Clear Skies and Other Multi-Pollutant Bills Sam Napolitano Clean Air Markets Division Presentation to Westar Business Meeting September 18, 2003 Outlook for the West

Smog and fine particles associated with lung and heart effects, including: –Premature death –Bronchitis –Asthma attacks Despite Progress, Air Quality Problems Persist Regional Haze Air Toxics, Especially Mercury Deposition Acid Rain and Nitrogen Deposition

Power Plants Are Significant Contributors to These Public Health and Environmental Challenges Sulfur Dioxide Nitrogen Oxides * Other stationary combustion includes residential and commercial sources. Mercury Electric Power (63%) Electric Power (22%) Electric Power (37%) Transportation Miscellaneous Electric power Other stationary combustion * Industrial Processing

Current Clean Air Act Requirements for Power Sector Phase II Acid Rain Compliance Mercury Determination Proposed Utility MACT New Fine PM NAAQS Implementation Plans Designate Areas for Fine PM NAAQS Ozone Acid Rain, PM 2.5, Haze, Toxics 1-hr Severe Area Attainment Date Compliance for BART Sources NSR Permits for new sources & modifications that increase emissions OTC NO x Trading 1-hr Serious Area Attainment Date NO x SIPs Due Designate areas for 8-hr Ozone NAAQS NO x SIP Call Red- uc- tions Final Utility MACT Compliance with Utility MACT Assess Effectiveness of Regional Ozone Strategies Regional Haze SIPs due Latest attainment date for Fine PM NAAQS 3 Compliance for BART sources under the Trading Program Second Regional Haze SIPs due Marg- inal 8-hr Ozone NAAQS Attain- ment Date Possible Regional NO x Reductions ? (SIP call II) 1 Interstate Transport Rule to Address SO 2 / NO x Emissions for Fine PM NAAQS and Regional Haze Note: Dotted lines indicate a range of possible dates. 1 Further action on ozone would be considered based on the 2007 assessment. 2 The SIP-submittal and attainment dates are keyed off the date of designation; for example, if PM or ozone are designated in 2004, the first attainment date is 2009 EPA is required to update the new source performance standards (NSPS) for boilers and turbines every 8 years Serious 8-hr Ozone NAAQS attainment Date Moderate 8-hr Ozone NAAQS Attainment Date 8-hr Ozone Attain- ment Demon- stration SIPs due In developing the timeline of current CAA requirements, it was necessary for EPA to make assumptions about rulemakings that have not been completed or, in some case, not even started. EPA’s rulemakings will be conducted through the usual notice-and-comment process, and the conclusions may vary from these assumptions. Further progress under the Clean Air Act is complex, burdensome and uncertain

Air quality has improved, but our best science says health and environmental problems persist. Current path to improved air quality is complex. Multi-Pollutant approach addresses power industry pollution with a proven approach – emissions cap and trade: –Simpler and more certain -- for regulators, industry, and citizens. –More flexible and cost effective -- allows for strategic planning of capital (i.e., avoided stranded investment) and cobenefits from control technologies (i.e., mercury removal). –Greater environmental improvement sooner via faster emission reductions than under current CAA regulations. For good reasons, Clear Skies remains one of the highest environmental priorities of the President. Why Multi-Pollutant Legislation?

Many Issues Addressed Along the Way Program Elements –What to Control –Timing –Level –Type of Control Program Objectives –Air Quality Improvement Attainment Public Health Environment –Reasonable Impacts Production Cost Fuel Use –Effective Implementation Installation Pace Technology Improvement What Can Pass? Aim: To Strike the Right Balance…

Why Is Multi-Pollutant Legislation Important to the West? The West Will Continue to Grow... Population is projected to grow more than 20% from current levels by 2020 Electricity demand is expected to grow more than the national average More than 10% over national average in the Pacific States More than 30% over national average in the Mountain States...While the Environment Is Protected Legislation would protect air quality by lowering or halting increases in air emissions throughout the West from today’s levels: –Prevent degradation of visibility in parks. –Help counties remain in attainment with health-based air quality standards, reducing the burden on state and local governments. –Ensure nitrogen deposition does not increase and reduce mercury deposition.

69%15 (2018) 26 (2010 ) 48Mercury (tons) 67%1.7 million (2018) 2.1 million (2008 ) 5 million NO x (tons) 73%3 million (2018) 4.5 million (2010) 11 millionSO 2 (tons) Reductions at Full Implementation Phase 2 CapPhase 1 Cap Current Emissions Clear Skies’ Caps and Timing

Recognition of Western Programs and Concerns Clear Skies Act (CSA) supports and codifies the Western SO 2 emission target established by the Western Regional Air Partnership (WRAP). Clear Skies creates two trading zones for NOx : –States in Zone 1 have ozone/PM 2.5 non- attainment issues or contribute to other States’ problems. –Zone 2 includes: WRAP States: AZ, CA, CO, ID, MT, NM, ND, OR, SD, UT, WA, WY. NV,OK, KS, and NE Western portion of TX Zone 1Zone 2 WRAP States included in SO 2 Emissions Target

SO 2 Emissions Reductions under Clear Skies in 2020 Note: The base case in IPM includes Title IV, the NOx SIP Call, NSR settlements, and state-specific caps in CT, MA, MO, NC, NH, TX, and WI. It does not include mercury MACT in 2007 or any other potential future regulations to implement the current Clean Air Act. Base case emissions in 2020 will likely be lower due to state and federal regulatory actions that have not yet been promulgated. Emissions projected for new units in 2020 are not reflected.

NO x Emissions Reductions under Clear Skies in 2020 Note: The base case in IPM includes Title IV, the NOx SIP Call, NSR settlements, and state-specific caps in CT, MA, MO, NC, NH, TX, and WI. It does not include mercury MACT in 2007 or any other potential future regulations to implement the current Clean Air Act. Base case emissions in 2020 will likely be lower due to state and federal regulatory actions that have not yet been promulgated. Emissions projected for new units in 2020 are not reflected.

Western Impacts of Clear Skies* Costs & Other Impacts –Annual cost of $1.2 billion –Electricity price increases of: Rocky Mountain, Pacific NW and TX: 1% CA:.4% OK and KS: 2.1% Northern Tier and Plains States: 3.5% –Two coal-fired units at different plants may close –Coal production at 2000 levels with new mix in the West –Small natural gas impacts Benefits –Quantifiable benefits of about $9.5 billion ($8.6 billion for health) –Additional unquantified health & environmental benefits –Flexibility and certainty –Fuel diversity preserved –Room for growth *Includes states in Clear Skies Zone 2 for NO x :-- ND, SD, NE, KS, OK, TX, MT, WY, CO, NM, AZ, NV, UT, ID, WA, OR, and CA At-A-Glance

National Picture: CSA Controls and their Economic Impact Shift Occurs in Coal Production Small Changes in Generation Mix Coal- Fired Capacity with ACTss Ssmall (GW) Coal- Fire Capacity with Scrubbers Increases (GW) Coal- Fire Capacity with SCR Increases (GW) Annual Costs Gradually Rise National Electricity Price Increases Modestly Natural Gas & Coal Prices Do Not Change Much

National Picture: Air Quality, Health, & Environmental Gains Remaining Counties Likely to Exceed the Annual Fine Particle Standard with Clear Skies in Benefits that EPA Can Value in Dollars: Health benefits are approximately $110 billion annually. An alternative estimate is $21 billion. Each year, there are: 14,100 fewer premature deaths; An alternative estimate: 8,400 fewer premature deaths. 8,800 fewer cases of chronic bronchitis; 23,000 fewer non-fatal heart attacks; 30,000 fewer hospitalizations/emergency room visits for cardiovascular & respiratory symptoms; includes 15,000 fewer hospital and emergency room visits for asthma million fewer days with respiratory illnesses and symptoms, includes work loss days (1.6 million), restricted activity days (10.3 million), and school absences (200,000). Includes hundreds of thousands fewer respiratory symptoms and 180,000 fewer asthma attacks. Annual visibility benefits of $3 billion in selected Natl Parks and Wilderness areas. Significant decreases in fine particles and ozone occur before the existing Clean Air Act can provide them. Many benefits are not valued in dollars, but are important: -Other visibility improvements - Mercury deposition reduction - Sulfur deposition reduction - Nitrogen deposition reduction - Other health improvements Counties likely to Exceed the Annual Ozone standard with Clear Skies in 2020 Visibility Improves Sulfur Deposition Drops Nitrogen Deposition DropsMercury Deposition Drops

Comparison of Caps and Timing: Clean Air Planning Act, Clear Skies Act, and Clean Power Act

Comparison of Other Provisions: Clear Air Planning Act, Clear Skies Act, and Clean Power Act Senator Carper Clean Air Planning Act President’s Bill Clear Skies Senator Jeffords Clean Power Act Trading Program Cap-and trade for NO x, SO 2, Hg and CO 2 Initially requires facility-specific Hg reductions. National trading of all pollutants Largely uses existing Acid Rain Program ground rules WRAP recognition No Opt-In Cap-and trade for NO x, SO 2, and Hg National trading of SO 2 and Hg; East/West Zones for NO x Refined ground rules of Acid Rain Program Safety valve Excess emission penalties WRAP recognition Opt-In for Industrial Boilers and Turbines Cap-and trade for NO x, SO 2, and CO 2 Hg MACT National NO x and Carbon Program; East/West SO 2 trading Details to be developed in rules No safety valve No WRAP recognition Special ozone “targeted” weighted trading for NO x No Opt-In Allocation & AllowancesAllocation of NO x, Hg and CO 2 on updating “output-based” based methodology of “recent” energy use SO 2 has similar approach as Acid Rain Program NO x allowances to all fossil units; Hg allowances to coal units, and CO 2 allowances to all generation units New unit set aside Initial allocations to owners of fossil units on an “input basis” - SO 2 : Existing ARP approach NO x : East/West Zones use historical fossil energy use to divide up allowances proportionately Hg: Coal only; historical coal generation weighted by differences in difficulty of pollution control Phase in a total auction of allowances over 52 years No new source set aside Allocation of most allowances to harmed groups, existing sources, renewables, biological carbon sequestration, geological sequestration, and households (via agent) Small declining share of allowances goes to “affected” sources Offset program for Carbon

Comparison of Other Provisions: Clean Air Planning, Clear Skies Act, and Clean Power Act (cont.) Senator Carper Clean Air Planning Act President’s Bill Clear Skies Act Senator Jeffords Clean Power Act Applicability Units greater than 25 MW selling power Units greater than 25 MW selling power; cogenerator selling more than one-third of capacity Units greater than 15 MW selling power Interactions with other CAA Provisions NSR/NSPS/visibility rule exemption for 20 years Hg MACT exemption NSR covers new units and boiler replacement where hourly emission rate increase occurs Grandfathering provisions that apply performance standards in 2020 to units operating before August 1971 No NSR offsets Creation of “transitional” areas for SIP Compliance Interstate transport petition decisions are not effective before 2012 Exemption from Hg MACT; evaluation of other HAPS; oil-based units address nickel emissions Narrower NSR coverage of units in trading programs BART exemption Revised NSPS Codifies NO x SIP Call and converts it to annual program in 2008 No “grandfathering” provision Hg MACT in effect in 2009; other HAPS addressed in rules by 2006 Retains NSR, NSPS NO x SIP Call, BART, and visibility requirements Add grandfathering provision applying BACT to units over 40 years old or by 2014 Other Secretary of Commerce issues air quality forecasts and warnings Mid-Course correction study; ends NAPAP Expands NAPAP; includes acid deposition study and rule to protect sensitive positions EPA has facility – specific override of trading programs to prevent impact

Graphic Comparison of Proposed Multi-Pollutant Control Levels: Sulfur Dioxide

Graphic Comparison of Proposed Multi-Pollutant Control Levels: Nitrogen Oxides

Graphic Comparison of Proposed Multi-Pollutant Control Levels: Mercury

The Opportunity before Us Enactment of the Clear Skies Act has many advantages to all stakeholders: –Immediate and long-term health and environmental benefits –Less burden on State and local governments –Lower costs for industry and consumers The 108th Congress has a unique opportunity to reduce the electric power industry’s emissions and improve the cost- effectiveness of environmental policy. The Administration is committed to working with Congress to pass the Clear Skies Act.

For Additional Information See Clear Skies Website