EPA to resurrect cap-and-trade through its ozone standard?

Exelon’s John Rowe, the “Carbon Bandit” may be back for another cap-and-trade raid on taxpayer and ratepayer wallets courtesy of the EPA’s imminent ozone standard.

According to this morning’s Clean Energy Report,

EPA’s plan to offer ‘flexibilities’ to states to ease the implementation costs of its pending revised ozone national ambient air quality standard (NAAQS) could include emissions trading among power plants and credit for reducing ozone pollution through energy efficiency, renewable portfolio standards or demand-side management, sources say.

As nitrogen oxides (NOx) are one of the contributors to ground-level ozone formation and natural gas plants emit more than 50% less NOx than coal-fired plants — and nuclear, wind and solar emit 100% less — it’s not too hard to see how a cap-and-trade system for NOx would also operates as a collateral and de facto cap-and-trade system for carbon dioxide (CO2).


Major legal questions remain about the scope and viability of such flexibilities, particularly on trading after the U.S. Court of Appeals for the District of Columbia Circuit in 2008 remanded to EPA a cap-and-trade rule for power plants designed in part to help cut ozone pollution,

EPA Administrator Lisa Jackson in a July 13 letter to Sen. Tom Carper (D-DE) that,

There is much flexibility in the Clean Air Act that EPA can build into implementation of the reconsidered ozone standard, and I recognize that this flexibility will be critical to states working under constrained resources to continue economic development and job growth. As history has shown us, this flexibility will minimize the costs associated with updating the standard.

The Clean Energy Report notes,

EPA… could allow states to implement in their SIPs some type of market-based mechanism, such as a cap-and-trade program to reduce ozone pollution from power plants and other industrial sources.

Sources say there is a history under the air law of trading programs being used to meet air pollution control mandates, in place of traditional emissions controls on sources that would otherwise be required under [Clean Air Act-mandated State Implementation Plans (SIPs)]. An example includes the NOx SIP Call, a program for reducing NOx emissions that are ozone precursors,

The Bush EPA’s Clean Air Interstate Rule (CAIR) would have created a trading program to cut power plants’ NOx and sulfur dioxide (SO2) emissions. The DC Circuit in its 2008 ruling remanded the rule to the agency in part due to questions about the legality of some of its trading provisions. EPA subsequently finalized last month its Cross-State Air Pollution Rule (CSAPR) that creates a replacement SO2 and NOx trading program.

No doubt a NOx cap-and-trade plan would be favored by the same electric utilities that pushed for CO2 cap-and-tax.

John Rowe, CEO of large nuclear utility operator Exelon, said on a July 27 earnings call that,

Being clean is a competitive hallmark for Exelon. It will become even more advantageous as we move into this new era of EPA regulations. More and more, through a combination of economics, gas prices and pending environmental regulations, we expect to see the market bias towards cleaner forms of energy. Earlier this month, EPA issued its final Cross-State Air Pollution Rule, what we used to call the transport rule. The final rule contains many of the provisions that the Clean Energy Group, to which Exelon belongs, suggested and provides more regulatory certainty for lowering NOx and sulphur dioxide emissions beginning as early as next year. We applaud EPA’s use of a market-based solution with interstate trading where it could.

During the cap-and-trade debate, USCAP member Exelon salivated at the prospect of reaping substantial money-for-nothing — i.e., $750 million in revenues for every $10 increase in the price of carbon. Exelon would not have had to perform any act for such revenues other than selling the free carbon credits it anticipated receiving every year from taxpayers.

So if the EPA could pull off something similar for NOx, Exelon and the other non-coal-oriented utilities would profit from it. It would be cap-and-tax by another means.

5 thoughts on “EPA to resurrect cap-and-trade through its ozone standard?”

  1. I think this is Mr. Malloy stretching it a bit. However, what I see as I work in this industry are companies putting their older units on the retirement/decommissioning list. TVA just did this. The problem with this is that it is now essentially impossible to obtain a permit from EPA for new coal-fired units. Even though newer supercritical and ultra-supercritical steam cycle systems can be as much as 30% more efficient, equipped with SCRs, baghouses, FGDs, etc. (BTW – EPA completely looks the other way when we test FGD exhaust which we all know emit copious quantities of PM2.5). You would think that EPA would embrace newer more efficient steam cycle technology especially since it emits much less CO2 over conventional systems. To me it looks like EPA is marching with Sierra Club, NRDC, Green Peace, etc. to demonize this form of energy.

    Point is that as older units are retired new coal-fired capacity does not take their place. Natural gas, renewables and nuclear are beginning to fill in the capacity gap (at great cost to us). So, I believe Mr. Milloy’s position is correct in an indirect way.

    Meanwhile, ships are lining up to take our coal over to China and India. Our vast coal reserves will be combusted by somebody.

    Excellent point on PM1. I’d say that’s next on the list. It is hard enough to measure PM2.5. Not sure how I am going to measure PM1. When I did my first health risk assessment years ago I had to pick ambient air thresholds that provided for “ample margin of safety”. Back in the day it was a small fraction of the OSHA TLV. Now the thresholds have been lowered so much more I do not know how modelers distinguish from background. Everything is evaluated by models. Nothing is ever real world any more.

  2. I’m not sure I follow the logic of the proposed ozone standard being a Trojan horse for CO2 cap and trade through NOx limitations. The source has the option of reducing NOx by fuel substitution and/or addition of external controls such as selective catalytic reduction. I believe the latter has been employed by utilities for some time. Concurrent with NOx reduction through SCR would be VOC reduction through catalytic treatment of exhausts. The cost of any reduction scheme will be passed on to the consumer in the form of higher utility rates.

    The ozone standard is ridiculous on its face and is likely impossible to meet in some areas because of natural ground level ozone precursors. The Great Smokey Mountains were named that because of smog well before anyone was there to generate significant NOx. Evergreen trees are a great source of VOC’s.

    Is the EPA double counting on the supposed health benefits from the ozone standard? The PM2.5 standard supposedly contributes to asthma and breathing difficulties. Can they, in their infinite wisdom, separate health affects from ozone induced breathing difficulties? And what about PM1.0? I’m sure someone at EPA is just waiting for ozone reduction, PM2.5 reduction and other junkscience-based rules to be implemented before they discover the real dangers of smaller PM. After all, PM10 reduction was supposed to cure all the sick and save the planet, wasn’t it?

  3. Good observation. I suppose the apparent lack of power plant impact to ozone is attributable to selective catalytic reduction (SCR) technology installed on most all of Southern Company’s units. We noticed a drop in ozone levels here in Knoxville, TN after TVA installed SCR on most all their units. However, this was concurrent with the recent cooling trend of the past few years. So, reduced ozone could be from global cooling. We get the so-called smog alerts on a daily basis here. But visibility from Knoxville to our Great Smokys has never been better that I can recall.

  4. In Atlanta I have noticed our days of smog(high ozone) always occur during the week when we have heavy commuter traffic. On expected days, the government puts out pleas for people to carpool. There are never days when air quality is anticipated to be bad on weekends.

    Power plants run 24-7 and commuting is only during weekdays. This makes me suspect high levels of smog(which in Atlanta are not very high) are due to automobiles. We only have a few days per year during the week when the air quality index exceeds 100. These are days when air quality is sort of bad. I have detected no differenc on any days of air quality.

    Punishing utilities for burning coal will probably show no difference in air quality if what I suspect is a problem due to cars. Someone should research the real science on all these recommendations by EPA that are going to bankrupt the country.

    James H. Rust

  5. Cap-and-Trade is the Keynesian market approach used to reduce SO2 and NOx under the Acid Rain Program. I guess there is now no more “acid rain”, so EPA must now reduce NOx (for ozone) and SO2 (for fine PM) via CSAPR (“Casper”). I suppose the term “acid rain” has now given way to “acid air”. My little rainfall pH experiment I did in high school (long ago) took me all the way to the International Science and Engineering Fair in Minneapolis. However, back then I could readily discern pH differences in rainfall samples collected in the vicinity of the TVA power plant I lived nearby. Furthermore, there was a distinct pattern to rainfall sample pH and wind direction. OK then. So the rain samples had a pH near that of vinegar. Probably a good idea to reduce SO2 emissions, which has been done. However, today EPA has no means to measure any health or welfare benefit whatsoever by reducing the remaining 10% of SO2 and NOx emissions being emitted, EXCEPT their computer models. Rest easy Reference Man, you will now be safe. EPA will prolong the life of Reference Man by such and such years and save America health care costs amounting in the trillions (no fooling, EPA has already claimed this). That said, why then is Obamacare needed at all?

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