RESEARCH
North America
Environmental Markets| Emissions
September 21, 2016
Policy Brief
EPA Updates Cross-State Air
Pollution Rule to Comply with
Stricter 2008 Ozone Standard
Overlapping Regulations and Lawsuits on
Power Sector Emissions Raise Uncertainty
about State Plans
Author
Erin Carson
Chief Policy Strategist
Janis Kreilis
Analyst
Contact
(212) 537.4797
[email protected]
www.enerknol.com
Key Takeaways:
 The EPA has issued the Cross-State Air Pollution Rule Update
establishing ozone season NO X emission budgets for electric
generating units in 22 states that impair downwind states’
ability to meet the 2008 ozone standard
 The Update addresses a portion of the July 2015 Court remand
directing EPA to reconsider certain emissions budgets for
requiring emissions reductions beyond the amount necessary
for downwind attainment
 The new rule pertains to the 2008 National Ambient Air
Quality Standards (NAAQS) for ozone and is separate from the
2015 NAAQS, although reductions will help in the attainment
of the 2015 standard
 States and industry could challenge the rule for its
unreasonable implementation timeframe and possible overcontrol of emissions, a flaw identified in the 2014 Supreme
Court ruling that reinstated the rule
Related Research
Court Stay of Regional Haze Rule Adds
to Judicial Scrutiny of EPA Authority
RGGI Examines Tightening Emissions
Cap to Comply with Clean Power Plan
Entities Mentioned:
 Environmental Protection Agency
 U.S. Court of Appeals for the D.C. Circuit
 U.S. Supreme Court
This report is for industry information only and we make no investment recommendations whatsoever with respect to any of the companies cited, mentioned, or
discussed herein. Please refer to the end of this report for analyst certification(s) and other imp ortant disclosures.
RESEARCH | ENVIRONMENTAL MARKETS
SEPTEMBER 21, 2016
Insight for Industry – New Cross-State Air Pollution Rule Updates
Ozone Season NOX Emissions Budgets for 22 States’ EGUs to Comply
with Stricter 2008 Ozone NAAQS
On September 7, 2016, the Environmental Protection Agency (EPA) issued an
update to the Cross-State Air Pollution Rule (CSAPR Update) (Docket No. EPAHQ-OAR-2015-0500) establishing new ozone season nitrogen oxide (NO X)
emission budgets for electric generating units (EGUs) in 22 eastern states that
impair the ability of states downwind to attain and maintain the 2008 National
Ambient Air Quality Standards (NAAQS) for ozone.
New emission budgets under the CSAPR Update apply to 2,875 EGUs at 886
coal-, gas-, and oil-fueled facilities in the 22 states. They will be implemented
through the existing ozone season NOX trading program starting from the 2017
ozone season (May through September) to align with relevant attainment
dates for the 2008 NAAQS. The rule is flexible in attaining compliance by
allowing the covered entities to use approximately 99,700 banked allowances
from the 2015 and 2016 emissions budgets under the original CSAPR. States
have the option to replace federal implementation plans (FIPs) starting in 2018
by submitting approvable state implementation plans (SIPs). EPA estimates the
CSAPR Update to cost $68 million annually and provide up to $880 million in
annual benefits.
The CSAPR Update addresses a portion of the U.S. Court of Appeals for the
D.C. Circuit’s July 2015 remand directing EPA to reconsider certain CSAPR
budgets for requiring emissions reductions beyond the amount necessary for
the downwind states’ NAAQS compliance. The original CSAPR, issued in 2011,
regulates ozone and fine particle emissions of 28 upwind states for the
downwind attainment of NAAQS and was designed to meet the 1997 NAAQS.
After drawn-out litigation, the Supreme Court reinstated the rule in 2014, and
implementation began in 2015.
The CSAPR Update addresses a
portion of the U.S. Court of
Appeals for the D.C. Circuit’s
2015 remand directing EPA to
reconsider certain CSAPR
budgets for requiring emissions
reductions beyond the amount
necessary for the downwind
states’ NAAQS compliance
The EPA noted that the CSAPR Update which pertains to the 2008 ozone
standard of 75 parts per billion (ppb) is separate from the 2015 ozone NAAQS,
although reductions achieved by this final rule will help in the attainment of
the 2015 standard. The more stringent 2015 ozone NAAQS of 70 ppb was
finalized in October 2015.
States and industry groups have petitioned for judicial review of the 2015
ozone NAAQS for setting the standards that cannot be met by some areas due
to emissions coming from non-U.S. sources. However, legal challenges to the
framework of the CSAPR Update are unlikely to stand, given that the new rule
is based on the existing framework – which the Supreme Court upheld in 2014
– to identify upwind emissions that impair downwind attainment.
Nevertheless, states or industry could challenge the short implementation
timeframe and the possibility of reductions beyond the necessary amount as
the previous court decision found that over-control challenges by upwind
states would be permissible.
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Ozone is created by chemical reactions involving ozone precursors including
nitrogen oxides (NOx) and volatile organic compounds (VOCs) — emitted by
industrial facilities, electric utilities, vehicle exhaust, gasoline vapors, and
chemical solvents — in the presence of sunlight.
CSAPR Update Requires Compliance with Stricter 2008 Ozone NAAQS
The CSAPR Update addresses the interstate spread of ozone pollution to help
downwind states meet the 2008 NAAQS. Mainly, the rule adopts FIPs for 22
eastern states, updating the NO x ozone season emission budgets for covered
EGUs in each state (Figure 1). The 2008 NAAQS is an 8-hour standard set at 75
ppb. According to EPA, NO X control strategies are effective in reducing
regional-scale ozone transport and reductions at EGUs can be effective in
reducing 8-hour peak concentrations.
Figure 1 – States Included in the CSAPR Update Rule
Source: EPA
The CSAPR update finalizes FIPs for 22 states (Figure 2): 15 states that failed to
submit complete SIPs and 7 states whose SIPs were disapproved. EPA will
allow these states to submit approvable SIPs to replace FIPs in 2018, the
second compliance year. The rule will implement emission budgets through
the existing ozone season NOX allowance trading program, which allows
covered entities to determine their own compliance path, including purchase,
sales, and banking of allowances. To align compliance with the July 2018
attainment date for the 2008 NAAQS, FIP compliance requirements will take
effect from the 2017 ozone season (May 1 through September 30) and
continue for subsequent ozone seasons.
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The rule will implement
emission budgets through the
existing ozone season NO X
allowance trading program,
which allows covered entities
to determine their own
compliance path, including
purchase, sales, and banking of
allowances
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RESEARCH | ENVIRONMENTAL MARKETS
SEPTEMBER 21, 2016
Figure 2 - Budgets and Emissions for States in the Final CSAPR Update (Ozone
Season NOX Tons)
Source: EPA
EPA noted that the CSAPR Update which pertains to the 2008 ozone NAAQS is
a distinct regulatory action independent of the 2015 ozone NAAQS, although
reductions achieved by this final rule will help in the attainment of the 2015
standard. The EPA issued the 2015 standard in October 2015 updating the 8 hour primary and secondary ozone standards to 70 ppb from the 2008 revision
of 75 ppb. EPA will designate areas for the 2015 standard in late 2017, likely
based on data from 2014-2016. Based on the intensity of their ozone problem,
areas would have until between 2020 and 2037 to meet the 2015 standards.
EPA noted that the CSAPR
Update pertains to the 2008
ozone NAAQS and is separate
from the 2015 ozone NAAQS,
although reductions achieved
by this final rule will help in the
attainment of the 2015
standard
EPA promulgated the CSAPR in July 2011 to meet the Clean Air Act’s (CAA)
“good neighbor” provision which requires EPA and states to address the
interstate spread of air pollutants that affect downwind states’ ability to attain
and maintain National Ambient Air Quality Standards (NAAQS). The CSAPR
requires state utilities — which contribute significantly to downwind states’
failure to meet NAAQS — to reduce emissions of NO X and sulfur dioxide (SO2 )
responsible for fine particulate matter (PM 2.5) pollution. Under CSAPR, which
replaced the 2005 Clean Air Interstate Rule (CAIR), states were originally
required to comply by January 1, 2012. The CSAPR regulated ozone and fine
particle emissions of 28 upwind states for the downwind attainment of NAAQS
and was designed to meet the 1997 ozone NAAQS.
In December 2011, the U.S. Court of Appeals for the District of Columbia
Circuit ordered a stay of CSAPR pending judicial review — in response to
industry and state petitions challenges — and directed EPA to continue
administering CAIR on an interim basis; in a subsequent decision on merits in
August 2012, the Appeals Court vacated CSAPR (Case No. 11-1302: EME Homer
City Generation, L.P. v. EPA). In April 2014, the Supreme Court (Docket No. 121182) reversed the decision and remanded the case to the Appeals Court for
further proceedings. In October 2014, the Appeals Court granted EPA’s motion
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(based on the Supreme Court decision) to lift the stay of CSAPR and toll its
compliance deadlines by three years. Subsequently, in November 2014, EPA
issued an interim rule delaying the CSAPR compliance deadlines setting Phase I
emissions budgets to apply in 2015 and 2016 (instead of 2012 and 2013) and
Phase II emissions budgets and assurance provisions to apply in 2017 and
beyond (instead of 2014 and beyond).
CSAPR Update Addresses 2015 Court Remand to Reconsider Emissions
Budgets Resulting in Over-Control
The CSAPR Update addresses a portion of the July 2015 Appeals Court remand
directing EPA to reconsider certain emissions budgets finding that EPA may not
require emissions reductions beyond the amount necessary to achieve
attainment in downwind state or states to which an upwind state is linked. The
Court said that “as-applied” over-control challenges by upwind states would
be permissible even if they affect the uniformity of cost thresholds, observing
that uniform cost thresholds have required emissions reductions beyond the
amount. Specifically, the Court remanded to EPA the Phase II SO 2 emissions
budgets for four states (Alabama, Georgia, South Carolina, and Texas), as well
as the Phase II ozone-season NOx budgets for 11 states (Florida, Maryland,
New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina,
Texas, Virginia, and West Virginia).
The 2015 Court remand found
that “as-applied” over-control
challenges by upwind states
would be permissible even if
they affect the uniformity of
cost thresholds, observing that
uniform cost thresholds have
required emissions reductions
beyond the amount
To address the Court remand, the CSAPR Update sets new Phase II ozone
season NOX emissions budgets in eight of these states (Maryland, New Jersey,
New York, Ohio, Pennsylvania, Texas, Virginia, and West Virginia) for the
stricter 2008 NAAQS; and removing three states (North Carolina, South
Carolina and Florida) from the ozone season NO x program, finding that they do
not affect downwind attainment of the 2008 standard. North Carolina and
South Carolina remain subject to annual NO x requirements. EPA noted that its
approach to addressing the remand of the Phase II SO2 emission budgets has
been outlined in a memorandum issued on June 27, 2016.
CSAPR Update is primarily based on ozone-season NOx emissions reductions
compared to the original CSAPR based on reductions in SO 2 and annual NOx
emissions.
One-Time Transition of Banked Allowances to Render Feasible
Implementation of CSAPR Update
To streamline the transition from the original CSAPR ozone season NO x trading
program, the final rule establishes a one-time allowance conversion to carry
over a limited number of banked 2015 and 2016 allowances for compliance in
the states impacted by the new rule in 2017 and beyond. This provision limits
the quantity of banked allowances to 1.5 years of aggregated CSAPR variability
limits – approximately 99,700 allowances – to ensure that NOx emissions
reductions are adequate to meet the CAA “good neighbor” obligations.
According to EPA, NOX
emissions reductions can be
expedited by optimizing
existing selective catalytic
reduction (SCR) controls that
can reduce NOx emissions by
up to 90 percent
According to EPA, NOX emissions reductions can be expedited by optimizing
existing selective catalytic reduction (SCR) controls that can reduce NO x
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emissions by up to 90 percent. In the 22 state-region covered under the CSAPR
Update, approximately 53 percent of coal-fired capacity and 76 percent of
natural gas combined cycle capacity have such controls.
Drawing on the achievements of previous interstate emission transport efforts
– NOx SIP Call, Clean Air Interstate Rule, and the original CSAPR – EPA expects
the new rule to result in meaningful, near-term reductions in ozone pollution
that crosses state lines. These efforts, together with regional and state NOₓ
emission control programs have reduced ozone season NO x emissions by over
75 percent since 1997. Average ozone concentrations across the U.S. dropped
by approximately 17 percent from 2000-2015. EPA projects that the new
CSAPR Update, along with ongoing changes in the power sector, will reduce
ozone season NOx emissions from the eastern U.S. EGUs by 20 percent in 2017
relative to 2015 levels.
Coinciding Regulatory Actions Targeting Power Sector Emissions
Continue to Challenge States
Coinciding regulatory actions targeting power sector emissions continue to
challenge the states’ ability to adjust their generation portfolios and energy
prices. Lawsuits and court actions have delayed the implementation of EPA
regulations as states seek prompt decisions to facilitate compliance given that
EPA requirements demand significant and irreversible changes in energy
markets and state policies.
Although efforts to comply with the Mercury and Air Toxics Standards (MATS)
have prepared EGUs for potential CSAPR impacts in its originally proposed
form, legal challenges to the CSAPR Update are likely given the recent
litigation concerning EPA’s major air regulations. In April, states and industry
groups filed a lawsuit against the 2015 NAAQS, issued in October 2015, arguing
that the EPA unlawfully set the standards at a level that some areas would be
unable to meet due to uncontrollable emissions from non-U.S. sources. More
recently, EPA’s oil and gas sector methane rule, issued in May 2016, is being
challenged, reiterating concerns over EPA overreach.
Lawsuits and court actions
have delayed the
implementation of EPA
regulations as states seek
prompt decisions to facilitate
compliance given that EPA
requirements demand
significant and irreversible
changes in energy markets and
state policies
Among recent court actions, in July, the U.S. Court of Appeals for the Fifth
Circuit granted a stay (Case: 16-60118) of EPA’s Regional Haze Rule for Texas
and Oklahoma, questioning the Agency’s ability to claim that regional rules
had national scope. Most notably, in February, the Supreme Court granted
a stay of the landmark Clean Power Plan (CPP) that seeks 32 percent CO2
emissions reductions in the power sector by 2030. In June 2015, the Supreme
Court identified a flaw in EPA’s rulemaking process for MATS, finding that the
Agency had failed to consider costs (Michigan v. EPA), remanding the
regulation to the D.C. Circuit, which ruled that EPA could continue MATS
enforcement while addressing cost requirements. While MATS compliance
period had already begun and most regulated entities had invested significant
capital for compliance, the multiple lawsuits signify the need to address
overreach.
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Many state and industry comments on the CSAPR Update proposal pointed to
the impractical timeframe citing that the 2017 implementation date leaves
states with inadequate time for planning and expressed concerns over
potential over control of emissions relative to downwind contribution. For
example, in its comments to the proposal, Mississippi pointed to the short
timeframe available to achieve the state-specific 52 percent reduction (from
12,429 tons to 5,910 tons) set in the proposal and also observed that
reduction level is disproportionate to the modeled level of impact (< 1 ppb) to
the downwind nonattainment region of Houston, Texas. Among other
comments to the proposal, the NAAQS Implementation Coalition underscored
the need to account for internationally-transported ozone and analyze
potential emissions reductions from non-EGU sources to fully quantify the
states’ contribution to downwind nonattainment.
The House and Senate have introduced several bills to address potential
overlapping implementation schedules of the 2008 and 2015 ozone standards
and facilitate efficient alignment of implementation deadlines. The Ozone
Standards Implementation Act of 2016 (H.R. 4775/ S. 2882), introduced in
2016, would delay the implementation of the 2015 NAAQS by extending the
deadlines for state submission of designations and SIPs to October 2024 and
October 2026, respectively and change the existing five-year review cycle for
NAAQS criteria pollutant to 10 years. Under the bill, EPA would not conduct
reviews or propose standards before October 2025. The bill would allow for a
secondary consideration, likely technological feasibility in establishing and
revising NAAQS. The Ozone National Ambient Air Quality Standard Deadline
Harmonization Act of 2015 (H.R. 4000), introduced in November 2015,
contains similar provisions.
Legal challenges to the core methodology of the CSAPR Update are unlikely to
stand, given that the new rule is based on the existing framework – which the
Supreme Court upheld in 2014 – to identify upwind emissions that impair
downwind attainment. However, states or industry could challenge the
potential over-control of emission as the 2014 court decision held that the EPA
may not require emissions reductions beyond the amount necessary for
NAAQS compliance by downwind states.
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Legal challenges to the core
methodology of the CSAPR
Update are unlikely to stand,
given that the new rule is
based on the existing
framework which the Supreme
Court upheld in 2014
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RESEARCH | ENVIRONMENTAL MARKETS
SEPTEMBER 21, 2016
Disclosures Section
RESEARCH RISKS
Regulatory and Legislative agendas are subject to change.
AUTHOR CERTIFICATION
By issuing this research report, Erin Carson as author of this research report, certifies that the recommendations and opinions expressed accurately reflect
her personal views discussed herein and no part of the author’s compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed in this report.
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