	Overview

On December 17, 2003, the Environmental Protection Agency (EPA) issued proposed rules toaddress the effects of interstate transport of air pollutants on non-attainment of the National AmbientAir Quality Standards (NAAQS) for fine particulates (PM 2.5 ) and ozone (specifically, the 8-hourstandard). (1) The proposed Interstate Air Quality (IAQ)rule appeared in the Federal Register January30, 2004. For PM 2.5 , the proposed rule finds that the interstate transport of sulfur dioxide(SO 2 ) andnitrogen oxides (NOx) from 28 states and the District of Columbia contributes significantly todownwind non-attainment; for ozone, the proposed rule finds that interstate transport of NOx from25 states and the District of Columbia contributes significantly to downwind non-attainment of the8-hour standard. With the IAQ rule, EPA proposes a region-wide emissions cap for NOx and SO 2 to be implemented in two phases -- 2010 and 2015. EPA's methodology determines the caps by applying "highly costeffective" pollution controls on electric generating units. From a policy standpoint, EPA has presented the proposed Interstate Air Quality rule and the accompanying proposed Mercury rule as a "suite of integrated airactions" to reduce emissions of three pollutants -- SO 2 , NOx, and Hg. (41) The twoproposed rules are integrated in such a way that the technologies reducing SO 2 andNOx emissions under the Interstate Air Quality rule also reduce enough Hg emissionsto meet the 2010 reduction requirements of the proposed Mercury rule. Thiscombination of requirements and technology allows utilities to meet the requirementsof both rules without installing three different control technologies -- one for eachpollutant. As EPA doesnot provide a cost-benefit analysis of Hg reductions, it is not possible toquantitatively determine whether this decision is economically efficient in terms ofpotential Hg benefits foregone by the lower reduction requirement. However, from the broader perspective of the interaction of the proposed rules with the underlying Clean Air Act, there is a resulting lack of integration. It is likelyto be argued that the proposed rule simply adds another layer on an already multi-layered cake called the Clean AirAct. Adding a regionwide annual cap and tradeprogram on top a regulatory structure whose foundation is health-based nationalstandards that focus on the local concentration of pollutants in the ambient airpresents numerous difficulties. As a result, there are multiple inconsistencies betweenthe proposed rule and other provisions of the Clean Air Act. These conflicts are notsurprising -- there is little EPA can do to resolve them through regulation. If theAdministration's goal is to restructure CAA compliance strategies toward market-oriented cap and trade programswithout creating more layers and conflicts, it ispossible a statutory solution will be necessary.
On December 17, 2003, the Environmental Protection Agency (EPA) issued a proposed rule to address the effect of interstate transport of air pollutants on non-attainment of the NationalAmbient Air Quality Standards (NAAQS) for fine particulates (PM 2.5 ) and ozone (specifically, the8-hour standard). The proposed Interstate Air Quality (IAQ) rule appeared in the Federal Register January 30, 2004. For PM 2.5 , the proposed rule finds that the interstate transport of sulfur dioxide(SO 2 ) and nitrogen oxides (NOx) from 28 states and the District of Columbia contributessignificantly to downwind non-attainment; for ozone, the proposed rule finds that interstate transportof NOx from 25 states and D.C. contributes significantly to downwind non-attainment of the 8-hourstandard.
With the IAQ rule, EPA proposes a region-wide emissions cap for NOx and SO 2 to be implemented in two phases -- 2010 and 2015. Based on the methodology employed in the proposedrule, EPA estimates reductions of about 70% from baseline emissions in 2015. EPA's methodologydetermined the caps by applying "highly cost effective" pollution controls on electric generatingunits.
EPA has presented the proposed IAQ rule and the accompanying proposed Mercury (Hg) rule as a "suite of integrated air actions" to reduce emissions of three pollutants -- SO 2 , NOx, and Hg. The two proposed rules are integrated in such a way that the technologies reducing SO 2 and NOxemissions under the IAQ rule also reduce enough Hg emissions to meet the modest 2010 reductionrequirements of the proposed Hg rule. This combination of requirements and technology allowsutilities to meet the requirements of both rules without installing three different control technologies-- one for each pollutant. As EPA does not provide a cost-benefit analysis of Hg reductions, it is notpossible to quantitatively determine whether this decision is economically efficient in terms ofpotential Hg benefits foregone by not imposing a more stringent reduction requirement.
However, from the broader perspective of the interaction of the proposed rules with the underlying Clean Air Act (CAA), there is a resulting lack of integration. It is likely to be argued thatthe proposed rule simply represents another layer on an already multi-layered cake called the CleanAir Act. Adding a regionwide annual cap and trade program onto a regulatory structure whosefoundation is health-based national standards that focus on the local concentration of pollutants inthe ambient air presents numerous difficulties. As a result, there are multiple inconsistencies betweenthe proposed rule and other provisions of the CAA. These conflicts are not surprising -- there islittle EPA can do to resolve them out by regulation. If the Administration's goal is to restructureCAA compliance strategies toward market-oriented cap and trade programs without creating morelayers and conflicts, it is possible a statutory solution will be necessary.
This report will be updated if events warrant.