Clean Interstate Rule: Review and Analysis

CRS Report for Congress
Clean Air Interstate Rule: Review and Analysis
May 20, 2005
Larry Parker
Specialist in Energy Policy
Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Clean Air Interstate Rule: Review and Analysis
Summary
On March 10, 2005, the Environmental Protection Agency (EPA) issued its final
rule to address the effects of interstate transport of air pollutants on nonattainment
of the National Ambient Air Quality Standards (NAAQS) for fine particulates (PM^2.5)
and ozone (specifically, the eight-hour standard). The Clean Air Interstate Rule
(CAIR) was first proposed as the Interstate Air Quality (IAQ) rule and appeared in
the Federal Register January 30, 2004. For PM^2.5, CAIR finds that the interstate
transport of sulfur dioxide (SO²) and nitrogen oxides (NOx) from 23 states and the
District of Columbia contributes significantly to downwind nonattainment; for ozone,
CAIR finds that interstate transport of NOx from 25 states and the District of
Columbia contributes significantly to downwind nonattainment of the eight-hour
standard. This result differs some from the proposed rule because of improved
modeling.
EPA decided in CAIR to create three emissions caps: Two are annual emissions
caps that address the interstate contribution of SO² and NOx to PM^2.5 nonattainment;
the third cap is a seasonal cap to address interstate contribution of NOx to ozone
nonattainment. The three caps are implemented in two phases: Phase 1 begins in
2009 for the NOx caps and 2010 for the SO² cap. Improved modeling and other
considerations resulted in some changes in the final rule from the proposed IAQ. For
example, in CAIR, EPA added a fuel-type adjustment factor to the NOx allocation
formula that provides significantly more NOx allowances to states that have coal-
fired electric generation compared with those with natural gas-fired generation.
Although changes to the proposed rule may be important in specific cases, they
do not represent a major shift in the thrust and scope of CAIR. That CAIR has not
had the visibility of the contemporaneous mercury (Hg) rule should not be interpreted
to mean that the underlying issue of PM^2.5and eight-hour ozone compliance has been
solved. EPA is currently reviewing the stringency of the PM^2.5 NAAQS, a process
that may result in a more stringent standard. Given CAIR’s lengthy schedule, it seems
likely that if the PM^2.5 NAAQS is strengthened, efforts to revise CAIR would occur.
Likewise, CAIR does not address the most potent environmental issue
surrounding fossil-fuel-fired electric generating facilities — global warming and the
possibility of carbon dioxide reductions. Movement on that issue over the next
decade could result in a modification of CAIR, or a new multi-pollutant control
regime. Bills have been introduced in Congress to create such a system.
Finally, CAIR raises questions about the future of the Bush Administration’s
legislative initiative — Clear Skies. Clear Skies represents a complete rewrite of
Title IV of the Clean Air Act and would impose a comprehensive cap-and-trade
system on utility SO², NOx, and Hg emissions. In addition, Clear Skies would alter,
delete, or hold in abeyance for some time existing sections of the CAA with respect
to affected electric facilities and industrial sources that chose to opt into the program.
With the promulgation of CAIR that achieves NOx and SO²emissions reductions
from most of the country’s electricity generating facilities, and of the final Hg rule,
it is unclear what impetus remains for Clear Skies. This report will not be updated.

Contents
Overview ........................................................1
Background ......................................................2
Why Did EPA Do It?...........................................2
How Did EPA Come Up With All Its Determinations?................5
Significant Contribution....................................5
Regional Cap/State Budget..................................7
The Rule.........................................................9
Reducing PM^2.5: The SO² and NOx Annual Caps....................9
SO² Annual Cap...........................................9
NOx Annual Cap.........................................11
Reducing Ozone Formation: The Seasonal NOx Cap................14
Issues ..........................................................15
Timing of Reductions: Banking.................................15
Adequacy of Reductions.......................................17
Meshing with the Clean Air Act.................................18
Section 126 Petitions......................................18
Regional Haze: BART....................................18
Conclusion ......................................................19
List of Tables
Table 1. Estimated Schedule for Eight-Hour Ozone and PM^2.5 NAAQS.......4
Table 2. States Determined to Contribute Significantly to Downwind
Nonattainment of the PM^2.5 and Eight-Hour Ozone NAAQS............6
Table 3. Projected Control Costs for Electric Generators under CAIR........9
Table 4. Projected Net Banking Before and During CAIR.................15
Table 5. Projected Emissions Under CAIR............................16
Table 6. Projected Impact of CAIR on Eastern U.S. Compliance with PM^2.5
and Eight-Hour Ozone NAAQS.................................17

Clean Air Interstate Rule:
Review and Analysis
Overview
On March 10, 2005, the Environmental Protection Agency (EPA) issued its final
rule to address the effects of interstate transport of air pollutants on nonattainment
of the National Ambient Air Quality Standards (NAAQS) for fine particulates (PM^2.5)¹
and ozone (specifically, the eight-hour standard). The Clean Air Interstate Rule
(CAIR) was first proposed as the Interstate Air Quality (IAQ) rule and appeared in²
the Federal Register January 30, 2004. For PM^2.5, CAIR finds that the interstate
transport of sulfur dioxide (SO²) and nitrogen oxides (NOx) from 23 states and the
District of Columbia contributes significantly to downwind nonattainment; for ozone,
CAIR finds that interstate transport of NOx from 25 states and the District of
Columbia contributes significantly to downwind nonattainment of the eight-hour
standard.
To remedy the situation, the rule generally follows (with some important
exceptions) the methodology EPA employed in an earlier regulation that addressed
interstate transport of ozone pollution, the NOx SIP Call.³ In the NOx SIP Call, EPA
found 21 states and the District of Columbia significantly contributed to
nonattainment of the 1-hour ozone NAAQS.⁴ To remedy the situation, EPA set
statewide emissions budgets for NOx emissions, and recommended that states
achieve those budgets through “highly cost-effective” controls on electric generators
and large industrial facilities under a regional cap-and-trade program. States began
implementing controls on May 31, 2004.

¹ Environmental Protection Agency, Rule to Reduce Interstate Transport of Fine Particulate
Matter and Ozone (Clean Air Interstate Rule); Revsions to Acid Rain Program; Revisions
to the NOx SIP Call; Final Rule (70 Federal Register 25162-25405, May 12, 2005).
(Hereafter cited as Clean Air Interstate Rule.)
² Environmental Protection Agency, Rule to Reduce Interstate Transport of Fine Particulate
Matter and Ozone (Interstate Air Quality Rule); Proposed Rule (69 Federal Register 4566-

4650). For an analysis of the proposed IAQ rule, see CRS Report RL32273, Air Quality:

EPA’s Proposed Interstate Air Quality Rule, by Larry Parker and John Blodgett. (Hereafter
cited as Proposed Interstate Air Quality Rule.)
³ For background and discussion of the NOx SIP Call, see CRS Report 98-236, Air Quality:
EPA’s Ozone Transport Rule, OTAG, and Section 126 Petitions — A Hazy Situation?, by
Larry Parker and John Blodgett.
⁴ Originally, the rule included 22 states; however, Wisconsin was removed from the rule’s
reduction requirements by the court during litigation in 2000. See Michigan v. EPA, 213
F.3d 663 (D.C. Cir. 2000) cert. denied 532 U.S. 904 (2001)

With CAIR, EPA creates regional emissions caps for NOx and SO² to be
implemented in two phases — 2010 (2009 for NOx) and 2015. Two caps (annual
SO² emissions and annual NOx emissions) apply to the region of 23 states (and
District of Columbia) found to contribute to PM^2.5 nonattainment, and one cap
(seasonal NOx emissions) applies to the region of 25 states (and District of
Columbia) found to contribute to eight-hour ozone nonattainment. The regional caps
for the affected states are as follows:
^!SO² annual caps: 3.6 million tons in 2010 and 2.5 million in 2015
^!NOx annual caps: 1.5 million tons in 2009 and 1.3 million in 2015
^!NOx ozone season caps: 580,000 tons in 2009 and 480,000 tons in
2015
Based on methodology centered on reductions from electric generating facilities
and adjusted for type of fossil fuel burned, each affected state is assigned a portion
of the regional cap in the form of a statewide “emissions budget” or cap. Each
covered state is required to submit a revised State Implementation Plan (SIP)
identifying measures it intends to implement to achieve its emissions budget. States
are free to choose whatever means they deem appropriate, subject to EPA approval.
However, EPA strongly believes that the regional emissions caps can be most cost-
effectively achieved through regional cap-and-trade programs focused on electric
generators and strongly encourages that states choose that option. A model cap-and-
trade scheme for states to adopt is included in the final rule. That model scheme
achieves a state’s emissions budget through emission limitations solely on electric
generating units.
Background
Why Did EPA Do It?
In 1997, EPA finalized new NAAQS for both PM^2.5 and ozone.⁵ The new
NAAQS for ozone revised the previous ozone NAAQS by tightening the standard
from 0.12 parts per million (ppm) to 0.08 ppm, increasing the averaging time from
one hour to eight hours, and measuring compliance by averaging concentrations
rather than by counting individual peak concentrations exceeding the standard. The
new PM^2.5 NAAQS was set at an annual maximum concentration of 15 micrograms
per cubic meter (µg/m³) based on the three-year average of annual arithmetic mean
PM^2.5 concentrations from one or more community-oriented monitors; and a 24-hour
concentration of 65 µg/m³, based on the three-year average of the 98^th percentile of

24-hour PM^2.5 concentrations at each population-oriented monitor within an area.

EPA has taken a cautious approach to implementing the two NAAQS. Attempts
to coordinate the new eight-hour ozone standard with the previous 1-hour standard
proved difficult and subject to considerable litigation. In the case of the PM^2.5
standard, comprehensive monitoring data were unavailable in 1997 to determine

⁵ Published in the Federal Register on July 18 (62 FR 38652-38896), the standards became
effective September 16, 1997.

compliance and make designations. In 1998, the Congress set a statutory schedule
for the two NAAQS, based on EPA’s previously announced Interim Implementation
Policy.⁶ Judicial review and other factors combined to delay the designations.
In 2004-2005, EPA issued designations on attainment and nonattainment for the
eight-hour ozone NAAQS and the PM^2.5 NAAQS. For PM^2.5, EPA analysis indicates
violations of the NAAQS over the eastern part of the United States and parts of
California and Montana. Specifically, data show 39 nonattainment areas covering
all or part of 224 counties in 20 states either fail to meet the standard or cause a
downwind county to fail. All or part of 208 counties violate the annual standard; a
few violate both the annual and the 24-hour standard; none violate only the 24-hour
standard. The population of the affected counties is 90 million.⁷ For the eight-hour
ozone NAAQS, EPA analysis indicates widespread violations of the NAAQS over
the eastern and midwestern United States, California, and Texas, along with scattered
areas in Louisiana, Arizona, and Colorado. Specifically, data show 126
nonattainment areas covering all or part of 474 counties in 31 states violate the eight-
hour ozone standard. The population of the affected counties is 159 million.⁸
The 1997 eight-hour ozone and PM^2.5 NAAQS set in motion the Clean Air Act’s
(CAA) SIP process under Section 110. The promulgation of the revised ozone
NAAQS and the new PM^2.5 NAAQS meant that the SIPs of many states were no
longer adequate to bring those states into compliance by the statutory deadline.
Under Section 110(k)(5), if EPA finds a SIP inadequate, it must require the affected
state to submit a revised SIP that includes sufficient measures to bring that state into
compliance. This is known as a “SIP Call.”
In the case of the eight-hour ozone and the PM^2.5 NAAQS, the process of
developing effective compliance strategies is complicated by the problem of
transported air pollutants. Under Section 110(a)(2)(D), SIPs must include adequate
provisions to prevent sources within that state from contributing significantly to
nonattainment in one or more downwind states. Finding that interstate transport of
SO² and NOx contributes significantly to ozone and PM^2.5 nonattainment, the EPA
issued the proposed Interstate Air Quality rule (IAQ) in December 2003 to mitigate
the problem. This rule was finalized as the Clean Air Interstate Rule (CAIR) in
March 2005.
Combining the requirements of the CAA with EPA intentions as stated in the
rule, the major milestones for implementing the eight-hour ozone and PM^2.5 NAAQS
are set out in Table 1.

⁶ Transportation Equity Act for the 21^st Century, P.L. 105-178, Title VI.
⁷ For more on PM designations, see EPA’s website at [http://epa.gov/pmdesignations/].
⁸ For more on eight-hour ozone designations, see EPA’s website at [http://www.epa.gov/
ozonedesignations/].

Table 1. Estimated Schedule for Eight-Hour Ozone and PM^2.5
NAAQS
Eight-hour Ozone
MilestonesNAAQSPM^2.5 NAAQS
Governors submitJuly 2003 February 2004
designations of
nonattainment areas
EPA Proposes CleanJanuary 2004
Air Interstate rule
(CAIR)
EPA promulgates finalApril 2004 (phase 1)Expected early 2006
implementation rule
EPA promulgates finalApril 2004January 2005
designations
EPA issues final CAIRMarch 2005 (published May 2005)
States submit CAIRRequired 18 months after CAIR is issued
SIPs (September 2006)
States submit revisedThree years after effectiveThree years after effective
SIPs to achieve PM^2.5 anddate of designations (Junedate of designations
Ozone NAAQS2007)(April 2008)
NAAQS complianceVaries according to5 to10 years after
deadlineseverity of the problemdesignations (2010-2015)
(2007-2021)
CAIR complianceTwo phases: 2010 (2009 for NOx) and 2015
deadlines
As indicated by Table 1, EPA would require states to submit their CAIR SIPs
before the NAAQS nonattainment SIPs are required. EPA justifies the submission
of transported air pollutant SIPs by upwind states before the submission of
nonattainment SIPs by downwind states on the basis of Section 110(a)(1-2) and
Section 172(b) of the Clean Air Act and on policy considerations.⁹ EPA argues that
the upwind reductions will facilitate planning by downwind states and that downwind
states will benefit from the relatively early reductions because they themselves
contribute to nonattainment elsewhere.

⁹ Section 110 requires submission of SIPs to attain NAAQS, including transport provisions,
within three years after promulgation of a NAAQS. Section 172(b) requires submission of
SIPs in response to a nonattainment designation within three years of the designation. EPA
argues this sequence indicates the priority given to the transport SIPs over the nonattainment
SIPs. Proposed Interstate Air Quality Rule, p. 4624.

How Did EPA Come Up With All Its Determinations?
CAIR is based on a series of determinations by EPA with respect to pollution
transport, cost-effective pollution control, and compliance feasibility. These
determinations are made within the SIP process of Sections 110(k)(5) and

110(a)(2)(D). ¹⁰

Significant Contribution. The pivotal finding by EPA in the rule is that
affected states significantly contribute to nonattainment in downwind states. This
determination defines the geographic scope of the rule. For states in the eastern
United States, EPA conducted a series of modeling runs to determine the contribution
various upwind states are projected to make to areas in the eastern United States
projected by EPA to be in nonattainment in 2010 and 2015. For ozone
nonattainment, a “significant contribution” was defined by EPA as the product of
three factors: (1) actual amount of transported pollution from upwind states that
contribute to nonattainment in downwind states; (2) how often contributions over
specific thresholds occur; and (3) the comparative amount of the upwind transported¹¹
contribution to the total nonattainment situation in the downwind area. For the
eight-hour ozone NAAQS, EPA modeled the emissions impact of the 31 states east
of or bordering the Mississippi River on 40 eastern downwind counties projected by
EPA to be in noncompliance in 2010. States whose maximum contribution was
estimated at less than 2 parts per billion (ppb) and/or that contribute less than 1% to
total nonattainment were screened out. After evaluating the remaining eastern states
on the three criteria above on 40 eastern downwind counties, 25 states and the
District of Columbia were found to make a significant contribution to¹²
nonattainment. These states constitute the region covered under CAIR seasonal
NOx cap and are shown in Table 2.
For the PM^2.5 NAAQS, EPA modeled the emissions impacts of 37 eastern states
on 62 eastern downwind counties projected by EPA to be in noncompliance in
2010.¹³ Because the controlling PM^2.5 NAAQS is the annual standard, EPA
considered only two of the three factors listed for ozone in determining significant
contribution: actual amount and comparative amount.¹⁴ In the proposed rule, EPA³
suggested that the threshold for determining significant contribution be 0.15 µg/m
— 1% of the annual standard of 15 µg/m³. In the final rule, EPA settled on 0.2 µg/m³

¹⁰ Section 110(k)(5) provides for EPA to issue a SIP Call if existing SIPs are determined to
be substantially inadequate to attain or maintain a NAAQS or mitigate interstate pollutant
transport as described in sections 176A (involving Interstate Transport Commissions) or 184
(involving control of interstate ozone air pollution). Section 110(a)(2)(D) requires states to
submit SIPs to the EPA that contain adequate provisions prohibiting emissions of any air
pollutant that contributes significantly to NAAQS or Prevention of Significant Deterioration
(PSD) nonattainment in any other state.
¹¹ Clean Air Interstate Rule, p. 25246.
¹² For modeling purposes, the District of Columbia’s emissions were combined with those
of Maryland. Clean Air Interstate Rule, p. 25249.
¹³ Clean Air Interstate Rule, p. 25247.
¹⁴ Proposed Interstate Air Quality Rule, p. 4608.

as the threshold.¹⁵ Based on that threshold, EPA found 23 states and the District of
Columbia were projected to contribute significantly to 2010 PM^2.5 nonattainment.
These states constitute the region covered under CAIR’s annual NOx and SO² caps
and are shown in Table 2.
Table 2. States Determined to Contribute Significantly to
Downwind Nonattainment of the PM^2.5 and Eight-Hour Ozone
NAAQS
States contributing to Downwind
States contributing to DownwindNonattainment of the eight-hour ozone
Nonattainment of the PM^2.5 NAAQSNAAQS
AlabamaAlabama
Arkansas
Connecticut
Delaware (proposed)Delaware
District of ColumbiaDistrict of Columbia
FloridaFlorida
Georgia
Illinois Illinois
IndianaIndiana
IowaIowa
K e ntucky K e ntucky
Louisiana Louisiana
Maryland Maryland
Massachusetts
Michigan Michigan
Minnesota
Mississippi Mississippi
Missouri M issouri
New Jersey (proposed)New Jersey
New YorkNew York
North CarolinaNorth Carolina
OhioOhio
Pennsyl va nia Pennsyl va nia
South CarolinaSouth Carolina

¹⁵ Clean Air Interstate Rule, p. 25246.

States contributing to Downwind
States contributing to DownwindNonattainment of the eight-hour ozone
Nonattainment of the PM^2.5 NAAQSNAAQS
T e nnessee T ennessee
Texas
Virginia Virginia
West VirginiaWest Virginia
Wisconsin Wisconsin
^Source:^Cle^aⁿ^Aⁱ^{r I}ⁿ^te^rsta^t^e^R^u^le^{, p. 25167.}
EPA does not specify the process by which it determined that interstate transport
of pollution is not a significant contributor to nonattainment in states such as
California, Arizona, or Montana. The proposed rule simply stated:
In analyzing significant contribution to nonattainment, we determined it was
reasonable to exclude the Western U.S., including the States of Washington,
Idaho, Oregon, California, Nevada, Utah and Arizona from further analysis due
to geography, meteorology, and topography. Based on these factors, we
concluded that the PM^2.5 and eight-hour ozone nonattainment problems are not
likely to be affected significantly by pollution transported across these States’
boundaries. Therefore, for the purpose of assessing States’ contributions to
nonattainment in other States, we have only analyzed the nonattainment counties¹⁶
located in the rest of the U.S.
The rule provides no other specific basis for EPA’s determination that western
nonattainment areas should not be subject to the rigorous modeling eastern
nonattainment areas were. None of the extensive modeling conducted for
nonattainment areas in the eastern United States was conducted on nonattainment
areas in the western United States.
Regional Cap/State Budget. With a determination of significant
contribution, CAIR moves toward developing a cost-effective remedy. Maintaining
the need to base its remedy on “highly cost-effective reductions,” EPA examined the
potential balance of local control to interstate controls along with the availability and
timing of cost-effective pollution control measures in upwind states. Projecting
nonattainment areas in 2010, EPA concluded in the proposed rule that for many
PM^2.5 nonattainment areas:
it would be difficult, if not impossible, to reach attainment unless transport is
reduced to a much greater degree and over a much broader regional area than by
the simultaneous adoption of local controls within specific nonattainment areas.
In addition, we found that much of the air quality improvement that did occur in

¹⁶ Proposed Interstate Air Quality Rule, p. 4581.

downwind areas with this strategy was due to reductions in transported sulfate¹⁷
attributable to upwind SO² emissions.
EPA conclusions with respect to eight-hour ozone nonattainment areas were less
dramatic, but still significant enough for EPA to conclude that further regional¹⁸
reductions were warranted.
Calling for a combination of local and interstate transport control, EPA
developed criteria for determining “highly cost-effective” transport control levels.
SO² and NOx are emitted by a variety of sources. Sulfur dioxide is primarily emitted
by stationary sources, particularly coal-fired electric generators (69% of the total in¹⁹
2003) and industrial combustion (14% of the total in 2003). In the case of nitrogen
oxides, mobile sources are the primary source, although stationary sources,
particularly electric generators (22% of the total in 2003) and industrial combustion
(14% of the total in 2003), make substantial contributions to the overall totals.
Generally arguing that electric generators provided the most cost-effective emission
reduction source and that data were lacking on other stationary sources, EPA focused
on reductions from electric generators to determine emission caps. In contrast, for the
NOx SIP Call, large industrial combustion sources were included in EPA’s cost-
effectiveness calculations.
Focusing on electric generators 25 megawatts (MW) or greater, EPA developed
a threshold for controlling transported pollutants by comparing the average and
marginal costs of other SO² and NOx regulatory actions, along with other factors.
Specifically, EPA compared the average and marginal costs of installing flue-gas
desulfurization (FGD) and selective catalytic reduction (SCR) technologies on
electric generators with the average and marginal costs of other regulatory actions,
including Best Available Control Technology (BACT) determinations, individual
state actions, New Source Performance Standards (NSPS), and various mobile source
decisions. Finding the electric generating control technologies to be “highly cost-
effective,” EPA determined the final regionwide caps for affected states by assuming
these control technologies were installed on electric generators. The projected cost
per ton removed is shown in Table 3.
Based on the assumption that states would solely target electric generators for
control, EPA proceeded to determine the appropriate individual statewide emission
budgets. As noted earlier, under the SIP process, states are not required to adopt a
electric-generator-only strategy in complying with its emissions budget; however,
they must if they choose to participant in the EPA-sponsored regional trading
program set up under the model rule.

¹⁷ Proposed Interstate Air Quality Rule, p. 4582.
¹⁸ Specifically, EPA modeling indicated that from 22% to 96% of projected 2010
nonattainment of the eight-hour ozone NAAQS is due to transport, depending on the specific
area. Proposed Interstate Air Quality Rule, p. 4584.
¹⁹ Based on EPA data for 2003. See [http://www.epa.gov/airtrends/econ-emissions.html].

Table 3. Projected Control Costs for Electric Generators under
CAIR
(1999 $/ton removed)
2010 2010
(2009 for NOx)(2009 for NOx)2015 2015
Average costMarginal costAverage costMarginal cost
SO² Control Costs$500$700$700$1,000
SO² Control Cost$800$1,200
(high cost case*)
NOx Control Costs$500$1,300$700$1,600
NOx Control Costs
with Compliance$1,300$1,600
Supplement Pool
(CSP)
NOx Control Costs$1,400$1,700
(high cost case*)
^Source:^Cle^aⁿ^Aⁱ^{r I}ⁿ^te^rsta^t^e^R^u^le^{, pp. 25201-}^4613-^4615.
^*^A^ssum^e^{s hi}^{gh e}^l^e^c^t^rⁱ^cⁱ^t^y^d^e^m^a^nd^aⁿ^d^hi^{gh na}^t^u^r^a^l^ga^{s p}^rⁱ^c^e^s^.
The Rule
As noted above, EPA decided in its final rule to create three emissions caps:
Two are annual emissions caps that address the interstate contribution of SO² and
NOx to PM^2.5 nonattainment; the third is a seasonal cap to address interstate NOx
contribution to ozone nonattainment. Each of these caps and their accompanying
model trading schemes has to be integrated into the existing multilayered fabric of
the Clean Air Act (CAA). As discussed below, each cap faced unique problems in
meshing with the CAA.
Reducing PM^2.⁵: The SO² and NOx Annual Caps
Reducing PM^2.5 is a year-round problem, unlike ozone, which is a seasonal
problem. Overwhelmingly, nonattainment areas are in noncompliance with the
annual PM^2.5 NAAQS, not the 24-hour standard. Thus, the two caps are averaged on
an annual basis, an averaging time that provides maximum flexibility and potential
cost-savings to polluters.
SO² Annual Cap. Unlike annual NOx emissions, annual SO² emissions are
already controlled to some degree by an existing statutory cap-and-trade program —
Title IV of the CAA. Indeed, it is the success of the Title IV program that has
encouraged the development of other market-oriented programs, including the NOx
SIP Call and CAIR. Title IV of the 1990 CAA Amendments required the reduction
of SO² emissions from electric generators from about 15 million tons in 1988 to 8.95
million tons by January 1, 2000. In addition, it mandates that the 8.95 million ton
cap be maintained into the future, requiring new SO² emitting utility plants to offset

their emissions with further reductions from existing facilities. To implement the
program, Title IV created a comprehensive permit and emissions allowance system.
An allowance is a limited authorization to emit a ton of SO² during or after a specific
year. Issued by EPA, the allowances are allocated to existing power plants according
to formulas provided in Title IV. The utility receives the allowances for a given plant
regardless of the actual operation of the plant. For example, a utility may choose to
shut down an existing power plant and use those allowances to offset emissions from
two or more newer, cleaner facilities. Generally, a power plant that commenced
operation after enactment receives no allowances, requiring it to obtain allowances
from the existing pool of allowances in order to operate. A utility may trade
allowances nationally as well as bank allowances for future use or sale.
Developing a new regional cap-and-trade SO² program raised several issues
with respect to the statutory nationwide SO² cap-and-trade program created under
Title IV. Among the issues EPA had to resolve were (1) allocation of state budgets,
(2) treatment of excess Title IV allowances by the more stringent CAIR program, and
(3) treatment of existing banked Title IV allowances.
Because the Title IV program is both statutory and successful, EPA felt it
needed to protect the program, thus limiting its ability to suggest alternative
allocation schemes under CAIR.²⁰ Based on the assumption that states would solely
target electric generators for control, EPA proceeded to determine CAIR’s
appropriate statewide emission budgets by melding CAIR’s allocation scheme into
the existing Title IV acid rain program. With both programs based on electric
generators, the effect of this allocation scheme is to continue the grandfathering of
pre-1990 existing plants under CAIR. EPA recognizes this, but argues that
maintaining the integrity of the Title IV program prevents it from pursuing alternative
allocation schemes that might provide relief to newly constructed sources.
Perhaps the most obvious problem with a CAIR-Title IV interface is the creation
of surplus Title IV allowances as sources in the regional control area reduce
emissions to the more stringent CAIR limits while the rest of the country is under the
Title IV caps. To prevent the build-up of Title IV allowances, EPA mandates CAIR-
affected states require a two-for-one redemption of CAA Title IV allowances during
phase 1, and a 2.86-for-one redemption of Title IV allowances during phase 2. Such
redemption ratios would represent a 50% reduction during phase 1 and 65% during
phase 2. These Title IV allowance redemptions are required regardless of whether
or not the state chooses to participate in the EPA-sponsored CAIR SO²trading
scheme.
Modifying Title IV allowances could be questioned by some; however,
allowances are not cast in concrete by the 1990 CAAA. As noted, an allowance is
a limited authorization to emit SO². Title IV states explicitly that an allowance is not
a property right, and that “[n]othing in this title or in any other provision of law shall
be construed to limit the authority of the United States to terminate or limit such
authorization.” (Section 403(f)). The Senate report on Title IV (from which this
language originated) elaborates on this provision with the following:

²⁰ Clean Air Interstate Rule, p. 25229.

The purpose in characterizing the legal or property status of allowances in new
section [403](f) of the Act is to make clear that regulatory actions taken
subsequent to the issuance of allowances are not subject to the “takings clause”
of the U.S. Constitution. Allowances are, in large part, simply iterations of each
unit’s permit under this title. Since the permits will be, in effect, legally binding
statements of each unit’s emissions limitation obligations under the pollution
control program established herein, the subsection makes clear that should the
Congress or the Administrator limit, revoke or otherwise modify the allowances
or the underlying regulatory program established by new title IV of the Act or the
regulations promulgated pursuant thereto, the U.S. government will not be
obliged to compensate allowance-holders for loss of the allowances or any loss
in their value. Allowances are but the means of implementing an emissions
limitation program, which can be altered in response to changes in the²¹
environment or for other reasons of public policy.
Thus, EPA may have significant flexibility in modifying Title IV allowances “in
response to changes in the environment or for other reasons of public policy.” EPA
provides a detailed defense of its decision to use Title IV allowances in its CAIR²²
trading program in the rule.
At the beginning of 2004, the Title IV allowance bank had about 7.6 million
allowances.²³ EPA decided that pre-2010 banked Title IV allowances may be used
on a one-for-one basis for meeting the more stringent reductions under CAIR in order
to encourage early reductions.²⁴ Essentially, this means that pre-2010 allowances
could double in value beginning in 2010 and nearly triple in value beginning in 2015.
One revision EPA does make in the Title IV program per se as part of the CAIR
SO²trading program is to change the unit-by-unit allowance-holding requirement to²⁵
a source-by-source system, effective July 1, 2006. EPA argues that it is important
to provide this additional compliance flexibility, and that it does not affect the
emissions monitoring and reporting requirements, which remain applied on a unit-by-
unit basis.
NOx Annual Cap. Unlike SO², there is no statutory cap-and-trade program
for NOx emissions from electric utilities. However, there is a regional, seasonal NOx
cap-and-trade program (the NOx SIP Call) that includes electric utility and other
major stationary sources. Like the model trading programs suggested under CAIR,
the NOx SIP Call trading program is the product of an EPA-sponsored model rule
and regional trading scheme that was voluntarily adopted by the affected states to
achieve their emissions budgets. As discussed in the next section, CAIR eliminates
the NOx SIP Call’s seasonal cap-and-trade scheme starting in 2009 in favor of the
seasonal CAIR NOx program.

²¹ S.Rept. 101-228, December 20, 1989, p. 321.
²² See Clean Air Interstate Rule, pp. 25291-25296.
²³ For more information on the Title IV emissions bank, see EPA’s most recent annual report
at [http://www.epa.gov/airmarkets/cmprpt/arp03/2003report.pdf].
²⁴ Clean Air Interstate Rule, pp. 25284-25285.
²⁵ Ibid., pp. 25296-25299.

Unlike its approach with the SO² program, EPA did not attempt to meld the
CAIR annual program with the existing NOx SIP Call by using a cap-and-trade
scheme based on the NOx SIP Call. EPA calculated emission budgets for states by
multiplying a NOx emission rate specified in the rule by the state’s electric
generating units’ historical annual heat input. The rule sets the NOx emission rate
at 0.15 lb./mmBtu during phase 1, increasing the stringency to 0.125 lb./mmBtu
during phase 2. The baseline for the annual heat input is the highest annual input for
any year 1999 through 2002 on a unit-by-unit basis.²⁶ For powerplants beginning
operations after 2002 or for rewarding early reductions, or for assisting utilities
having difficulties meeting their emissions limitations, EPA provides for a
Compliance Supplement Pool (CSP) of 200,000 allowances to be allocated to states
in proportion to their reduction requirement.
The final annual CAIR NOx program includes three major changes from the
proposed rule. First, the phase 1 compliance deadline was accelerated from 2010 to
2009. EPA believes that accelerating the phase 1 deadline for both NOx and SO² is
not practical, but a one-year acceleration of the NOx deadline was feasible.²⁷ Second,
EPA chose to weight the heat input baseline by fuel type. Specifically, the adjustment
factors are 1.0 for coal, 0.4 for natural gas, and 0.6 for oil.²⁸ This departure from the
NOx SIP Call methodology (and the proposed rule) is justified by EPA on equity
grounds.²⁹ The adjustment represents a 2½ weighing of coal combustion compared
with natural gas combustion providing states with substantial coal-fired generation
a significantly larger emissions budget than they would have received if all fossil fuel
combustion were weighed the same. Third, EPA decided to offer states a voluntary
opt-in provision for non-electric utility units that meet specific criteria.³⁰
The NOx annual cap and its model trading program presented several issues
with respect to its relationship to CAIR’s seasonal NOx program and the existing
NOx SIP Call, including (1) melding CAIR methodology with the existing NOx SIP
Call; (2) non-electric utilities included in the NOx SIP Call, but not CAIR cap
determinations and model trading programs; and (3) annual versus seasonal controls.
Some of these problems were resolved by EPA’s decision in the final rule to include
a seasonal NOx cap in addition to the annual CAIR NOx cap discussed here.
Despite its emphasis on using NOx SIP methodology in developing CAIR, the
annual CAIR NOx cap-and-trade scheme differs significantly from the NOx SIP Call
in terms of the state budget determined and the scope of participants. EPA’s choice
of focusing only on electric generators runs counter to the cost-benefit analysis, the
recommendations of the Ozone Transport Assessment Group (OTAG), and EPA’s

²⁶ Ibid., p. 25230.
²⁷ Ibid., p. 25222.
²⁸ Ibid., p. 25231.
²⁹ Ibid., p. 25231.
³⁰ Ibid., pp. 25286-25288.

NOx SIP Call.³¹ OTAG’s recommendations to EPA with respect to the NOx SIP
Call called for NOx controls on large and medium non-utility stationary sources in
addition to controlling utility sources. In the final NOx SIP Call, EPA calculated
state emission budgets based on five sectors: electric utility, nonutility sources, area
sources, nonroad engines, and highway vehicles. Budgets were based on cost-
effective reductions, with substantial reductions required from electric generators and
from nonutility sources. Indeed, EPA used a 70% reduction requirement for large
industrial facilities and Reasonably Available Control Technology (RACT) control
(generally 25%-50%) for smaller sources.³² In CAIR, arguing a lack of data, EPA
generally released the other stationary source components from the rule. EPA notes
it had sufficient data in 1997 to propose a NOx SIP Call that included these sources,
but argues it doesn’t have sufficient data in 2005 to include these sources in CAIR
because of the increased geographic scope of CAIR and its inclusion of SO².³³
The methodological differences resulting from the exclusion of stationary
industrial sources from CAIR but not the NOx SIP Call presents difficulties for the
CAIR cap-and-trade program. By permitting only electric utilities to participate in
the CAIR model trading programs, along with the decision to eliminate the NOx SIP
Call trading program, industrial sources currently covered under the SIP Call would
have been left hanging with respect to the CAIR model trading program. In the final
rule, EPA decided to permit states to include NOx SIP Call industrial sources under
its model seasonal NOx trading program, but not its model annual NOx trading
program.
A final issue is the seasonal nature of the NOx SIP Call versus the annual nature
of the CAIR NOx program. In the proposed IAQ, EPA argued this was not a
problem. In the CAIR, EPA partly changed its approach and included a third cap to
respond to the seasonal nature of the ozone program. However, it included no flow
control mechanisms to prevent the excessive use of emission banks in meeting
emission limitations such as are contained in the current NOx SIP Call trading
program.

³¹ OTAG was created by EPA and the 37 easternmost states under the 1990 Clean Air Act
Amendments to recommend ways of reducing ozone transport in the northeastern part of the
country. Final recommendations were made in 1997.
³² Specifically, for utility sources, EPA used a NOx emission rate of 0.15 lb. NOx/mmBtu
to determine budget allocations. For area sources, EPA assumed no new controls. For
nonutility sources, EPA used a 70% reduction requirement for large sources, and RACT
controls (generally 25%-50%) for smaller sources. EPA calculated the highway vehicle
budget by assuming implementation of existing SIPs, along with the following federal
measures: national low emission vehicle standards, 2004 heavy-duty engine standards, and
revisions to emissions test procedures. Finally, EPA calculated the budget for nonroad
engines assuming implementation of existing SIPs, along with the following federal
measures: federal small engine standards (Phase II), and 1997 proposed nonroad diesel
engine standards. See proposed Ozone Transport Rule and Appendix B (OTAG
Recommendations), 62 Federal Register 60318-60420, November 7, 1997.
³³ Clean Air Interstate Rule, p. 25214.

Reducing Ozone Formation: The Seasonal NOx Cap
In the final rule, EPA decided to include a seasonal NOx program directly
focused on ozone nonattainment. This decision represents a reversal on EPA’s part
from its proposed rule that argued that ozone-affected states should be included in
the proposed annual NOx program and no seasonal program was necessary.
The seasonal NOx trading program is completely separate from the annual NOx
trading program in its operations, and would replace the existing NOx SIP Call
seasonal trading program. Allowances banked under the seasonal program cannot be
used for complying with the annual program and vice-versa. Likewise, existing
banked allowances under the NOx SIP Call trading program can be used only with
the seasonal NOx program. As in the NOx SIP Call, the ozone season is defined as
May-September. In the final rule, EPA found that five states — Connecticut,
Massachusetts, New Jersey, Delaware, and Arkansas — would be covered under the
seasonal NOx program, but not the annual NOx program.³⁴ All of these states are
currently covered by the NOx SIP Call.
However, EPA’s CAIR seasonal NOx program’s emissions budget allocation
methodology is based on its CAIR annual NOx program’s methodology, not the
existing NOx SIP Call. This includes the sole focus on electric generating units,
employing the same emission rates and historic baselines that the annual program
uses, and the inclusion of fuel-type adjustment factors for determining baseline heat
rates.
The decision to include a seasonal NOx cap and model trading program under
CAIR reflects a desire by EPA to eliminate the existing NOx SIP Call trading
program. EPA believes its updated modeling justified an enlarged emissions cap,
and that its CAIR cost-effectiveness strategy is the most appropriate means of
distributing state budgets. As discussed previously, the differing scope and
methodologies created significant interfacing challenges.
Perhaps the greatest challenge was the exclusion of industrial sources covered
under the NOx SIP Call from the allocation methodology used for the CAIR seasonal
state budgets and trading program. EPA essentially provides NOx SIP Call states
two options.³⁵ First, the state can choose to adopt the seasonal NOx program’s
electric-generating-units-only system and assign reduction requirements accordingly.
As those states would be achieving their CAIR budgets solely through controlling
electric generating facilities, previously controlled industrial sources would no longer
have reduction requirements under the eliminated NOx SIP Call. The other option
for states would be to include industrial sources currently covered under the NOx SIP
Call in the seasonal trading program. Emission limitations for those sources would
remain the same as under the current NOx SIP Call.

³⁴ When EPA issued the final rule, it also proposed to include New Jersey and Delaware
under the annual NOx and SO²caps for contributing to PM^2.5 nonattainment.
³⁵ Clean Air Interstate Rule, p. 25290.

Another melding problem resulted from the geographic difference between the
21-state NOx SIP Call program and the 25-state CAIR program. Because of different
methodologies, Rhode Island is included under the NOx SIP Call, but not the CAIR
NOx program. EPA decided to give Rhode Island two options: (1) join the CAIR
seasonal NOx trading program, or (2) develop an alternative method to achieve its
NOx SIP Call requirements.³⁶
Issues
Timing of Reductions: Banking
Providing flexibility to participants is at the heart of the CAIR cap-and-trade
implementation strategy. EPA hopes the adoption of the model trading program by
states will achieve emission reductions earlier and less expensively than a command-
and-control system. Incentives to achieve reductions earlier than necessary include
(1) one-for-one redemption of SO² allowances banked before 2010 for more stringent
CAIR requirements; (2) one-for-one use of NOx SIP Call allowances banked before
2009 for the seasonal NOx program; and (3) creation of a Compliance Supplemental
Pool (CSP) with 200,000 annual NOx allowances that states can use to reward early
reductions by electric utilities.³⁷
However, analysis of projected banking activity before and during CAIR does
not indicate that early reductions will be significant. As indicated in Table 4, none
of the three trading program under CAIR is projected to have any net increase in
banked allowances before the 2009/2010 phase 1 dates. For the SO² program, the
current bank of 7.6 million allowances is projected to fall to 6.9 million allowances
in 2010. From that point, the bank declines, producing the “glide slope” of reductions³⁸
that EPA wants in order to reduce costs. However, that “glide slope” does not
appear to include any additional early reductions resulting from CAIR.
Table 4. Projected Net Banking Before and During CAIR
2003 2007 2010 2015 2020 2026
SO²Annual7.66.96.94.31.00
(million tons)
NOx Annual000000
NOx Seasonaln/a00.060.150.220.29
(million tons)
^Source:^En^vⁱ^ron^m^en^{tal P}^r^otection^A^g^en^cy^,^IPM^C^A^{IR 2004 Fi}^nal^Run^,^l^o^c^a^t^e^d^a^t^[^h^t^t^p^:^/^/^www.^e^p^a^.
^g^o^v^/^air^m^ar^k^e^ts/ep^a^-ⁱ^p^m^/iaq^r^.h^tm^l]^.

³⁶ Ibid., p. 25290.
³⁷ Ibid., pp. 25284-25286.
³⁸ Ibid., p. 25284.

For the annual NOx trading program, the projected banking activities indicates
no “glide slope” whatsoever. There is no net banking activity projected under the
annual NOx program. For the seasonal program, the model projects no banking
before the 2009 compliance dates, but a slowly accumulating bank of seasonal NOx
allowance after 2009. This accumulation continues through the projected period.
The effect this activity has on emission reductions is indicated in Table 5. As
suggested above, the SO² banking activity results in a smoothing out of the phase 1
and phase 2 reduction requirement, but at the cost of emissions remaining over actual
cap levels through the projected period. In contrast, the annual NOx emission levels
follow the reduction requirement in lockstep with no smoothing of the emission
levels over time. Finally, the emissions levels under the seasonal program remain
below the cap limits throughout the period.
Table 5. Projected Emissions Under CAIR
(million tons)
2010Cair caps
(2009 for(phase 1/
Regional emissions2003NOx)20152020phase 1)
SO² Baseline Emissions9.48.77.97.7
SO² Emissions after CAIRn/a5.14.03.33.6/2.5
NOx Baseline Emissions3.22.72.82.8
NOx Emissions after CAIRn/a1.51.31.31.5/1.3
Seasonal NOx Baseline Emissions1.050.680.680.70
Seasonal NOx Emissions after CAIRn/a0.560.470.470.58/0.48
^Source:^En^vⁱ^ron^m^en^t^a^l^Prot^ectⁱ^oⁿ^A^g^en^cy^{, 2005.}
The last trend is interesting. When EPA proposed the IAQ, it did not include
a seasonal NOx cap for ozone mitigation. Its decision in CAIR to include a seasonal
NOx program with separate seasonal caps appears, at first, to be a major change from
the proposed rule. However, the result above suggests that the annual NOx control
requirement is dictating control strategies, not the seasonal cap.³⁹ Indeed, the result
indicates that compliance with the annual cap results in a slight overcontrol situation
with respect to the seasonal cap — hence the slowly increasing bank of seasonal
allowances. If this projection proves correct, seasonal allowances may have little
value — something states may want to consider in deciding whether to include their
industrial NOx SIP Call sources in the seasonal CAIR program.

³⁹ According to EPA’s modeling runs, the actual emissions under the seasonal NOx program
continue under the control requirements with no banking activities. The seasonal NOx
credits banked over the projected time period just continue to accumulate. Discussions with
EPA indicate the model sees the annual NOx requirement as the controlling metric under
CAIR, not the seasonal cap. Telephone communications with EPA (May 5, 2005).

Adequacy of Reductions
The purpose of CAIR is to address interstate transport of pollutants that are
hindering downwind states from attaining the eight-hour ozone and PM^2.5 NAAQS.
As indicated by Table 6, most eastern U.S. counties currently in nonattainment will
come into compliance with the PM^2.5 and eight-hour ozone NAAQS by implementing
existing CAA programs over the next 5-10 years. In terms of the remaining counties,
CAIR is predicted by EPA to have a greater impact on PM^2.5 attainment in the eastern
United States than on eastern U.S. eight-hour ozone attainment. According to EPA,
CAIR will bring only three additional counties (out of the remaining 40) into
compliance with the eight-hour ozone NAAQS in 2010, and only a total of six
additional counties (out of remaining 22) by 2015. In contrast, EPA projects CAIR
will bring 52 additional counties (out of the remaining 79) into compliance with the
PM^2.5 NAAQS by 2010, and a total of 57 additional counties (out of the remaining

74) by 2015.

Table 6. Projected Impact of CAIR on Eastern U.S. Compliance
with PM^2.5 and Eight-Hour Ozone NAAQS
Eastern U.S. ozone NAAQSEastern U.S. PM^2.5 NAAQS
nonattainment countiesnonattainment counties
Without CAIRWith CAIRWithout CAIRWith CAIR
2005 408 n/a 195 n/a
201040377927
201522167417
^Source:^Cle^aⁿ^Aⁱ^{r I}ⁿ^te^rsta^t^e^R^u^l^e^,^p^.²^5165;^{2005 dat}^a^f^r^om^EPA^w^e^bsⁱ^t^e^at
^[^h^t^t^p^:^/^/^www.^e^p^a^.^g^o^v^/^c^aⁱ^r^/^c^h^a^r^t^s^_^fⁱ^l^e^s^/ⁿ^oⁿ^a^t^t^aⁱⁿ^_^m^a^p^s^.^p^d^f^]^.
As noted above, the purpose of CAIR is to address interstate transport of SO²
and NOx, not to achieve the PM^2.5 and eight-hour ozone NAAQS on its own. That
task will require a combination of interstate and local controls. However, the relative
lack of impact of the seasonal cap on ozone attainment raises questions. If data are
a problem, some may ask why not include industrial sources for seasonal NOx
control only (as is currently the case with the NOx SIP Call)? EPA has already
decided to separate the phase 1 deadlines between NOx (2009) and SO² (2010); why
not include industrial sources for seasonal NOx only? There are only five states that
are under the CAIR seasonal program but not the NOx SIP Call, so EPA’s data
concerns would be lessened.
In addition, do EPA’s projections of seasonal NOx banking suggest that the
seasonal cap could be strengthened slightly? The seasonal NOx program is separate
from the annual NOx program (as are the environmental problems they address), so
the budget allocation schemes do not have to be identical.
With respect to the SO²results, the lessening of progress between 2010 and
2015 may raise questions. How much is this the result of the banking activities
during that time period? Would a tighter reduction schedule or inclusion of industrial

sources improve the results? What should EPA response be if it chooses to increase
the stringency of the PM^2.5 standard in the future?
EPA believes it has struck the correct balance between addressing the interstate
transport component of nonattainment and the need for local controls. Ultimately,
it may be the Congress or the courts that determine whether that assessment is
correct.
Meshing with the Clean Air Act
EPA does not provide any direct regulatory relief to facilities covered under
CAIR, specifically New Source Review.⁴⁰ No exemptions or safe harbors are
provided to facilities that meet the requirements of CAIR. However, two provisions
of CAIR may offer some future relief from CAA requirements, depending on future
EPA determinations. These are discussed below.
Section 126 Petitions. Under Section 126(b) of the CAA, any state or
political subdivision may petition EPA for a finding that any major source or group
of stationary sources located in another state is emitting pollutants that “significantly
contribute” to the nonattainment of a NAAQS by their state. EPA is to respond to
the petition within 60 days. If the petition is granted, the offending sources must
cease operations within three months unless the sources comply with emission
controls and the compliance schedules as determined by EPA to bring them into
compliance with the section.
Section 126 petitions have been on file with EPA with respect to the eight-hour
ozone standard since August 1997.⁴¹ On January 18, 2000, EPA indefinitely stayed⁴²
findings on the eight-hour ozone standard, because of litigation on that standard.
More petitions have been received since. On March 19, 2004, EPA received a
Section 126 petition from North Carolina seeking reductions in upwind emissions to
help it achieve the PM^2.5 and eight-hour ozone NAAQS.⁴³ In CAIR, EPA did not
state how it would rule on the North Carolina petition, stating: “When we propose
action on the North Carolina petition, we will set forth our view of the interaction⁴⁴
between section 110(a)(2)(D) and section 126.”
Regional Haze: BART. The reductions required under CAIR would have
the effect of reducing regional haze in the eastern United States. In the proposed rule,
EPA requested comment on the extent to which the requirements of the proposed rule

⁴⁰ Clean Air Interstate Rule, p. 25305.
⁴¹ In August 1997, three states — Massachusetts, Pennsylvania, and Vermont — submitted
ozone transport petitions to EPA with respect to the eight-hour ozone NAAQS. These were
joined later by petitions from Maine and New Hampshire.
⁴² Environmental Protection Agency, Findings of Significant Contribution and Rulemaking
on Section 126 Petitions for Purposes of Reducing Interstate Ozone Transport: Final Rule,

65 Federal Register 2675-2767 (January 18, 2000).

⁴³ Clean Air Interstate Rule, p. 25304.
⁴⁴ Ibid., p. 25304.

could satisfy the requirements of its regional haze program. Of particular focus was
the requirement of Section 167A of the CAA that certain existing sources install best
available retrofit technology (BART) to protect visibility in national parks and
wilderness areas.⁴⁵
In the proposed IAQ and in CAIR, EPA sets out a lengthy argument with respect
to CAIR and BART.⁴⁶ Specifically, EPA argues that participation in CAIR should
act as a substitute for complying with BART. However, EPA also decided to defer
the decision on substituting CAIR for BART for affected units until the BART
guidelines are finalized. As stated by EPA:
The results clearly indicate that the CAIR will achieve greater reasonable
progress than BART as proposed, measured by the proposed better-than-BART
test. At this time, we can foresee no circumstances under which BART for
EGUs could produce greater visibility improvement than the CAIR. However,
for the reasons noted in section IX.C.1 above, we are deferring a final
determination of whether the CAIR makes greater reasonable progress than
BART until the BART guidelines for EGUs and the criteria for BART-⁴⁷
alternative programs are finalized.
Conclusion
The final CAIR rule reflects several changes from the proposed IAQ resulting
from improved modeling and other considerations. Changes include:
^!Inclusion of a seasonal NOx emissions cap separate from the
proposed annual NOx emission cap.
^!Accelerating compliance with phase 1 of the two NOx caps from

2010 to 2009.

^!Five states — Arkansas, Kansas, Delaware, New Jersey, and
Massachusetts — were removed from the list of states contributing
to PM^2.5 nonattainment. EPA has proposed that Delaware and New
Jersey be re-included under a separate rulemaking.
^!Four states — Arkansas, Delaware, Massachusetts, and New Jersey
— joined Connecticut as states determined only to contribute to
eight-hour ozone nonattainment.
^!One state — Kansas — was removed from the rule.
^!One state — Georgia — was removed from the list of states
contributing to eight-hour ozone nonattainment, but remained on the
list of states contribution to PM^2.5 nonattainment.
^!One state — Florida — was added to the list of states contributing
to eight-hour ozone nonattainment in addition to remaining on the
list of states contributing to PM^2.5 nonattainment.

⁴⁵ For more on the regional haze program, see CRS Report RL32483, Visibility, Regional
Haze and the Clean Air Act: Status of Implementation, by Larry Parker.
⁴⁶ Clean Air Interstate Rule, pp. 25300-25304.
⁴⁷ Ibid., p. 25304.

^!Creation of a 200,000 annual NOx compliance supplement pool
(CSP) to allow states to reward early reductions or assist needy
participants.
^!Inclusion of a fuel-type adjustment factor to the NOx allocation
formula that provides more NOx allowances to states that burn coal
for electricity generation.
^!Decision not to finalize any determinations with respect to Section

126 petitions or BART.

Although these changes may be important in specific cases, they do not
represent a major shift in the thrust and scope of CAIR. Unlike the recently
promulgated mercury (Hg) rule,⁴⁸ CAIR has not been particularly controversial, so
major changes were not anticipated.
That the rule has not had the visibility of the Hg rule should not be interpreted
to mean that the underlying issue of PM^2.5and eight-hour ozone compliance has been
solved. In particular, EPA is currently reviewing the stringency of the PM^2.5
NAAQS, a process that could result in a more stringent standard and more counties
out of compliance. Given the lengthy time frame of CAIR, it seems likely that efforts
will be made to strengthen its provisions well before 2015, if the PM^2.5 standard is
strengthened.
Likewise, CAIR does not address the most potent environmental issue
surrounding fossil-fuel-fired electric generating facilities — global warming and the
possibility of carbon dioxide reductions. Movement on that issue over the next
decade could result in a modification of CAIR, or a new multipollutant control
regime. Bills have been introduced in Congress to impose such a system.⁴⁹
Finally, the promulgation of CAIR may raise questions about the future of the
Bush Administration’s legislative initiative — Clear Skies. Clear Skies represents
a complete rewrite of Title IV of the Clean Air Act and would impose a
comprehensive cap-and-trade system on utility SO², NOx, and Hg emissions. In
addition, it would have altered, deleted, or held in abeyance for some time existing
sections of the Clean Air Act with respect to affected electric generating units and
industrial sources that chose to opt into the program.⁵⁰ With the promulgation of
CAIR that achieves NOx and SO²emissions reductions from most of the country’s
electricity generating facilities, and of the final Hg rule, it is unclear what impetus
remains for Clear Skies.

⁴⁸ Environmental Protection Agency, Standards of Performance for New and Existing
Stationary Sources: Electric Utility Steam Generating Units; Final Rule, 70 Federal
Register 28606-28700 (May 18, 2005). For an analysis of the Hg rule, see CRS Report
RL32868, Mercury Emissions from Electric Power Plants: An Analysis of EPA’s Cap-and-
Trade Regulation, by James E. McCarthy.
⁴⁹ See CRS Report RL32755, Air Quality: Multi-Pollutant Legislation in the 109^th Congress,
by Larry Parker and John Blodgett.
⁵⁰ See CRS Report RL32782, Clear Skies and the Clean Air Act: What’s the Difference, by
Larry Parker and James E. McCarthy.