US Air Quality Management Jake Schmidt, Senior Policy Analyst Center for Clean Air Policy ********* Improving Air Quality in the enlarged EU September 2, 2004 Brussels, Belgium

2 Center for Clean Air Policy l Non-profit environmental think tank founded in 1985 by state governors to find market-based solution to acid rain l Applying similar approaches to ozone, greenhouse gases, and air toxics at variety of levels l Leader in several US AQ efforts, EU GHG trading system design, and international climate change negotiations l Conducted a US Air Quality Dialogue to analyze and discuss alternative designs for power sector air quality legislative programs l Partner in an EU project to assess and compare the effectiveness of air quality policies in the EU-15 w/ other countries

3 Air Quality Limit Values and Emissions Limits l EPA establishes National Ambient Air Quality Standards (NAAQS) »Define air quality limit values for 6 pollutants »EPA required to review air quality criteria and NAAQS for each pollutant at least every 5 years l National SO 2 emissions limits to address acid rain are established in Title IV of the Clean Air Act (CAA) for major stationary sources »Nat’l loading limits in addition to SIP/non-attainment requirements l EPA considering new regional or nat’l emissions loadings for other source categories »Each state given aggregate target for source category in their state, then cap-and-trade applied l Several other requirements (e.g., vehicle engine and fuel standards) established by EPA

NRC, 2004 US Air Quality Management System

5 “Nonattainment” Areas l Air quality is measured compared to NAAQS based upon ambient concentrations »Nationwide monitoring network l States propose and EPA approves areas (usually groups of counties) as “attainment” or “nonattainment” »For most pollutants areas are classified according to the severity of their nonattainment –For ozone: marginal, moderate, serious, severe-15, severe-17, and extreme l Differing requirements and timelines established for ozone nonattainment areas depending on severity of the problem »Others have a binary system

6 State Implementation Plans (SIPs) l States develop nonattainment SIPs that outline their plan to meet the NAAQs; they include: »Emissions inventory (current and projected) »Air quality modeling »Emissions reductions needed to meet NAAQS »Control measures to achieve reductions l Submitted for EPA review and approval and become enforceable as a matter of federal and state law »Development process and review takes time –SIPs to be submitted 3 yrs. from designation as nonattainment area –2006 for 8-hour ozone; 2007 for PM 2.5

7 SIP Penalties l 1990 CAA authorizes EPA to introduce sanctions when nonattainment area fails to submit adequate plan or to demonstrate attainment by deadline. »“2 to 1” offsets—requires that newly constructed or expanded major stationary sources reduce emissions elsewhere twice as much as projected for new project. »Federal high fund sanction—funds for transportation projects within nonattainment area withheld. »Others—”bump-up provision”, conformity, penalty fee l EPA notifies state they have 18 months to rectify problem—”sanction clock” starts, then 2 to 1 offset, followed by highway funds sanction (6 months later).

8 Control Measures in SIPs l SIPs contain the following emissions control measures: »Federal—those national programs estimated to reduce emissions in a given area »Local-mandatory—specific measures required in the CAA for nonattainment areas »Local-additional—if above two insufficient, additional local measures are highlighted »Multistate regional—measures introduced through regional planning organizations or through other regional measures. l Many measures are nat’l and defined in the CAA l States do controls for existing sources, new sources are regulated through CAA standards

9 Clean Air Act Requirements for Ozone SIPs (NRC, 2004)

10 Controlling Regional Emissions l Regional transport a significant issue for several pollutants »The air crossing the border in several locations violates the ambient standards l States can file section 126 petitions »If EPA finds that sources makes a significant contribution to nonattainment problems in the petitioning state, EPA authorized to establish federal emission limits for the offending sources. l As a result, several efforts have been introduced to control regional emissions contribution to air quality. For example, »Acid Rain Trading Program »Ozone Transport Region »NO x SIP Call »Proposed Clean Air Interstate Rule »Regional haze

11 The 1990 Clean Air Act Amendments: Title IV l Establishes cap-and-trade system for SO 2 l Implemented in two phases: Phase 1 (1995) included 263 large units; Phase 2 (2000) caps emissions at 8.12 million tonnes l Emissions banking allowed l Basic allocation formula based on historic heat input w/adjustments by plant category l Continuous emissions monitors required l Penalty for noncompliance – over $2,000 per ton plus requirement to offset emissions »Ten times actual cost (indexed to inflation)

12 Emissions Reductions of Title IV Acid Rain Trading Program l Observations: 1) Program resulted in a continuous decline in total SO 2 emissions. 2) Participants used banking provisions.

13 Ozone Transport Region l Established to address regional emissions transport within the Northeast l States reached agreement (signed MOU) on a 3-phase NO x budget program l Second 2 phases (1999, 2003) established regional emissions trading that consists of a progressively more stringent cap-and-trade program for the region during the May to September ozone season l Progressive flow control limits use of banked allowances to prevent significant increases in emissions over the emissions cap in the given season l Each state adopted the model rule l States retain allocation authority

14 OTR Results l Overall, OTR achieved a 59% reduction in NO x emissions from controlled sources in 2002 from 1990 levels. l Allowance prices in early years more volatile, higher than forecasts due to delays in implementing legislation, and delays in issuance of early reduction credits. Trading began in earnest just before first compliance period. l Once trading began, markets functioned well l Studies show that state-based program was less effective than Acid Rain Trading program because of differing trading rules, policies, etc.

15 NO x SIP Call l 8 Northeastern states filed section 126 petitions against power generators and other sources of NOx in “upwind” states l EPA formed the Ozone Transport Assessment Group (OTAG) l OTAG analysis found that “upwind” sources were contributing to “downwind” nonattainment problems »EPA considered section 126 petitions alongside the OTAG results when it developed the “NO x SIP Call” l Established ozone season NO x emissions caps for 19 states and DC »Emissions reductions based on the cost-effective reduction level l States could opt into an emissions trading system

16 Proposed Clean Air Interstate Rule l EPA recently proposed the Clean Air Interstate Rule to reduce interstate transport of fine particulate and ozone pollution l Would establish annual emissions caps in two phases (2010 and 2015) for NO x and SO 2 in 28 states and DC »Reduce NOx emissions in the region to 1.4 million tonnes in 2010 and 1.2 million tonnes in 2015 (~65% below current levels) »Reduce SO 2 emissions in the region by 3.3 million tonnes in 2010 and an additional 1.8 million tonnes when the rule is fully implemented (~70% below current levels) l Likely to be finalized before the end of the year

17 US Lessons Learned l SIP process can be very “bureaucratic” »Critics argue that the procedural inefficiency probably: –discourages innovation and experimentation at the state and local levels, –overtaxes the limited financial and human resources, and –draws attention and resources away from ensuring progress toward the goal of meeting the NAAQS (NRC, 2004). l Control of emissions from many sectors can’t be efficiently regulated at the local or state levels (NRC, 2004). l Regional transport of emissions has become major basis of policy development in US »Will likely play a large role in future efforts to address ozone, PM 2.5, and regional haze l Emissions trading has been introduced in a variety of forms to reflect the varying nature of the pollutant and air quality goals »e.g., OTC program has “flow control”, acid rain included nat’l emissions target, and NO x SIP Call included subset of US

18 US Next Steps l National Academy of Sciences conducted review of US system and made recommendations, including: »Expand use of federal control measures »Use market-based approaches whenever practical and effective »Enhance the ability and responsibility of EPA to address multistate and regional transport problems »Transform the SIP into an AQMP that incorporates all relevant air quality issues and measures in a single plan (NRC, 2004).

19 For more information: l Center for Clean Air Policy l National Academy of Sciences (NRC, 2004) Stan Kolar Prague, Czech Republic Jake Schmidt 750 First St., NE, Suite 940 Washington, DC

20 National Ambient Air Quality Standards in Effect as of December 2003

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