State environmental policy innovations: North Carolina's Clean Smokestacks Act.

• Author: Andrews, Richard N.L.
• Position: I. Introduction through IV. Implementation: N.C. Utilities A. Initial Steps: Emission Control Technologies, p. 881-910

1. INTRODUCTION II. BACKGROUND A. The Clean Air Act B. Grandfathering C. Tail Stacks and Add Rain D. 1990Amendments: Cap and Trade E. Interstate Pollution and State Petitions F. Mercury G. The NQ SIP Call H. Particulate Matter I. New Source Review J. Regional Haze Regulations III. ORIGINS OF THE CLEAN SMOKESTACKS ACT A. Context B. The Clean Smokestacks Plan C. Senate Bill D. Negotiation Process E. Final Version IV. IMPLEMENTATION: N.C. UTILITIES A. Initial Steps: Emission Control Technologies B. Plant Retirements and Replacements C. Enforceability Confirmed V. BROADER IMPACTS A. North Carolina's EPA Petition and Lawsuit B. North Carolina's Lawsuit and Settlement With TVA VI. OUTCOMES A. In-State Emissions Reductions B. Additional Upwind Emissions Reductions C. Assessments D. Ambient Air Quality E. Mercury F. Regional Haze G. Costs VII. CONCLUSIONS AND LESSONS A. Results B. Success Factors C. Lessons I. INTRODUCTION

   The Clean Air Act of 1970 established strict technology based standards for reducing air pollution from new fossil-fueled electric power plants and other stationary sources, but it left existing sources unregulated, on the assumption that they would gradually be retired and replaced by more modern and well-controlled plants. (1) Three decades later, however, most of these older and dirtier plants were still in operation, owing at least in part to the greater costs of building new plants with more expensive controls.

   In 2002, North Carolina enacted an unusually creative law, the Clean Smokestacks Act (CSA), to solve this problem by state rather than federal initiative. (2) The CSA set caps on total annual emissions of nitrogen oxides (N[O.sub.x]) and sulfur dioxide (S[O.sub.2]) by each of North Carolina's two investor-owned utilities, Duke Energy and Progress Energy, which required them in effect to permanently reduce their total year-round NOX emissions 77% by 2009 and their S[O.sub.2] emissions 73% by 2013, and to maintain these caps notwithstanding any future growth in service. (3) These caps were sufficiently stringent to force either modernization or retirement of all forty-five coal-fired electric generating units (EGUs) at their fourteen sites in North Carolina. (4) The law also created a novel cost recovery mechanism to pay for these improvements, and it required the utilities to surrender to the State any emissions allowances thereby gained so that they could not be resold to polluters in upwind states. (5) It mandated reporting processes for steps to reduce N[O.sub.x] and S[O.sub.2] emissions even further, and for reducing mercury and C[O.sub.2] emissions as well. Finally, it directed the state's Attorney General to "use all available resources and means, including negotiation, participation in interstate compacts and multistate and interagency agreements, petitions pursuant to 42 U.S.C. [section] 7426, and litigation" to induce other states to achieve comparable reductions in emissions, particularly by the Tennessee Valley Authority (TVA) and other upwind utilities. (6)

   A decade later, the direct results of this law have become clear. As of 2012, N[O.sub.x] emissions by the two utilities have decreased by 84% compared to 1998, and their S[O.sub.2] emissions by 89%, two years before the 2013 deadline. (7) Duke Energy has retired or scheduled retirement of fifteen of its twenty-eight coal-fired power plants, and has added S[O.sub.2] flue gas desulfurization (FGD) scrubbers and N[O.sub.x] burners or selective catalytic or non-catalytic reduction (SCR/SNCR) technology on all the rest; and it has built one large new coal-fired power plant to operate far more efficiently using advanced emissions control technology. (8) Duke also has invested in new gas fired generating plants, as well as in renewable energy and energy-efficiency incentive programs. (9) Progress Energy is on schedule to retire eleven of its eighteen coal-fired plants, to build more new natural gas-fired facilities in their place, and to upgrade emissions control technologies on all the rest. (10) No specific caps were set for mercury, particulates, or C[O.sub.2], but mercury emissions were expected to be reduced by more than 60% as a cobenefit of closing or upgrading all the coal-fired plants for S[O.sub.2] and N[O.sub.x]. (11) As a result of further study mandated by the Act, North Carolina in 2007 adopted additional regulations requiring each utility to either retire or install mercury control technology by 2017 at each generating unit to achieve "the maximum level of reductions in mercury emissions at each unit that is technically and economically feasible without reliance on mercury allowances obtained through allowance trading." (12) This requirement was expected to achieve an 88% reduction in mercury emissions by 2018. (13) As an additional cobenefit, fine particulate matter was being significantly reduced, because S[O.sub.2] emissions are a major component of fine particulate matter pollution in North Carolina. (14)

   Acting on the law's mandate, North Carolina's Attorney General sued TVA in 2006 to force cleanup of its upwind emissions. In 2011, TVA agreed to a court-approved settlement that set an aggregate cap--similar to and in some respects even more stringent than North Carolina's--on emissions from its entire fleet of facilities, and committed itself to retire or install scrubbers and SCR (N[O.sub.x]) technology on virtually all its generating units by specific dates, retire all emissions allowances that would have been generated by these actions, and spend $290 million on emissions mitigation (primarily renewable energy and energy efficiency projects) including spending $60 million on the surrounding states. (15) The Attorney General petitioned and then successfully sued EPA to require that emissions trading under EPA's Clean Air Interstate Rule (CAIR) be modified to assure that allowance trading did not leave excess air pollution burdens on some downwind states. (16) The resulting changes were incorporated into EPA's subsequent Cross-State Air Pollution Rule (CSAPR), issued in 2011. (17)

   In short, North Carolina's CSA has had major effects in achieving cleanup of coal-fired power plants that had been left uncontrolled by federal law for more than three decades--both in North Carolina and beyond--and in reducing air pollution from these sources. Other forces also contributed to the development of EPA's interstate air pollution control regulations, and emissions from motor vehicles and other sources remain important unsolved problems. Yet the CSA stands as an important and effective innovation in state environmental policy. It exemplifies a rare and successful process of coalition building and negotiation that achieved its enactment in a relatively conservative southern state long accustomed to low electric rates derived substantially from cheap coal-fired electric generation, and even during a period when the State was rapidly losing jobs in its traditional textile and furniture industries--both sensitive to electricity costs--to foreign competition.

   This Article documents the history, implementation, and results of the CSA, and identifies lessons from it, both as a state level innovation for solving an unsolved national environmental problem and as a successful political process for enacting and implementing such an innovation. Part II outlines the context of federal air pollution policy from 1970 through the 1990s. Part HI frames the more specific circumstances in which the proposal for the CSA arose in North Carolina. Part IV recounts the negotiation process by which the bill developed and was ultimately enacted, and discusses its key provisions. Part V documents the implementation of its requirements by the North Carolina utilities. Part VI documents its direct results for air quality. Part VII discusses the law's broader impacts resulting from North Carolina's successful lawsuit against TVA and from its section 126 petition and lawsuit against EPA's CAIR rule. Finally, Part VIII discusses lessons from this case for other state environmental policy innovations, for environmental federalism, and for further policy initiatives to address the nation's remaining air pollution challenges.

2. BACKGROUND

   1. The Clean Air Act

      The federal Clean Air Act of 1970 authorized minimum National Ambient Air Quality Standards (NAAQS) for six major pollutants ("criteria pollutants"): sulfur dioxide, nitrogen oxides, carbon monoxide, particulates, ozone, and lead. (18) It required each state to develop an EPA-approved state implementation plan (SIP) for assuring that these standards were achieved. (19) It also required that every new stationary source of air pollutant emissions-coal-fired power plants, among others--obtain an EPA permit satisfying new source performance standards (NSPS) based on the best system of emission reduction that has been adequately demonstrated for limiting emissions of the six criteria pollutants. (20) In separate provisions, the Clean Air Act also authorized EPA to regulate "hazardous" air pollutants--such as mercury and benzene individually, based on their degree of risk and cost of regulation. (21)

   2. Grandfathering

      The 1970 Clean Air Act failed to address two other major sources of air pollutants, however. First, it "grandfathered" existing emissions sources, leaving emissions from existing power plants unregulated unless they were forced to clean up by state governments under state specific SIP mandates. (22) Amendments enacted in 1977 required that any preexisting stationary source that was modified or upgraded in ways that might increase emissions must also install emissions control technology similar to a new source ("new source review," or NSR); but in the absence of such modifications, preexisting sources could continue polluting. (23) The authors of the law appear to have assumed that these older facilities would gradually be retired and replaced by newer ones as they approached the...