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What you need to know about the Cross-State Air Pollution Rule

20 July 2011

EPA finalized the Cross-State Air Pollution Rule (CSAPR) on 6 July 2011, which had been proposed 26 July 2010 as the Clean Air Transport Rule (CATR).

Who does this rule affect and what are the key compliance dates?
The final rule impacts all electric generating units (EGU) in 27 eastern U.S. states. Compliance with Phase-1 annual emissions cap and trade requirements (allowance retirement obligations) begins 1 January 2012 and the ozone season emissions allowance retirement obligations begin 1 May 2012. Phase-2 emissions allowance provisions (reflecting lower caps) begin 1 January 2014. The final rule replaces the Clean Air Interstate Rule (CAIR), which was remanded without vacature by the D.C. Circuit court on December 23, 2008. The main challenge to CAIR was that it allowed facilities to trade allowances across any affected state and between different programs (i.e., Title IV Acid Rain Program). CSAPR substantially narrows such trading flexibility.

Which States are affected by the Rule?
The rule targets emissions of NOx and SO2 -precursors to the atmospheric formation of PM2.5 and ozone during long-range transport. The CSAPR regulates power plants in the 27 eastern states that EPA determined may significantly affect downwind states' ability to meet PM2.5 and ozone air quality standards.

What are the different programs established under CSAPR?
CSAPR establishes four separate emissions cap and trade programs: an annual NOx trading program, an ozone-season NOx trading program, and two separate SO2 trading programs (“SO2 Group 1” and “SO2 Group 2”). “SO2 Group 1” states are subject to more stringent reductions than “SO2 Group 2” states, beginning in 2014. Previously, CAIR consisted of three programs, an annual NOx trading program, an ozone-season NOx trading program, and a single SO2 annual trading program. Even though CSAPR establishes new trading programs to replace CAIR’s programs, the Acid Rain Program (under Title IV of the CAA), and NOx Budget Trading Program (also known as the “NOx SIP Call”) remain in full effect. While each program is based on trading of NOx and/or SO2 allowances, they are not transferrable between the three programs.

What should you do now?

  • Identify and determine the financial implications of existing allocations under Acid Rain program or NOx SIP Call which will lose their value in the future.
  • Work with state agencies to influence how they plan to implement their own allocation scheme or use the federal allocation. 
  • Review pre, during and post recession calendar year’s annual and ozone-season fuel use and production levels as well as total mass emissions of NOx and SO2 emitted. Sum the mass emissions from the Company’s affected generating units state-bystate.
  • Project actual mass emissions of SO2 and NOx based on projected fuel use and production rate after implementation of EGU MACT and any projected new RACT or other requirements.
  • Identify and compare allocations for the affected units based on 2012 and 2014 allocations in the rule.
  • Develop multiple strategies for CSAPR compliance through fuel or generation switching, purchase of additional allowances, installation of additional controls, and evaluate potential revenue streams from selling surplus allowances if available.
  • Anticipate a first year spike in the cost of CSAPR allowances followed by leveling in subsequent years (as has been observed during initial implementation of all previous cap and trade programs).

Download ERM's Client Alert: What you need to know about the Cross State Air Pollution Rule (116KB PDF)

What to know about the Cross State Air Pollution Rule

Learn more about the Cross-State Air Pollution Rule (CSAPR), finalized by the EPA on 6 July 2011