A regulation proposed last week by the Environmental Protection Agency (EPA) may work in the favor of natural gas interests because it will require power plants to reduce emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to meet state-by-state emission reductions in 31 eastern states and the District of Columbia.

By 2014, the proposed rule and other state and EPA actions would reduce SO2 emissions by 71% and NOx emissions by 52% compared with 2005 levels, regulators said.

Some analysts said last week EPA’s rewriting of CAIR and other environmental regulations could have a substantial impact on power generators — both regulated and nonregulated — leading to the shutdown of thousands of megawatts of capacity (see related story).

“We’re working to limit pollution at its source, rather than waiting for it to move across the country,” said EPA Administrator Lisa P. Jackson. “The reductions we’re proposing will save billions in health costs, help increase American educational and economic productivity, and — most importantly — save lives.”

The proposed rule, which uses the “good neighbor” provision of the Clean Air Act to reduce interstate transport — the upwind state emissions that contribute to air quality problems in downwind states — “sets in place a new approach that can and will be applied again as further pollution reductions are needed to help areas meet air quality health standards,” according to EPA.

EPA’s preferred approach would allow intrastate trading and limited interstate trading among power plants. An alternative proposal would only allow intrastate trading. A second alternative specifies the allowable emission limit for each power plant and would allow some averaging of emission rates.

The first phase of implementation would begin in 2012. By 2014 the cost of compliance would be an estimated $2.8 billion annually. EPA said that cost would be more than outweighed by $120 billion in annual health benefits resulting from cleaner air. The emission reductions are to be accomplished “by proven and readily available pollution control technologies already in place at many power plants across the country.”

The proposal would replace the 2005 Clean Air Interstate Rule (CAIR), which was to permanently cap emissions of SO2 and NOx in the eastern United States (see NGI, March 14, 2005).

With goals of reducing SO2 emissions in 28 eastern states and the District of Columbia by more than 70% and NOx emissions by more than 60% from 2003 levels, CAIR was to bring about the largest reduction in air pollution since the reductions set by the Acid Rain Program under the Clean Air Act Amendments of 1990. However, in late 2008 a federal court ordered EPA to revise CAIR.

EPA will take public comment on the latest proposal and alternatives for 60 days after the rule is published in the Federal Register.

Sen. Tom Carper (D-DE), who along with Sen. Lamar Alexander (R-TN), has sponsored legislation that would tighten limits on SO2 and NOx emissions and cut mercury emissions from coal-fired plants by 90% (S 2995), said EPA’s proposal underscores the need for Congress to address air pollution.

“There’s no doubt the new rule will help clean the air,” Carper said. “Unfortunately, for the EPA to meet previous court rulings, the regulation is complicated and open to further lawsuits, which would likely cause even more delays in meeting our public health targets…to me, the path forward is clear — Congress must pass legislation to address the serious threat posed by air pollution this year.”

The announcement comes two months after EPA proposed the nation’s first-ever regulations to manage coal ash from coal-fired power plants. EPA is also expected to rewrite the Clean Air Mercury Rule, possibly broadening it to include hydrochloric and hydrofluoric acids as well as heavy metals.

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