On July 6, 2010, the U.S. Environmental Protection Agency (“EPA”) proposed its long-expected rule replacing the Clean Air Interstate Rule (“CAIR”).  The CAIR rule established a cap-and-trade program to reduce sulfur dioxide (“SO2”) and nitrogen oxide (“NOx”) emissions from power plants for electric generation units (“EGUs”) in a 28-state region in the East.  CAIR, however, was overturned in court (see January 9, 2009 issue of the WER).

The proposed new rule, known as the Transport Rule, would require 31 states and the District of Columbia to reduce power plant emissions of either SO2 or NOx or both.  As with CAIR, the purpose of the program is to address the contribution of upwind states to downwind nonattainment of EPA’s ozone and PM2.5 standards.  The reductions required under the proposed Transport Rule are more stringent than those under CAIR principally because phase two of the CAIR program began in 2015 whereas phase two of the proposed Transport Rule begins in 2014.  In addition, although CAIR provided for a regional cap-and-trade program, the proposed Transport Rule provides only for intrastate trading and limited interstate trading.

Under the proposed rule, SO2 reductions would take place in two phases and would be divided among two groups of states.  Phase one would apply to all 26 states subject to SO2 standards under the rule.  In phase two, 10 states would become subject to significantly more stringent requirements in 2014.

For NOx, all of the affected states would become subject to both annual and seasonal reduction requirements, and these requirements would become applicable in 2012 and would not change in 2014.  EPA, however, stated that it was still studying whether additional NOx reductions would be required from the EGU sector in 2014 and would have a proposal on that subject in the relatively near future.

Significantly, the proposed Transport Rule addresses compliance with EPA’s 1997 ozone standard and EPA’s annual PM2.5 standard established in 1997 and its 24-hour PM2.5 standard promulgated in 2006.  EPA, however, has already proposed more stringent ozone standards that it expects to finalize this year, and is working on new PM2.5 standards that are likely to be more stringent than the PM2.5 standards addressed in the proposed Transport Rule.  EPA states that it will propose a new transport rule that addresses the new ozone standards in 2011 and finalize it in 2012, and will also propose a new transport rule that addresses the new PM2.5 standards after those standards are finalized.

EPA is proposing one approach under the Transport Rule, but is also taking comment on two alternatives.  In EPA’s preferred approach, EPA is proposing to set a pollution limit for each of the 31 states and the District of Columbia, allowing limited interstate trading among power plants.   In the first alternative, EPA is proposing to set a pollution limit for each state, allowing only intrastate trading among power plants.  In the second alternative, EPA is proposing to set a pollution limit for each state and to specify the allowable emission limit for each power plant.

EPA will take public comment on the proposed rule for 60 days following its publication in the Federal Register.  A full copy of the proposed rule is available here.