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 OZONE NON-ATTAINMENT AND THE PROBLEM OF LONG-RANGE TRANSPORT

by

Robert J. Yarbrough, Esquire

Introduction

 Ozone is a pollutant formed by the reaction in the atmosphere of volatile organic compounds (“VOCs”) and oxides of nitrogen (“NOx”).  Ozone is highly unstable and has the tendency to react with whatever material it comes in contact, such as lung tissue.  Ozone is not emitted or controlled itself.  The control of ozone pollution is instead accomplished by controlling the emissions of VOCs and NOx.  VOCs are emitted primarily from solvents and fuels.  Combustion processes emit NOx, most notably the electric power generation industry and vehicles. 

 Ozone is a long distance pollutant.  Ozone precursors emitted in one location can affect the ambient air quality hundreds of miles away.  EPA estimates that 65% of Pennsylvania’s ozone nonattainment problem is caused by imported pollution.[1] 

 Ozone has been the subject of air pollution limitations at least since the Clean Air Act first saw the light of day in 1970.[2]  Large portions of the country, primarily urban areas, were identified as having unhealthy concentrations of ozone in the air.  The problem of ozone attainment proved to be one of the most difficult in the environmental field.  By 1990 and despite considerable effort and a substantial reduction in VOC emissions, many areas remained in non-attainment for ozone.  The most intractable problem areas were, and are, those of the urban eastern states.

 Congress addressed the problem of regional ozone non-attainment in the Clean Air Act Amendments of 1990 (“CAA”).  Although the changes of the 1990 Amendments were legion, of immediate interest was the creation the Ozone Transport Region by CAA § 184.  The Ozone Transport Region comprised 11 states in the Northeast, including Pennsylvania, and the Washington, D.C., metropolitan area.  Among other things, the Ozone Transport Region states were required to participate in cooperatively planning for ozone attainment.  That cooperation took the form of the Ozone Transport Commission (“OTC”), an organization including as members EPA and the states of the Ozone Transport Region.

Ozone Transport Commission

 The OTC concluded in 1992 that control of NOx emissions from regional power plants and large industrial combustion sources would be necessary to achieve ozone attainment.  In 1994 all of the Ozone Transport Region states (except Virginia) entered into an agreement setting forth the outline of a control strategy.

 The affected states, including Pennsylvania, agreed that NOx emissions from all large industrial sources of more than 250 mmBTU/hr heat input and all electrical generating units of more than 15 MW capacity would be restricted.

 The OTC concluded that emissions trading was more cost effective than the traditional emissions limitations.  The OTC agreed upon a region-wide cap on emissions from the affected sources, with each state allocated a share of the emissions.  The states would then allocate NOx allowances to the sources.  Each source would be required to hold allowances to cover its total emissions for the May-September ozone season.  Sources could freely trade allowances.  If a source did not hold adequate allowances to cover its actual emissions, the source could acquire the allowances from others. 

 The trading program was intended to encourage over-control of those sources that can achieve the greatest emission reductions most economically and thereby create valuable emissions allowances.  In theory, the overall costs of emissions reductions would be reduced.

 Pennsylvania adopted regulations at 25 Pa. Code §§ 123.101-123.120 to implement the OTC cap-and-trade program effective November 1, 1997.  Over 300 Pennsylvania sources are provided allowances by the regulation.  Beginning on May 1, 1999 each source in Pennsylvania to which the program applies must have one ton of NOx allowance for every ton of NOx emitted.  If the source fails to do so, the source is subject to traditional enforcement and, in addition, will lose 3 tons of NOx from its future allocations for every ton of shortfall.

 The emissions trading portion of the Pennsylvania program has been actively used.  In its first fifteen months of operation, eighteen trades of NOx allowances were recorded concerning Pennsylvania facilities.  Most of the transfers thus far have been to brokers.

The OTC and Long Range Transport

 There were issues that the OTC was unable to tackle.  Chief among those was the problem of interstate transport of ozone and its precursors from outside of the Ozone Transport Region.  The issue was simply beyond the geographical reach of the OTC member states.

 The inability of OTC to address long range transport was given urgency by the decision of the Federal Energy Regulatory Commission to deregulate the electric power industry. Deregulation of electric power meant that power sold in Pennsylvania would not necessarily be produced by protected local power generators subject to Pennsylvania air pollution requirements, but could instead be produced by producers with the lowest cost as set by the market.  Low-cost power producers exist primarily in the Midwest and are outside of the Ozone Transport Region.  The low-cost producers will not be subject to the OTC cap-and-trade requirements and may not be subject to existing control requirements for NOx.[3]

 Deregulation and the long-range transport phenomenon created an unlikely alliance: the eastern environmental regulators and the eastern electrical utility industry.  The eastern environmental regulators were concerned that deregulation would move the source of a local problem outside of local jurisdiction.  The eastern utility industry was concerned that deregulation coupled with unequal control requirements would put them out of business.

Ozone Transport Assessment Group

 To address the issue of long-range transport, EPA conceived of a grand strategy similar to the OTC process.  EPA Air and Radiation chief Mary Nichols set forth the strategy in a March 2, 1995 memorandum.  In her vision, EPA and a consortium of the affected states would work cooperatively to identify the problems posed by long range transport and to achieve a solution.  Mary Nichols set a two-year deadline for reaching resolution, ending with calendar year 1997.  She indicated that if resolution was not reached in that period of time, EPA would resort to CAA §§ 126 or 110 to force the issue.

 Thus was born the Ozone Transport Assessment Group (“OTAG”), a group including EPA and 37 eastern states.  OTAG held its first meeting on May 18, 1995 and submitted its final report on June 19, 1997.  Through its brief existence, OTAG followed generally Mary Nichols’ vision.  OTAG conducted extensive modeling and concluded that long-range transport of ozone and its constituents from the Midwest to the East precluded eastern states from achieving attainment of the ozone ambient air quality standards.  OTAG further concluded that reducing NOx emissions in the Midwest would decrease ozone concentrations in the East. 

 OTAG was not able to reach consensus on the best way to resolve the problem, however. 

Proposed SIP Call

 True to Mary Nichol’s plan, EPA stepped in with a proposed SIP call published at 62 Fed. Reg. 60319 (November 7, 1997), and supplemented at 63 Fed. Reg. 25902 (May 11, 1998).  EPA proposed to find that upwind sources of NOx contribute significantly to downwind non-compliance with ozone ambient air quality standards, thereby triggering the upwind state’s duty to amend each state’s implementation plan to address the NOx emissions.  EPA also proposed that the form of the SIP revisions be a cap-and-trade budget program, following the OTC model.

Revised NOx NAAQS

 In the meantime, EPA moved the playing field.  EPA revised the National Ambient Air Quality Standard (“NAAQS”) for ozone on July 18, 1997 at 62 Fed. Reg. 38856.  EPA changed the ozone standard from 1.20 ppm over one hour to .8 ppm over eight hours.[4]  EPA and its critics project that many more areas will be non-attainment under the new standard than under the old.

 The new standard is not immediately effective and will not have practical effect until EPA designates non-attainment areas, which will not occur until 2000. The old one-hour standard continues to be effective in non-attainment areas.

Section 126 Petitions

 Not to be outdone, and consistent with Mary Nichol’s March, 1995 strategy, Pennsylvania and seven other northeastern states filed petitions with EPA under CAA § 126(b) in August of 1996.  The petitions demanded that EPA regulate NOx from upwind states.  Pennsylvania and the seven other northeastern states followed the petition with a civil action to compel action on the petitions, State of Connecticut v Browner, No. 98-1376 (S.D.N.Y., filed February 25, 1998).  Not surprisingly, the civil action was settled with EPA agreeing to act.  On October 21, 1998 at 63 Fed. Reg. 56292 EPA proposed to find that the petitions are meritorious, but also proposed to defer concrete action on the petitions.

Final SIP Call

 The SIP call was finalized on October 27, 1998 at 63 Fed. Reg. 57356.  The SIP call applies to 22 states and the District of Columbia and encompasses most of the eastern United States.  The SIP call follows closely the OTC blueprint, with a few significant changes.  Pennsylvania is subject to the SIP call, and changes to the Pennsylvania program will be required as a result of the SIP call.

 Like the OTC agreement and the Pennsylvania program, the SIP call applies a budget-and-trade program for NOx emissions, and eschews specific emissions limitations.  Unlike the OTC and Pennsylvania programs, the SIP call does not require state programs to apply to small electrical generating units of between 15 and 25 MW. 

 The SIP call requires the affected states, including Pennsylvania, to submit SIP revisions by September 30, 1999.  The SIP call limits emissions after May 1, 2003.  The Pennsylvania budgets in place address only emissions from 1999 through 2002, in line with OTC criteria.

 EPA arrived at the budget amount by projected forward to the year 2007 emissions from all possible NOx sources, including automobiles and small combustion sources, and taking into account all reductions from current regulatory programs.  EPA then calculated the reduced emissions that would occur based on the application of emissions of .15 lb. NOx/mmBTu to power plants and large industrial sources.  EPA chose the value of .15 lb. NOx/mmBTu as being “highly cost effective.”  EPA did not conclude that the resulting budget would allow states to meet the ozone ambient air quality standards.

 EPA’s budget process differed from that of the OTC in that the OTC based its budget calculations on actual emissions from a limited number of discrete sources during 1990 and not upon future emissions projections.  EPA’s budget also differs from the OTC budget in that it represents an absolute cap on all NOx emissions from whatever source.  Although not discussed by EPA in the rulemaking, the overall emission cap eventually will restrict regional growth due to the shortage of NOx allowances.

Proposed Federal Implementation Plans

 EPA recognized that the SIP call would meet with resistance from some states.  As a result, EPA proposed at 63 Fed. Reg. 56394 (October 21, 1998) to implement a Federal Implementation Plan (“FIP”) for any state that misses the September 30, 1999, SIP submission deadline.  EPA’s no-nonsense approach guarantees that sources in states that refuse to implement the SIP call will be subject to regulation on a time schedule similar to that of states that comply with the SIP call.

 Challenges to the SIP Call

 Approximately thirty challenges to the SIP call have been consolidated in State of Michigan v. U.S. EPA, Docket No. 98-1497 in the U.S. Court of Appeals for the District of Columbia Circuit.  Many petitioners and numerous intervenors are participating in the action, including several midwestern and eastern states.  As of this writing (March 1999) the court has not set a briefing schedule.  A decision is expected in late 1999 or early 2000.

 A group of midwestern utilities presented the arguments against the SIP call during the rulemaking process.   The utilities conceded that transport of ozone and its precursors exists, particularly in the Pittsburgh area.  The utilities argue that the SIP call is arbitrary and unreasonable because EPA’s goals could be achieved by reducing emissions of a few specific facilities, rather than by enacting a sweeping NOx budget program for the eastern half of the country.  The utilities argue that the § 126 petitions and EPA’s response represent regional economic warfare and protectionism, not an effort to clean the air.

 EPA argues that the SIP call addresses not only the 1-hour ozone standard, but also the new and more stringent 8-hour standard.  EPA indicates that compliance with the SIP call, without more, will achieve compliance with the new NAAQS for many areas that will become nonattainment under the new 8-hour standard, including many areas in the Midwest.

 The utilities respond that EPA will not designate any areas as nonattainment under the 8-hour standard until the year 2000.  The utilities argue that the SIP call is premature because the states have the first crack at meeting the requirements of the new NAAQS in their SIPs, and will not be required to do so until after the nonattainment designations.

 The utilities make the legal argument that the SIP call is improper interference with state administration of implementation plans under CAA § 110. The utilities point to the case of Commonwealth of Virginia v EPA, 108 F.3rd 1397 (D.C. Cir. 1997) in support.  In Commonwealth of Virginia, the court struck down an EPA regulation that required eastern states to implement the California automobile emissions limitations.  The court held that each state, not EPA, has the power to determine how the state will achieve the CAA goals.  EPA distinguishes Commonwealth of Virginia as not addressing interstate transportation issues (and hence a different part of CAA § 110).  EPA responds that the budget of the SIP call merely provides the goal that the states must meet.  How the state achieves the goal is up to the state.

 The environmentalist side criticizes the SIP call as impermissibly factoring cost of control into the equation to determine how much reduction will be required.  EPA claims to have the power to consider cost from its interpretation of CAA §110(a)(2)(D), which requires that SIPs prohibit emissions which “contribute significantly” to downwind non-attainment.  EPA interprets the term “contribute significantly” to include the costs of reducing the emissions.  As stated by EPA in the SIP call:

 EPA concludes that the amount of NOx emissions from those States that can be eliminated through application of highly cost-effective control measures contributes significantly to nonattainment or maintenance problems downwind… Because no highly cost-effective controls are available to eliminate the remaining amounts of NOx emissions, EPA concludes that those emissions do not contribute significantly to nonattainment or maintenance problems.[5] 

 EPA’s position appears to be a non sequitur; however, there is undeniable pragmatism in its reasoning. 

Effect on the Acid Rain Program

 NOx emissions from power plants are subject to regulation under the Title IV acid rain provisions at CAA §407.  EPA elected not to amend the Title IV program when it issued the SIP call.  At present, the NOx requirements of Title IV will apply in addition to the SIP call NOx reduction requirements.

Effect of the SIP call in Pennsylvania

 The SIP call offers the hope of meeting the one-hour and eight-hour ozone ambient air quality standards in some areas without crushing the native Pennsylvania electric power industry.  The most positive aspect of the SIP call is what it does not do – it does not establish tailored limitations on emissions of Pennsylvania utilities to achieve compliance with the ozone standards in states downwind from Pennsylvania.  While NOx emissions present issues of long-range transport, NOx also presents even greater issues of local and short-range transport.  New York City is directly downwind from Pennsylvania.  EPA estimates that Pennsylvania contributes 18% of the imported ozone to New York.[6]  EPA could have required very stringent limitations in Pennsylvania to achieve compliance in New York and other downwind states.

 The sweep of the SIP call is more profound than the OTC-based program in that it provides an eventual overall cap on all emissions NOx emissions from all sources based on forward-looking estimates as of 2007.  Over time, the inexpensive NOx emissions reductions will be squeezed out of the system and NOx allowances will rise in price on the market.  A similar situation is now occurring concerning NOx offset credits under the New Source Review program.  The NOx cap eventually will provide incentives for low-NOx alternatives, such as natural gas combustion, or for location of facilities in areas beyond the reach of the SIP call, such as Canada.  States may be forced into regulation of small sources or adoption of California motor vehicle emission standards to meet budget requirements.

 Over the next several years, the SIP call may not level the economic playing field as much as hoped by eastern utilities or as feared by the midwestern utilities. The overall budget amounts specified in the SIP call are higher than the OTC-based budgets already in place in the East.  If a midwestern state chooses to do so, it can make a generous near-term allocation to local power generators while remaining within its overall budget.  The local power generators may then use the near-term cost advantage of high NOx limits to grab market share in the deregulated power-generation environment.

Conclusion

 One area where EPA cannot be accused of lack of ambition is in the area of ozone transport.  The success of its initiative is now up to the courts.