EPA Threads the Needle with New CAIR Rule

by Victor Flatt

July 08, 2010

On Tuesday, the EPA released its long awaited rule to replace the Bush era Clean Air Interstate Rule, invalidated by the DC Circuit in 2008’s North Carolina v. EPA. There are many things that could have been different or improved, but given the EPA’s need to get a rule out quickly to replace the existing rule, they have done a good job of addressing the flaws of the earlier rule and getting something in place.

The main problem with the previous CAIR was that in allowing full interstate trading of SOx and NOx, it was in violation of the CAA requirements in Section 110, that a state’s State Implementation Plan ensure that no other state’s attainment and maintenance is violated, and Section 126, which requires the EPA and states to control individual sources that cause a violation in another state.

In the new Rule, the EPA allows full intra-state trading of the pollutants, but limits interstate trading in such a way as to ensure that no one state gets stuck with increasingly localized pollutants. This means that states do not have to worry that the trades will end up concentrating the pollution in such a way as to continue to cause their state SIPs to be violated. While we can’t be sure that this rule will be upheld, I believe that it addresses the major flaw in the earlier case. The court has previously allowed the EPA to set control requirements based on marginal cost of control, so that should not be a problem either.

The downside of the new rule? It is already outdated. The overall cap is based on the 1997 levels, and not on the stricter limit from the early 2000s or the even more strict limit on SOx proposed by the Obama administration of 75 ppb averaged over one hour. Assistant Administrator Gina McCarthy has pointed out that the EPA remains ready to change the rule as soon as the new levels are finalized, and this is really the best that can be done at this time. Waiting would mean that the current, flawed CAIR would remain in place, and this proposal is a better one than that. Industry is complaining that they need more certainty, but they already know where the limits are heading (down!), and they should make investment decisions accordingly.

Good job, EPA.

Contrary to conventional wisdom allowances prices collapsed when the EPA released the proposed “transport rule”. Essentially, the EPA did not link the old program to the new program so the old allowances will be worthless. Since the new rule wont go into effect until later it’s like a giant sale on pollution until 2012. The Obama EPA essentially traded “now benefits” for the POSSIBILITY of “future benefits” beginning in 2012. The Clean Air Act is a very complex and major rules like this are almost always challenged upon judicial review. At least Bush’s CAIR rule sent a positive price signal to the market which resulted in investment in pollution control equipment. Doubt the utility sector will be fooled by this charade again.
— Mike P
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Also from Victor Flatt

Victor B. Flatt is the  Dwight Olds Chair and Faculty Director of the Environment, Energy and Natural Resources Center, University of Houston Law Center, and a Distinguished Scholar, Global Energy Management Institute at the University of Houston.

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