1 Long Range Transport of Air Pollution Air pollution can travel hundreds of miles and cause multiple health and environmental problems on regional or national scales Emissions contributing to PM 2.5 and ozone nonattainment often travel across state lines, especially in the eastern U.S. SO 2 and NOx and transformation products contribute to PM 2.5 transport NOx and transformation products contribute to ozone transport Attaining national ambient air quality standards will require some combination of emissions reductions from: sources located in or near nonattainment areas (such as mobile sources) and sources, such as power plants, located further from the nonattainment area Clean Air Act contains provisions for States and EPA to address interstate pollution transport. EPA is also addressing ozone and particle pollution from mobile sources by implementing national fuel and engine standards.

2 Regional Emissions Contribute Significantly to Local Nonattainment Problems Urban v. Regional Contribution to PM Concentrations (Annual Average, ug/m3) Because emissions are often transported across state boundaries, both regional and local action is needed to address air quality issues. Federal action would significantly reduce the burden on state and local governments by addressing transport.

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4 Proposed IAQR: Key Elements Sets the geographic scope based on air quality impact of emissions (SO 2 and NOx) from individual states on 8-hour ozone and PM 2.5 nonattainment Sets an emission reduction requirement for each State, based on capping EGU emissions at levels that EPA believes are highly cost effective to achieve. Provides an (optional) cap and trade program based on successful Acid Rain trading program Allows states flexibility on how to achieve the reductions, including which sources to control and whether to join the trading program Proposes a two-phase program with declining caps (budgets) –SO 2 : 3.9 million tons in 2010 and 2.7 million in 2015 –NOx: 1.6 million tons in 2010 and 1.3 million in 2015

5 Significant Contribution - Overview Two-step approach for interpreting section 110(a)(2)(D). Patterned after successful 1998 NOx SIP Call. –Step 1 – Air quality assessment to identify upwind States that contribute significantly (before considering cost) to downwind nonattainment. –Step 2 – Control cost assessment to determine the amount of emissions in each upwind State that should be reduced to eliminate each upwind State’s significant contribution to downwind nonattainment. EPA has proposed that highly cost- effective reductions for EGUs should be achieved. Factors considered: –Degree and geographic extent of current and expected future nonattainment; –Potential impact of local controls on future nonattainment; –Potential for individual pollutants to be transported between States; –Extent to which pollution transport across State boundaries will contribute to future nonattainment; and –Availability and timing of controls to achieve highly cost-effective reductions.

6 IAQR: Affected Region and Emission Caps States controlled for both SO 2 and NOx States controlled for ozone season NOx only States not covered under the IAQR rule Emissions Caps* (million tons) SO NOx *For the affected region.

7 Projected Annual SO 2 Emissions for EGUs Under IAQR

8 Projected Annual NOx Emissions for EGUs Under IAQR

9 Regional Retail Electricity Prices Other Projected Impacts Note: Retail prices from 2000 are from AEO2003. All other data is from EPA’s Integrated Planning Model. Natural Gas & Coal Prices Coal Production for Electricity Generation (million tons) Generation Mix Coal Gas/Oil Nuclear Hydro Renewables Other Coal Gas Note: Minemouth and Henry Hub prices 2015

10 Projected National Electricity Prices Retail electricity prices are expected to gradually decline from today’s levels but then rise over time, both with and without the Interstate Air Quality Rule The Interstate Air Quality Rule has a small impact on national electricity prices Note: Retail prices from 2000 are from AEO2003 and represent national prices. Prices for the period 2005 and after were calculated using the Retail Electricity Price Model.

11 Supplemental Notice on Mercury RuleFeb 2004 Hold public hearingsFeb 25-26, 2004 – in Chicago, Philadelphia, and Research Triangle Park, NC Comment period closesMar 30, 2004 Supplemental Notice on Interstate Air Quality Rule Apr/May 2004 Finalize Mercury RuleDec 2004 Finalize Interstate Air Quality RuleDec 2004 Next Steps

12 To Learn More… Interstate Air Quality Rule –Website: epa.gov/interstateairquality –Docket no (Electronic docket: epa.gov/edocket) Utility Mercury Reductions Rule –Website: epa.gov/mercury –Docket no (Electronic docket: epa.gov/edocket)