The Environmental Protection Agency (EPA) last week issued a controversial equipment replacement provision to the Clean Air Act’s New Source Review (NSR) permitting program, which could allow an estimated 17,000 power plants, refineries, chemical plants, pulp and paper mills and other industries to replace equipment without installing more emission controls — even if the new equipment increases pollution.

The rule, part of a group of Clean Air Act regulations that are expected to eventually be promulgated, was welcomed by energy groups and blasted by critics. Utilities and other industry had lobbied for changes to the NSR requirements because they had argued that they were convoluted and needed to be clarified. However, state environmental agencies and other environmental groups charged that the changes will allow industry to side step emissions rules when installing new equipment.

Among other things, the new rule would undermine several ongoing lawsuits that the Department of Justice (DOJ) launched during the Clinton administration. The DOJ claims that 51 power plants are in violation of the Clean Air Act because they made significant upgrades and increased their pollution without installing pollution controls. Under the new rule, those plants would not be in violation of the Act and could make their upgrades without triggering the pollution-control requirement.

Since launching its lawsuits, DOJ has obtained settlements from five of the 12 companies that operate the 51 plants, including a major case against FirstEnergy’s Ohio Edison (see Power Market Today, Aug. 8 ). The judge ruled in that case that the plant upgraded seven coal-fired power plants illegally because it did not install pollution equipment.

Within the Clean Air Act, the NSR is a pre-construction permitting program designed to require pollution control installation when new major sources of air emissions are constructed or reconstructed. The rule issued Wednesday is included within NSR’s routine maintenance, repair and replacement regulations, and if implemented, it would save industry billions of dollars a year.

Under the rule, facilities could replace a piece equipment within a “process unit” without installing pollution controls as long as the replacement cost was not above 20% of the cost defined by EPA for the entire “process unit.” For instance, if a coal-fired utility replaced a boiler whose cost was less than 20% of the cost to replace the entire process unit, the boiler, turbine, generator and associated equipment would not have to control the resulting emission increases. The rule was drafted following months of lobbying by the utility industry, which had requested “clarification” under the NSR emissions guidance.

“The changes we are making in this rule will provide industrial facilities and power plants with the regulatory certainty they need,” said Marianne Horinko, EPA’s acting administrator. “This rule will result in safer, more efficient operation of these facilities and, in the case of power plants, more reliable operations that are environmentally sound and provide more affordable energy.”

Under the Clean Air Act Amendments of 1990, an acid rain control program was established that capped emissions of SO2 from power plants. The program went into effect in 1995, and SO2 emissions from these sources have already been reduced more than 40%, according to EPA statistics.

In Wednesday’s action, the EPA finalized changes to the definition of “equipment replacement” under NSR. The changes were proposed in December 2002, and EPA followed with a comment period and five nationwide public hearings. In the end, the agency received more than 150,000 written comments and testimony from more than 450 individuals. The final rule applies only to the equipment replacement part of the proposal.

Under the rule, an equipment replacement activity will be excluded from NSR if it involves the following:

The rule allows sources to use the following approaches to determine the replacement value of a new process unit:

In addition, the final rule also:

Scott Segal, director of the Electric Reliability Coordinating Council (ERCC), said the rule is “one part of an effort to bring clarity to the New Source Review program.” He added that “despite what critics have said, this rule will reduce emissions. In any event, parts of the Clean Air Act completely unaffected by today’s action are in place to continue the trend of emissions reductions.” In the past 10 years, “emissions from the power sector have significantly declined. That trend will continue.”

Likewise, the Edison Electric Institute (EEI), which represents the nation’s electric utility companies, welcomed the rule, declaring that it would “enhance the affordability, reliability and safety of the nation’s electric supply, while also ensuring power companies’ efforts to continue improving the nation’s air quality.”

EEI’s Thomas R. Kuhn said, “We are returning to the common sense standard that has applied throughout most of the history of New Source Review. Today’s regulations will lift a major cloud of uncertainty, boosting our efforts to provide affordable, reliable electric service and cleaner air.”

Among those condemning the rule — and threatening lawsuits — were Eliot Spitzer, New York’s attorney general, as well as the Northeast States for Coordinated Air Use Management, the nonprofit association of air quality agencies of New York, New Jersey, Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. The American Lung Association also blasted the rule.

Spitzer said he would sue the Bush administration, and said the rule was “flagrantly illegal,” ensuring that Americans “will breathe dirtier air, contract more respiratory disease and suffer more environmental degradation caused by air pollution.” He asked other states to join him in the lawsuit.

“Ironically, this new rule guts the very provision of the Clean Air Act that the EPA and my office are using to obtain settlements that will reduce pollution from covered power plants by approximately 70% within a decade, and inspired state laws to reduce pollution,” said Spitzer in a statement. “Make no mistake: the Bush administration is gutting the Clean Air Act because it works, not because it does not work.”

Rep. Edward J. Markey (D-MA), a senior Democrat on the Energy and Commerce and Resources Committees, called the rule the “Bush administration’s latest assault on the Clean Air Act,” which will “rubber-stamp the utility company strategy of prolonging the life of polluting plants” without having to comply with the Act.

“Most people think routine equipment replacement is like changing the oil in your car,” said Markey, “but the electric companies continue to petition their friends in the Bush administration for an expansive and blatantly illegal loophole so that they can continue spewing deadly pollution into the air well beyond the useful life of the original plant.”

In a report last week, the General Accounting Office (GAO) recommended that once the final rule is in place, EPA needs to use actual data — rather than anecdotes — to better monitor its effect. GAO had been asked to determine the basis of EPA’s reasons to implement a revision, and among other things, GAO analysts reviewed EPA’s analysis of the rule and its impacts and reviewed guidance from EPA and the Office of Management and Budget (OMB) on the impact of the changes. GAO also met with industry and environmental stakeholders.

What GAO found in its review was that the EPA used a “limited screening analysis,” relying not on actual data but rather on its staff’s “professional judgment and public comments from earlier reform proposals” to conclude that the final rule would decrease emissions and health risks and not impose significant costs.

“EPA lacked comprehensive data on the program’s economic impacts, and could not predict how many facilities would use the rule’s optional provisions,” GAO wrote. “Several states and environmental groups disagree with EPA’s conclusions, claiming that it will enable facilities to increase their emissions.” Many have filed lawsuits against EPA challenging the rule and have petitioned the agency to reconsider it.

“We did not identify any comprehensive assessments that contradicted or supported EPA’s conclusions or the assertions of those who oppose the rule,” said GAO. However, it added that it could not verify EPA’s conclusions about what effect the final rule will have. Once in place, GAO recommended that the EPA use the monitoring results to determine whether the rule “has created adverse effects that the agency needs to address.” EPA, which was given an advance copy of the report, agreed with GAO’s conclusions and its recommendations.

To read the entire GAO report, visit www.gao.gov. Additional information and copies of the final NSR rule are available on the Web at: www.epa.gov/nsr.

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