With all respect to the Subcommittee, my first point today is to suggest that the title of this hearing does not capture the issue before us. Rather than discussing ways to change the Clean Air Act to harmonize with an independently determined national energy policy, we need to define our tasks as identifying the goals that are important to Americans in the areas of energy, public health protection, and environmental quality and then designing energy and clean air policies that support these goals. I think any objective view of the historical record would demonstrate that the way we have pursued our energy goals in the past has interfered with Americans' desire for clean air, rather than the other way around. Today's hearing appears to be prompted by concerns that the Clean Air Act is interfering with meeting the nation's energy needs. While I welcome the opportunity to speak to these claims, I think it would be healthy for your sister committee, the Senate Committee on Energy and Natural Resources, to hold a hearing to review widespread concerns regarding the impact of our energy policies on public health and the environment. NRDC certainly would appreciate any encouragement you can give your colleagues on that Committee. Perhaps Senators Campbell, Graham, and Wyden, who serve on both Committees, could form an Health, Energy, Environment Harmony Caucus! In this testimony I would like to touch on three topics: the need to clean up electric power plants, the flaws in President Bush' change of position on including carbon dioxide in that program, and the role of new source pollution control requirements in the nation's air quality management program and useful improvements to that program.
I. The Need for a Comprehensive Program to Clean up Polluting Power Plants.
Today, electricity generation imposes an enormous burden of air pollution on the American public and the great bulk of that pollution comes from plants that are not meeting technically feasible, affordable modern environmental performance standards. This fact is the product of actions, both lawful and unlawful, that have resulted in an electric generating fleet that is older, dirtier, and less efficient than is needed to protect health and the environment.
As I explain in greater detail in Part III of my testimony, Congress in 1970 drew a distinction between existing pollution sources and sources that are new or modified: new and modified power plants were required to minimize air pollution through performance standards based on state-of-the-art clean power techniques, while existing, unmodified plants were required to clean up only to the degree needed to address local air quality problems.
There were several reasons for this approach. First, most air quality problems were perceived as local. Second, at the time, the electric power industry was mostly a local one. Third, the exemption was assumed to be temporary-Congress believed existing plants would retire and be replaced by new ones meeting modern performance standards.
Now, nearly 30 years later, the facts on the ground have changed. We know now that many of our most threatening air pollution problems are not local-they are regional, national, and even global. Our electric generating industry is rapidly becoming a national industry with all parts of the country connected by wires over which the product can move anywhere in three large regions of the lower 48 states. And those powerplants that were supposed to retire have, by lawful and unlawful means, kept on running like the Energizer Bunny. As a result, pollution from electric power generation is a dominant cause of nearly all our most pressing air quality related problems.
Four pollutants cause a host of public health and environmental damage: sulfur dioxide, nitrogen oxides, mercury, and the pollutant no one can get away from, carbon dioxide, the dominant greenhouse gas. Electric generation in the U.S. is the largest single source of these four horsemen of air pollution. Electric powerplants release over two-thirds of total U.S. emissions of sulfur dioxide; they release forty per cent of U.S. carbon dioxide; and they release about one-third of the nation's nitrogen oxide and mercury pollution.
These pollutants are responsible for a Pandora's box of health and environmental harm: * fine particles, formed from sulfur and nitrogen emissions, that contribute to tens of thousands of premature deaths in the U.S. each year; * smog, that plagues our major cities, and causes respiratory attacks in kids and seniors; * acid rain, that still damages lakes, streams, forests, and monuments; * regional haze, that spoils trips to national parks for millions of visitors annually; * nitrogen emissions, that help over-fertilize estuaries, including the Chesapeake Bay, Long Island Sound, Pamlico Sound, and the Gulf of Mexico, leading to dead zones where aquatic life perishes; * mercury contamination of lakes and streams, that has lead 40 states to issue continuing advisories of the fish that store this toxin; and, * carbon dioxide driven climate change, that threatens - * to kill millions of people through more destructive floods, droughts, heat waves, intense storms, and climate-related infectious disease; * to produce sea-level rise that would inundate the homes of tens of millions of people and cost hundreds of billions of dollars in damages and for countermeasures in those countries with the resources to respond; and * to destroy complex ecosystems that have evolved over thousands of years under the influence of climate cycles that were not destabilized by fossil fuel combustion.
Consider also the energy we waste with current generating technology. Today's fossil generating plants are about 34% efficient in converting the chemical energy found in fossil fuels into electricity. What that means in real terms is that we must mine three tons of coal and pollute the air with the emissions caused by burning three tons of coal just to get electricity with the energy equivalent of one ton of coal. In fact, the energy we waste each year in making electricity is greater than the total energy in all the coal we burn each year in the United States. Stated another way, if we could increase the efficiency of our power plant fleet from about 34% to around 68%, we would cut sulfur, nitrogen, mercury, and carbon pollution from electricity generation in half, even with no change in the fuel mix.
Our plague of pollution problems and wasted energy is the result of policies and practices that still allow 30, 40 and 50-year old plants to keep operating without meeting modern performance standards for pollution or efficiency. In addition to harming health and the environment, the de facto grandfather status of most of today's power plants creates unfair competition in the electricity market. In effect, the patchwork of lenient or nonexistent rules at the state and local level, combined with evasion of federal requirements, has created pollution havens where grandfathered plants can engage in domestic environmental dumping, distorting fair energy markets.
As we move to modernize the electricity market economically, we must accompany it with modern environmental performance measures. A central purpose of electric industry restructuring legislation is to create a free and fair, competitive market for energy services. But fair competition is impossible in an environment where air pollution performance requirements are balkanized. Because electricity markets are connected by wires, different pollution standards promote a "survival of the filthiest" market, where the power plants that are the dirtiest, run harder because they can slightly underbid cleaner generators.
These market distortions do not deliver consumer benefits. The price differences caused by different pollution requirements are quite small-usually 2-3 mills per kilowatt-hour or less-but these small differences are enough to give dirtier producers a decisive market advantage in many areas. The market distortions also discourage investment in new, cleaner, more efficient generation and in renewable resources.
Under the current rules, an entrepreneur who seeks financing for, say, a clean, high-efficiency natural gas plant can point out that it emits no sulfur, no mercury, and much less nitrogen oxides (NOx ) and carbon dioxide (CO2 ) than the competition. But, with the partial exception of sulfur (for which allowance programs exist under the acid rain law), this superior environmental performance has no economic value in the market place. The financier wants to know whether the plant will be able to run more cheaply than the competition. If the competition is a group of grandfathered coal-fired power plants, the answer often will be no, and financing may go to a higher-polluting new plant rather than a clean one.
To address the egregious health, environmental, and economic flaws in the current air pollution control programs, a number of bills were introduced in the last Congress and last week the bipartisan "Clean Power Act of 2001," S. 556, was introduced in the Senate. Among its lead sponsors are three members of this Committee, Senators Lieberman, Clinton, and Corzine. The Clean Power Act establishes industry-wide caps on tons of each of the "four-horsemen" pollutants: sulfur dioxide (SOx), NOx, CO2, and mercury. The caps on SOx and NOx would provide building blocks for meeting health-based smog and fine particle standards (challenged unsuccessfully by industry in the Supreme Court) and would reduce acid rain further. The mercury cap would attack the largest single remaining U.S. source of this pollutant. And the CO2 cap would return the industry's emissions to 1990 levels-the target set in the 1992 Rio Climate Treaty that the first President Bush signed and that the Senate has ratified.
With the exception of mercury, for which there are both local and regional concerns, the bill would implement the cap through market-based approaches where power generators could trade their clean-up obligations to meet the caps in the most efficient manner. One possible market mechanism, a "generation performance standard," would define the amount of pollution that could be legally emitted for a kilowatt-hour of electricity from fossil generation, thus creating a level playing field for those generators. This system will directly reward cleaner, more efficient generators.
In contrast to the current situation, if the Clean Power Act were now law, a developer of a new clean power plant would be able to show direct tangible economic benefits from its reduced environmental impact. Because the new plant would be able to generate electricity below the average pollution performance required under the law, every kilowatt-hour generated would also generate another source of revenue: emission allowances that can be banked or sold on the market. This additional revenue stream would make financing such projects that much more attractive.
A final benefit of these integrated pollution cleanup bills is that they provide a clear roadmap for business in planning long-term investments. The history of clean air progress has developed as a series of unconnected initiatives, typically focused on a single pollutant. Today, we can survey the next 10-15 years and be confident that additional measures will be pursued to reduce the four horsemen pollutants. But if we pursue the traditional approach, no one can say now with confidence, when, how deep, and in what order these important steps will occur.
As a result, business planners must approach today's investments by making educated guesses about environmental requirements. Billions of dollars are changing hands as generation plants are sold under state restructuring programs. One thing we can say for sure is that someone is guessing wrong. By enacting integrated cleanup programs, Congress could both provide certainty and reduce the tendency to prolong dependence on existing outmoded plants through the traditional process of applying end-of-pipe cleanup devices normally aimed at controlling only one pollutant.
In short, we know we need to reduce a range of damaging pollutants from the electric generating sector; we know how to do it; and we know that failure to take these steps now will increase damage, prolong uncertainty, and encourage unfair competition. Mr. Chairman and members of the Subcommittee, we hope you will seize the opportunity presented by the Clean Power Act to harmonize clean air and energy goals. By doing so you can address the key issues that face the industry and the public in a manner that produces a cleaner, more efficient, more sustainable, and more competitive electricity market that delivers energy services for lower costs.
II. President Bush' Position on Carbon Dioxide
As you know, on March 13, 2001, President Bush announced that, despite his campaign promise to support emission reductions for all four major pollutants from power plants, including carbon dioxide, he now opposes inclusion of CO2 in a power plant control bill. You may also know that NRDC and virtually every other environmental organization strongly objected to the President's change of position, the reasons he gave for his decision, and the way in which he made his decision.
From what I have said in Part I of my testimony you can understand that NRDC believes that control of carbon dioxide from power plants is as critical to health and the environment as control of the other three pollutants. Requiring the electricity industry to return its carbon emissions to 1990 levels is a practical and necessary first step in demonstrating that the U.S. intends to honor its commitment under the 1992 Rio Climate Treaty, which, as I said, has been ratified by the Senate. Failure to include carbon dioxide in a clean-up bill would mean the legislation would not be comprehensive. By decoupling carbon emissions from control strategies on the other three pollutants, a limited bill would increase the tendency for plant owners to make short-sighted investments in control methods that might reduce sulfur, nitrogen, and mercury but would perpetuate high levels of carbon emissions. Indeed, a narrow-focus strategy that slaps controls on inefficient, outmoded generators could well extend the life of such facilities further, wasting energy and making it more difficult and costly to reduce carbon when Congress decides (as I believe will happen) to take on that threat to planet. A narrow bill would send a confusing signal to investors: is carbon really off the table or will it be put back on in a couple of years just after we have selected a strategy that ignores that pollutant? A two-step program to control the four major pollutants from electric generators will cost consumers more in the end than enacting a comprehensive bill now.
Let me turn to the reasons President Bush gave in his March letter for his about-face. The first reason cited by the President is his claim that carbon dioxide is "not a 'pollutant' under the Clean Air Act." To start, the claim that carbon dioxide is not a Clean Air Act pollutant is irrelevant as a justification for abandoning his pledge to support a new law (imagine President Lincoln announcing he would oppose adoption of the 14th Amendment because he had learned that the original Constitution did not prohibit discrimination). However, President Bush is wrong on the law as well as on his logic.
To my knowledge, the only official interpretation of the status of carbon dioxide under the Act was issued in a legal memorandum prepared in April 1998, by the chief agency officer authorized to interpret the Act, EPA General Counsel Jonathan Z. Cannon (copy attached). In his memorandum, Mr. Cannon concluded that while not yet covered by regulations issued under the Act, carbon dioxide met the statutory criteria for a "pollutant" as the term is defined in the law. Indeed, as pointed out by Mr. Cannon, carbon dioxide is mentioned by name in a list of multiple pollutants from fossil fuel power plants for which Congress directed EPA to develop pollution prevention programs. Sec. 103(g). To be sure, this section of the law does not by itself confer authority on EPA to regulate carbon dioxide, just as it does not provide regulatory authority for any of the other pollutants listed in section 103(g) that EPA has regulated under other provisions of the Act. While lawyers will argue about the scope of EPA's current authority to regulate carbon dioxide, the Act is clear that carbon dioxide is a pollutant. (See attached NRDC Fact Sheet.)
Perhaps some will argue, Mr. Cannon was general counsel in the last administration and we now have a new president. It is true that President Bush is the Chief Executive of the United States but his oath under the Constitution is to faithfully execute its laws, not to make them up. If President Bush did not rely on Mr. Cannon's existing interpretation of the Act, on what official's legal interpretation did he rely? Was a memorandum of law prepared for the president's consideration? If so, by whom? We don't know the answers to these questions and we should know, to promote confidence in the way the president reaches his decisions.
President Bush' second reason for changing his position was an assertion that including carbon dioxide in new legislation would lead to significantly higher electricity prices. Was this conclusion based on any analysis performed by his administration? Apparently not. His letter cites one report for the high cost conclusion: "Analysis of Strategies for Reducing Multiple Emissions from Power Plants." I will say more about this report in a moment. First, let me point out that while the president apparently did not ask his own appointees to prepare an analysis for him, there were four other reports done in the last six months regarding the costs of programs to reduce power plant emissions of carbon dioxide. The other four studies, including a November, 2000, Department of Energy report, Scenarios for a Clean Energy Future, concluded that substantial carbon dioxide reductions from the electric sector could be achieved at very low costs. For example, the DOE "Clean Energy Future" study found that electric sector carbon dioxide emissions could be reduced to 1990 levels with a net increase in Americans' energy bills of less than 1% in the year 2010 and with large energy bill savings in later years due to more efficient use of energy. Citations to this and the other studies are attached.
Thus, there were five studies the president could have consulted regarding the costs of carbon controls-four that found low to modest costs and one outlier that forecast high costs. Unfortunately, his letter leaves the impression that his staff seized on the EIA analysis, not based on any broad review of the issue but because it contained the conclusion that could be used to rationalize the president's change of position. If this is correct, it is quite striking. The president made an explicit and clear policy commitment during the campaign. His surrogates repeated his pledge in additional public appearances during the campaign. One would think that before abandoning such an explicit promise, the president would have directed a thorough review by his own administration team of policy options and the costs of those options to determine whether there was a real conflict between his promise and Americans' energy goals. At the very least, one would have hoped that the president's staff would have recommended a process that included an examination of all relevant recent analyses and, when presented with a conflict in those analyses, that more time would have been taken to determine which cost analyses were more reliable. While the president's letter states the information he received "warrants a reevaluation," he didn't announce he was undertaking a reevaluation. He just made a decision that flatly contradicted his campaign pledge. All of these facts suggest that careful policy analysis had very little to do with the president's decision.
What should we make of the report cited by the president? While he called it a "Department of Energy Report," the analysis is, in fact, a "Service Report" prepared by the Energy Information Administration (EIA) for submission to former Congressman David McIntosh in response to his request for an analysis of emission reduction scenarios specified by the congressman. Now EIA is respected for its analytical capabilities but it is also clear that when Congressmen McIntosh requested the analysis, his staff knew before the EIA computers were turned on that the result would forecast high costs for carbon controls. Given Mr. McIntosh' vehement opposition to any form of carbon emission reductions, this prospect probably did not make him unhappy.
Is EIA's predictable result due to deliberate deception by EIA? Certainly not. It is an artifact of the approach EIA used to evaluate the policies specified by Mr. McIntosh. The analytic approach and assumptions that EIA adopts in modeling electric services options guarantee that any policy aimed at significantly reducing carbon from electricity generators will be calculated as having a high cost. One would have more confidence in the reality of this prediction if there were no credible conflicting conclusions. But, in fact, the Department of Energy Clean Energy Future study I mentioned above, uses the same model run by EIA and reaches dramatically different conclusions. A principle reason for this is that in DOE's runs, analysts incorporate a number of sensible policies designed to help Americans use electricity and natural gas more efficiently. These policies lower consumer energy bills and make it possible to clean up power plants at much lower costs. For example, the DOE analysis ignored by the president includes policies found in Chairman Smith's recently reintroduced Energy Efficient Buildings Incentives Act, S. 207, also sponsored by Senators Reid, Lieberman, and Chafee of this Committee. By examining a harmonized set of energy and clean air policies such as those championed by Chairman Smith, the DOE Clean Energy Future report comes much closer to the truth about the costs of smart carbon reduction programs than the EIA service report done at Mr. McIntosh' request.
President Bush also refers to concerns about current high energy prices in California and other states as supporting his new position on carbon dioxide. This point really does not withstand analysis. Prices are high today and generation capacity in California and the West is constrained. But any legislation enacted by Congress for power plants will not affect energy supplies today. Instead, a reduction timetable will be some years in the future, allowing time to install pollution controls and for repowering or replacement of the very plants whose breakdowns contributed to California's problems in the last year. As explained in attached NRDC fact sheets, environmental requirements have not caused today's electricity price and supply problems and no amount of scapegoating will change the facts or improve our chance of designing effective remedies.
Finally, I must comment on the president's statements regarding the Kyoto Protocol in his letter. Just last month the president's foreign policy officials requested and received a delay in the resumed meeting of the parties to the Rio Climate Treaty, previously scheduled for May 2001. The State Department requested this delay because, it told other countries, the administration was conducting a comprehensive review of climate change policy that could not be completed by the May meeting.
How is that need for a thorough review to be squared with the president's apparently definitive denunciation of the Kyoto agreement in his letter? Granted, in this case, his statements are consistent with views he expressed on the campaign trail. But why not await the review he has promised before reaffirming views he formed without benefit of such an analysis? The president says the Kyoto agreement would "cause serious harm to the U.S. economy." What analyses did he review in reaching this conclusion? The previous administration published analyses concluding that compliance with the agreement would have less than a 1% impact on forecasted GDP, equivalent to adding no more than a month or two to a ten-year forecast for achieving a vastly increased level of wealth in this country. The president may well disagree with the previous administration's analysis but on what basis? Wouldn't he and the American public be benefited by preparation of the best objective analysis that the new administration is capable of producing? Why the hurry to issue the verdict before hearing the evidence?
The other thing the president had to say about the Kyoto agreement was that it was unfair because it does not establish the same reduction targets for China and India as for the United States. In my opinion, this is a shameful statement. Consider that the U.S. and other developed countries are among the wealthiest nations on earth and that they have put into the atmosphere about 75% of the carbon dioxide that has accumulated since the start of the industrial revolution 150 years ago. Consider also the relative economic ability of the U.S., India, and China to take the first steps in demonstrating that we can fight global warming. The mortality rate for children under 5 years old in India is thirteen times higher than in the U.S.; China's mortality rate for these children is 6 times higher than ours. In India, close to half the population attempts to survive on less than $1 per day; in China, one in five people lives on this level. Consider electricity consumption: the average American uses more electricity in a day than the average person in India uses in a month; compared to China the average American uses more electricity in a month than a Chinese person uses in fifteen months.
For the president to demand that India and China make equal commitments to control carbon dioxide as a condition for the U.S. to take a first step along with other wealthy nations, flies in the face of Americans' vision of our country as a compassionate and responsible world citizen. America's heart is bigger than this. The president spoke of compassion during the campaign and I have to believe his heart is bigger than this too.
There is a practical point to be made here as well. China and India are important nations to engage in global strategies to fight climate change. The U.S. certainly needs a strategy to break down barriers with these countries and produce a more cooperative basis for discussion of all countries' global warming responsibilities over time. But what possible strategy could underlie the President's decision to single out China and India for criticism in his letter? Did Secretary of State Powell advise that this would be helpful in moving those two countries to a position that is less contentious on this issue? That seems unlikely.
NRDC hopes the president actually will evaluate and reevaluate his positions on carbon dioxide from power plants and the Kyoto agreement, rather than flatly reversing one position and restating the other with no current analysis to inform his decisions. If he does so, he could rebuild some badly needed bridges that are now in flames.
III. The Clean Air Act's Dual-Track Air Quality Strategy
Now I want to turn to the role of new source review under the Clean Air Act. Members who read my testimony before this Subcommittee in February, 2000, will find this material familiar, since I repeat in this section, what I said at that time.
In 1970 Congress adopted a dual-track program to protect and enhance our nation's air quality. The first program calls on states to adopt comprehensive pollution control programs under state law to achieve air quality objectives set forth in National Ambient Air Quality Standards (NAAQS) adopted by EPA. This ambient program is an example of the "assimilative capacity" approach to environmental management-based on the belief that the environment can assimilate a certain amount of dirt or toxins released from human activities without causing identifiable harm. This approach starts by identifying exposure levels of pollution that current research indicates may be tolerable for humans and ecosystems and then seeks to reduce emissions from pollution sources enough to meet the maximum tolerable exposure targets.
The 1970 Act's ambient management program strengthened previous efforts enacted by Congress in the 1960s and relied on states to set control rules for pollution sources at levels just tough enough to bring total pollution down to the level of the national ambient standards. Implicit in this approach is that an area's air quality determines the amount of clean-up required of sources. Even if there are readily available means of reducing a source's pollution, a state is not required to adopt such measures if not needed to meet the NAAQS.
But Congress did not rely exclusively on the assimilative approach to air quality protection in the 1970 Act. Congress adopted another strategy designed to minimize air pollution by requiring sources to meet emission performance standards based on modern "best practices" in pollution abatement. The performance standard approach does not set required levels of control based on the air quality conditions of particular areas. Rather, the required emission reductions are determined by assessing how much polluting processes can be cleaned up, taking account of technical and economic constraints.
Congress expected that future ambient goals would likely be more ambitious than 1970's defined goals and wanted an independent program that would be effective in reducing total emissions over time. Congress' intent in the performance standard program was to use the force of new purchases and investments to incorporate advances in pollution prevention and control as a complementary strategy to the ambient management program.
Congress applied the performance standard approach to both stationary and mobile sources but with some important distinctions. In the mobile source area (cars, trucks, buses), only entirely new vehicles were subject to federally-established modern performance standards. Congress was presented with analyses demonstrating that with traditional rates of "fleet turnover," most of the benefits of tighter new car standards would be experienced in less than 10 years.
In requiring performance standards for stationary sources, Congress adopted more sweeping provisions. The Act requires that both new and modified stationary sources must meet modern performance standards. Congress in 1970 also adopted a very expansive definition of "modification," to assure that environmental performance would improve as investments were made.
The 1970 Act's principal tool for improved pollution control for new and modified sources was the New Source Performance Standard (NSPS), a national, categorical requirement based on very good, but not the best, pollution minimizing practices. In 1977, when the Act was amended, Congress adopted the new source review (NSR) and prevention of significant deterioration (PSD) programs to strengthen efforts to minimize emissions and air quality impacts from new and modified sources.1 In the 1977 Amendments Congress expanded both the scope of the rigor of the requirements for improved performance from new and modified sources. Coverage would no longer be limited to the categories for which EPA had adopted NSPS requirements; rather all new and modified sources above certain pollution tonnage thresholds would be required to minimize their emissions. Second, the level of the performance requirement would not be tied to often out-of-date NSPS; rather case-by-case determinations of current best performance would be required. Third, covered sources locating in clean areas as well as dirty areas would have to pass ambient impact tests to prevent a worsening of air quality. In 1990, Congress again increased its emphasis on pollution prevention from new and modified sources, reducing the size thresholds for coverage in badly polluted areas.
In sum, Congress has repeatedly endorsed the concept of modern performance standards for new and modified pollution sources, adopting, in successive amendments, strengthened requirements intended to make the NSR programs more effective in reducing pollution.
However, these programs have for twenty years been the subject of criticism from industry representatives and from many academic economists. The economists' argument runs, "why should new sources be regulated more strictly than existing sources? After all, air quality is determined by how much pollution is released and where it is released. The air certainly cannot tell the difference between a pound of pollution from a plant built in 1965 and that from a plant built in 1995."
Critics of the Act's new source requirements argue that instead of regulating new and old sources differently, we should simply establish our desired air quality objectives and allow them to be met by the most efficient means. Under this approach, agencies first would do research to identify the adverse effects of air pollution on health and welfare; next, agencies would convert this research into environmental standards; then, the agencies would design pollution control programs to achieve the environmental standards; finally, agencies and pollution sources would implement the pollution control programs and the air would become cleaner.
This critique and prescription has a certain superficial appeal. As I have mentioned, the ambient management program has been a central program of the Clean Air Act since 1970 and it should continue. The question is whether it is prudent to rely on the ambient standards approach as the only strategy for improving and protecting air quality. In my view that would be a mistake.
The 1970 and later Clean Air Acts reflect a judgment by Congress that the ambient standards approach should be the major pollution control strategy but that it should be complemented by other independently functioning programs such as the NSR and Mobile Source Emission Standards programs. I think that this judgment was a wise one. The history of air pollution control efforts both before and after the 1970 Act reveals that the ambient standards approach, while conceptually sound, has its weak spots, which when exploited by well-organized opposition, can prevent the program from solving air quality problems in a timely fashion.
First, the Government's capacity to acquire unambiguous information about natural processes is very limited. The research is complex, expensive, and time consuming. Due to perennial shortages of money, talent, and time, most of the studies undertaken in the past and those being conducted now are less than perfect. As a result, their conclusions are easy to pick apart and dismiss as not dispositive. Moreover, the health effects we are concerned about are increasingly related to chronic exposures to low levels of combinations of pollutants. We have never conducted an adequate study to characterize the effects from these kinds of exposures and none is even planned.
The uncertainties in what we know about air pollution effects in turn lead to controversy and delay in establishing environmental standards. All of us, including this Committee, have experienced this controversy in the continuing disputes about EPA's revised ozone and particulate standards.
The next step in the process -- control program design -- can also be affected. Different interests argue at length about how emissions in a particular location relate to air quality in that location or elsewhere. This can and has led to uncertainty, controversy and delay in designing pollution reduction programs to meet environmental standards. The continuing fights over efforts to address transported air pollution are an example of this problem.
Another weak spot in the ambient standards abatement program is that it often requires large changes in established patterns of behavior. When an air pollution control agency adopts a regulation that applies to an existing source it is trying to get firms to spend their money, time, and thought in ways they have not planned. Not surprisingly, these firms often resist, which leads to uncertainty, controversy and delay in the final step of the ambient standards approach, the actual implementation of pollution reduction measures in the real world.
This resistance to change often feeds back to the first step in the ambient standards process, setting the standards themselves. Pressure is mounted to weaken existing standards and to oppose the setting of new ones. Again, the unified fight of industrial polluters against the revision of the ozone and particulate standards highlights this problem.
These weaknesses do not call for abandoning the ambient standards approach. But they do suggest the wisdom of complementing that approach with programs that are strong where the ambient approach is weak. The Act's NSR programs meet that need. Implemented properly, these programs can assure that as new well-controlled sources replace old ones, we will make progress in reducing emissions as our economy grows. By controlling the major pollutants, the new source programs also serve as a hedge against unidentified risks associated with those pollutants. By dealing with engineering facts rather than biological facts, the new source programs usually involve more manageable factual controversies. We are relatively good at measuring the dollar costs of meeting performance standards and calculating the emission reductions such standards can provide. Finally, by focusing on new and modified sources, the new source programs can lessen the social and political costs of reducing pollution. Because they operate at the time firms are making new investments, these programs allow firms to plan pollution prevention and control into their plant operations.
All of this does not argue that the new source programs should replace the ambient program, only that they should complement that program. For the new source programs have weaknesses in areas where the ambient program performs better. The new source programs focus on the highly technical details of engineering and thus are too insulated from effective public participation. Controlling pollution only from new sources often is not the cheapest way to achieve a unit of emissions reduction. In my view, the premium we pay to accomplish reductions where the ambient program has failed to deliver them is a prudent investment, but controls on new and modified sources should not be our only program. Finally, new source programs, because they are technology based, do not guarantee a desirable level of environmental quality. We will degrade our air quality unless we improve pollution reducing methods and processes at least as fast as we grow. The new source programs do not create adequate incentives for such improvements and thus must be complemented by the ambient standards and PSD programs which do recognize that clean air is a scarce resource.
In sum, the Clean Air Act's dual track approach to air quality management employs the principle of diversification to reduce risks. In an uncertain world, a prudent investor will forego putting all her money into the one stock with the apparent highest yield. Instead she will spread her risk by selecting a range of investments-some which offer high risk and high yield and others which offer less risk and less yield. Similarly, the Act resembles a stable ecosystem which has a diversity of species. Such systems are much less likely to fail in the face of adversity than systems that have no diversity.
IV. How Should EPA's NSR Programs be "Reformed"?
NRDC has participated over the last decade in stakeholder discussions convened by EPA to consider ways to improve the Act's NSR programs. A major reason these talks have made little progress is the lack of agreement on the purposes of these programs. There are two major purposes: to assure that new investments do not degrade air quality and to assure that when new investments are made, emissions are minimized by requiring sources to meet performance standards that reflect modern emission prevention capabilities.
While a great deal of attention has been paid to the complexity of the NSR permitting process, the larger environmental failure of the NSR program is that the program has not brought down emissions as Congress intended. Citizens, pollution control agencies, and members of Congress are increasingly aware of the fact that grandfathered air pollution sources are more and more the central impediment to clean air progress. Contrary to the intent of Congress, investments in new production have not resulted in existing grandfathered sources being replaced by facilities that must meet modern performance standards. As a result, grandfathered sources dominate the pollution inventory throughout the United States.
The degree to which old stationary sources determine our nation's burden of air pollution is striking, especially when compared to the impact of old cars on pollution loads. For example, fossil electric powerplants built more than 20 years ago are responsible for 84% of total US nitrogen oxides (NOx) pollution from that sector and 88% of sulfur dioxide ( SOx). In contrast, 20-year-old cars contribute less than 7% of US car NOx pollution and 3% of that sector's VOC (volatile organic compounds) pollution. It is obvious that the Title II new mobile source program has done quite a good job of preventing old cars from dominating today's pollution problems but the Title I new stationary source program has performed miserably on this score.
There are some obvious reasons for the NSR program's poor pollution reduction performance. First, the rules themselves contain too many loopholes that allow sources to avoid NSR even though they continue to make significant investments year after year. Second, as recent enforcement actions have alleged, there are many instances of firms escaping the requirements of the rules by misclassifying projects in an unlawful manner.
Reform of the NSR program should address its failure to produce pollution reduction from old grandfathered sources as a priority issue as well as explore ways to simplify the NSR process. A genuine reform of the program should aim to make two basic changes: the program should apply to more industrial projects than it now does and the review process should be streamlined to enable decisions to be made quickly while protecting the public's right to participate. Instead, the "reform" proposals EPA has published over the last decade have concentrated almost entirely on changes that would expand the loopholes of the current rules so that even fewer grandfathered sources would be required to clean up as they upgraded their capital equipment.
The combination of categorical exemptions and exclusions, weak rules for calculating emission increases, and broad provisions for "netting out" of review allow far too many sources to avoid the NSR program indefinitely. When illegal evasions of the rules are added to the many exemption opportunities in the rules, we get the results we see-most sources never encounter the federal NSR program and their pollution remains with us. NRDC has filed lengthy comments with EPA on these issues over the years and I will not burden the Subcommittee with a recitation of the details here. I would like to mention one area-that of "netting." Netting is the jargon for a transaction that allows new projects at existing sources to escape NSR. In essence it allows the source operator to count "reductions" from grandfathered pieces of polluting equipment at the site in calculating whether a new project will result in an emission increase that would require new source review. By allowing sources to avoid the modern performance requirements of NSR, netting preserves the status quo, perpetuating excessively high levels of pollution originally emitted by poorly-controlled, grandfathered pollution sources.
Netting rewards sources that have managed to manipulate the current system to preserve high levels of emissions. Current netting policy allows those high emission levels to function as an asset that can be deployed to avoid NSR/PSD review. Thus, netting operates at cross purposes with sound air quality objectives. It creates incentives to keep emissions at unnecessarily high levels and perpetuates an inefficient allocation of emission "shares" by providing the greatest rewards to the most polluting sources. Netting frustrates one of the primary objectives of the NSR/PSD program, which is to link requirements for modern emission performance standards to investments, so that emissions are reduced as the economy expands. Instead, netting allows existing emission levels to be perpetuated indefinitely.
While the netting rules are complex, the fundamental problem with the approach is easy to understand. Netting allows a grandfathered pollution source to "bequeath" its excessive pollution privileges to its descendant, the new piece of equipment. Under netting, the new piece of equipment is not required to meet modern performance standards; it can emit at much higher levels by relying on the pollution entitlements transferred from old, grandfathered pieces of equipment. In this way, excessive amounts of pollution can live on long after the original sources have disappeared. Netting resembles the former hereditary peerage system in England, where membership in the House of Lords and other privileges were handed down from generation to generation. England recently acknowledged this system has no proper place in a modern democracy. We too need to eliminate the pollution peerage that is imbedded in EPA's netting rules.
For nonattainment NSR, the Supreme Court in Chevron made it clear that EPA has the authority to eliminate the availability of netting altogether.2 One perverse effect of netting in nonattainment NSR is that new equipment is installed without meeting "lowest achievable emission rate" (LAER) performance standards. This in turn means that a greater level of emission reduction is required to offset the new equipment's emissions than if the new equipment had met LAER standards. These additional emission reductions must come from a finite pool of existing emission sources whose total pollution load must be further reduced for the area to attain the ambient standards. Thus, the effect of NSR netting is to allow existing source owners to unilaterally dedicate the cheapest and easiest emission reductions in a nonattainment area to compensate for poorly-controlled new units, leaving state and local control agencies with the more difficult task of developing an attainment plan from the more expensive, politically controversial remaining emission reduction opportunities.
EPA's original defense of its 1981 change to allow netting under the nonattainment NSR program was that areas choosing such an approach would be required to develop timely attainment plans in any event so that there would be no environmental harm. It is now the year 2000 and EPA can no longer deny that the theory it presented to the Supreme Court in the early 1980s has no basis in reality. In fact, areas have not succeeded in developing timely and adequate attainment plans. State and local agencies have protested repeatedly to EPA that they cannot identify sufficient, politically feasible emission reductions to demonstrate timely attainment. EPA has responded with policies that have permitted lengthy delays in the submission of adequate plans. Given that the premise for EPA's initial adoption of NSR netting in 1981 has not been achieved, it is time for nonattainment netting to be abolished.
To restrict netting in the PSD NSR program, EPA should reform its definition of contemporaneous so that only activities which are part of the project for which the netting claim is made can qualify. Second, EPA should reduce the netting credits available for shutting down or limiting operations at existing units to reflect the obvious fact that the new emission-increasing projects will have greater longevity than the older existing units that are generating the netting credits. For example, consider a source that proposes to build a 100-ton-per-year new unit with a 35-year useful life and to net out the increase with the shutdown of a 100-ton source that has only 5 years of life remaining. The stream of emission reductions from the shutdown source ends after 5 years but the emission increases from the new source continue for an additional 30 years. There clearly is an enormous increase in the cumulative emissions from the facility over the life of the new project that is not captured if netting credits are given for the shutdown unit based only on a comparison one year's emissions.
V. New Source Review and Energy Facilities
Over the last year, as we have experienced high prices and shortages in some energy markets, the cry has been raised that permitting requirements, including the Act's NSR requirements, are preventing construction of needed facilities. These are not new claims. They are raised whenever the basic fact that energy is a scarce resource makes its way on to the evening news. So we see repeated references to the fact that California "has not built a major power plant in a decade" and the claim that permitting requirements are the reason. As NRDC's attached fact sheet points out, the claim is wrong. Power plant construction slowed to a trickle in California in the 1990s not because of permitting requirements but because private investors first did not forecast enough demand to be assured of returns that would beat other uses for their money; then uncertainties created by the development of a deregulated electricity market caused further hesitation. A review of California's permitting files demonstrates that nearly all power plant projects were approved and without significant delays. The fact is, had there been no permitting requirements at all in California during the 1990s, private investors still did not have adequate market incentives to spend money building new plants.
However, in this Congress bills have been introduced that would carve gaping exemptions for from NSR requirements for new and modified power plants. For example, S. 60 and similar provisions in S.389, Senator Murkowski's energy bill, would exempt from NSR and from any additional emission regulation, projects at new or existing coal-fired power plants. While these exemptions are labeled "credit for emission reduction" or "clean-coal" projects, in fact the legislation does not require emissions to be reduced as a condition for eligibility. The eligibility criteria are so broadly drafted that virtually any expansion project at an existing plant or any new coal plant could be built with an exemption from NSR and a prohibition of coverage by new pollution control requirements, such as future rules for mercury controls or rules to reduce nitrogen oxides to address regional smog problems. A detailed analysis of S. 60's exemptions, which applies as well to similar provisions in S. 389, is attached.
In truth, these efforts to repeal Clean Air Act safeguards are short-sighted and counterproductive to the goal of increasing public acceptance of new energy projects. While the nation's energy concerns continue to be a convenient excuse for attacking environmental permitting requirements, with the "NIMBY syndrome" derided as a telltale symptom of our ills, the fact is, people want nearby plants to be as clean as possible and want the chance to participate in location decisions. Weakening the Clean Air Act would increase anxiety and opposition to new projects, not lessen it.
As you consider this issue I would encourage each member of the Subcommittee to ask, "how close is the nearest large fossil fuel generating station to my home-1 mile away, 2, 5, 10?" Suppose a new station was proposed less than a mile from your home; how would you talk about it in your own kitchen or living room? Would you like the opportunity to ask questions about the design, performance, scale, and perhaps even the location of the project? Would you like a public process that your neighbors could join in? Would you like the right to get answers from the approval authorities? Would you like some recourse if officials ignored your questions and suggestions for improvement of the project? Other Americans want these same safeguards and they deserve better than to be labeled "NIMBY."
The path to harmonizing clean air and energy goals is not down the road of exemptions from safeguards. The right path involves adopting comprehensive integrated programs to clean up existing polluting power plants and improving current new source programs so that they more reliably and efficiently assure citizens that expanded energy supplies can be achieved without degrading environmental quality. Mr. Chairman and members of the Subcommittee, NRDC would be happy to work with you to move down this path. Thank you for the opportunity to present these views and I am happy to answer any questions you may have.
1 For simplicity, for this testimony I will refer to these programs generally as NSR. 2 Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984).