate unit accounts • Certification language (for submissions) aligned with CAIR • Eliminates requirement for compliance certification report • Eliminates newspaper notice requirements for DR/ADR selection

19. Summary of Use of Model Rules • Unique aspects • For CAIR SO2 program, Title IV SO2 allowance retirement ratios. • For all programs, Early Emission Reduction Incentives are provided by unique mechanisms. • Flexibility • For CAIR ozone season NOx Program, States may include NOx SIP Call trading sources. • For both CAIR NOx programs, States may develop their own approach to allocate NOx emission allowances or use the example approach of the model rule • For any program, States may include the opt-in provisions in the model rules

20. Reconsideration of Rules: • CAMR • Federal Plans: • Final CAIR FIP • Developing CAMR Proposal • NJ and DE recently added to CAIR for Fine Particles • Active State Program Development and Review: • CAIR • CAMR • Ozone and Fine Particle NAAQS • Litigation Underway • Interest Remains in Clear Skies Legislation… Implementation Picture Today

21. Handy References • May 12, 2005 Federal Register -- Final CAIR rule • May 18, 2005 Federal Register -- Final CAMR rule • April 28, 2006 Federal Register -- Final CAIR Federal Implementation plan • State rules

22. Helpful Links Clean Air Interstate Rule www.epa.gov/cair Clean Air Mercury Rule www.epa.gov/camr Also, CAIR and CAMR Implementation www.epa.gov/airmarkets