Power plants in 22 states will be required to further reduce nitrogen oxides (NOx) emissions under a new regulation finalized by the Environmental Protection Agency (EPA) on September 7. The final Cross-State Air Pollution Rule (CSAPR) Update establishes new statewide emissions budgets intended to address pollution that affects the ability of downwind states to meet and maintain the 2008 ozone standard of 75 parts per billion. This is the first time that the EPA has updated an existing program to address interstate transport of air pollution under a new air quality standard. The rule takes effect in May 2017.

The rule will affect 2,875 electric generating units (EGUs) at 886 coal, gas and oil-fired power plants in 22 eastern states., including Alabama, Arkansas, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia, West Virginia and Wisconsin. In a fact sheet accompanying the rule, the EPA said that while the final rule will cost the power sector $68 million annually, those costs are outweighed by $880 million in health benefits due to lower ozone levels. The agency estimates that the CSAPR Update and other changes underway in the power sector will cut ozone season NOx emissions from power plants states by 20 percent, or 80,000 tons in 2017 as compared to 2015 levels.

The Clean Air Act’s “good neighbor” provision requires states to address the transport of air pollution across stateliness that affects the ability of any downwind states to meet and maintain clean air standards. States typically comply with this provision by submitting to EPA state implementation plans (SIPs) that address cross-state air pollution. However, the EPA concluded that the 22 states failed to submit SIPs that adequately address cross-state pollution. As a result, the new rule imposes federal implementation plans (FIPs) setting specific emissions budgets for each of the 22 states. The FIPs imposed by the final rule will require affected EGUs in each state to reduce emissions to comply with program requirements beginning with the 2017 ozone season (May 1 through September 30).

To establish the emissions budgets in the FIPs, the agency said it focused on NOx reductions that can be made quickly using existing control technologies. The rule does not require that any particular facility make specific reductions or use certain control technology. The rule does provide some flexibility in achieving compliance by allowing utilities to use some banked allowances from the 2015 and 2016 emissions budgets under the original cross-state rule to fulfill their obligations under the updated rule. The EPA said it will allow about 99,700 allowances to be converted from the original CSAPR ozone-season trading program to the CSAPR update trading program.

What this means to you

Although the original CSAPR, finalized in 2011, was the subject of protracted legal challenges, it was ultimately upheld in 2014 by the U.S. Supreme Court in EPA v. EME Homer City Generation, LP. Given that the new rule is built on the same 4-step framework as the original CSAPR, which aimed to address interstate transport under the 1997 ozone standard, it is likely that the new rule would be upheld if challenged.

However, in its 2014 decision, the Supreme Court also held that the EPA does not have the authority to require states to achieve reductions beyond what would bring affected downwind states into compliance with national air standards. That opened the door to “as-applied” challenges from states, several of which successfully challenged the original CSAPR in a 2015 remand decision by the U.S. Court of Appeals for the District of Columbia Circuit. That court held that the original CSAPR rule impermissibly over-controlled ozone and sulphur dioxide emissions in 13 states.

It is possible that states or utilities could challenge the new rule by arguing that the rule requires more emissions cuts than necessary to ensure compliance with air quality standards in downwind states. Such a challenge would be a long-shot given that EPA has expressly sought to address the D.C. Circuit remand in the new rule and emphasized that most reductions required by the rule can be made by using existing controls. That won’t come as much relief to the affected EGUs and states, some of which will be concerned by the potential impacts of the required reductions and tighter budgets than initially proposed by the EPA. For example, states such as Michigan, Kansas and Indiana, saw their emissions budgets set at more stringent levels than the EPA originally proposed, although other states have higher emissions budgets than originally proposed.

The rule also makes clear that the update is intended to help downwind states meet the 75-parts-per-billion air quality standard for ozone set in 2008, not the more stringent 70 ppb standard put in place last year. That should come as at least some good news for industry in the affected states.