On March 16, 2011, the US Environmental Protection Agency (“EPA” or the “Agency”) announced its proposed “air toxics” rules to restrict emissions of mercury, arsenic, chromium, nickel, acid gases, and organics from coal- and oil-fired power plants. The proposal could result in significant capital expenditures for covered units—$28 billion in the aggregate according to one estimate. It also could result in the permanent or, at least during construction of required retrofits, extended loss or derating of generating capacity, especially from smaller, older coal-fired plants. At the same time, EPA is proposing to set limits for new steam boilers that burn coal, oil, or natural gas.

The air toxics proposal covers coal- and oil-fired electrical generating units with a capacity of 25 megawatts or greater. Natural gas units are excluded from this proposal. For covered units, the Agency would not differentiate between larger, “major” sources and smaller, “area” sources. Nor could a source obtain an exemption by showing it did not pose a health risk.

EPA did create several subcategories of covered units, including certain coal-fired burners at mine mouths that are designed to burn lignite. Electric utility generating units that combust gasified coal or solid oil-derived fuel (integrated gasification and combined cycle or “IGCC” units) likewise would be a separate subcategory. On the other hand, no subcategory was established for plants serving back-up emergency functions or burning coal refuse.

In general, air toxics standards are technology-based emissions limitations that reflect the results of the best performing sources. For coal-fired units, the proposed standards would set numerical limits for mercury, particulate matter (as a surrogate for toxic non-mercury metals), and hydrogen chloride (the surrogate for toxic acid gases). For oil-fired units, there would be numerical limits for total metals, hydrogen chloride, and hydrogen fluoride; compliance with the metals standards would be demonstrated through fuel testing. Some power plants would be able to use alternative standards such as sulfur dioxide rather than hydrogen chloride. Providing some further flexibility, EPA is proposing to allow individual units within a single subcategory at a single, existing affected source to average their emissions.

Instead of setting numerical limits for organic air toxics (including dioxins and furans), the proposal would require both oil-fired and coal-fired units to employ specified work practices. These would include inspecting the burner, the flame pattern, and the air-to-fuel ratio, as well as optimizing carbon monoxide and nitrogen oxides emissions.

The Agency believes that a variety of technologies can be employed to meet the standards. It rates activated carbon injection as the “most successfully demonstrated [mercury]-specific control technology.” Electrostatic precipitators and fabric filters would control particulate matter, while flue gas desulfurization systems are expected to remove acid gases.

The air toxics proposal would give existing sources three years to comply. Permitting agencies would have discretion, on a case-by-case basis, to allow an extra year when a source is unable to meet the deadline.

Besides proposing air toxics standards, EPA would set “new source performance standards” for new steam boilers based on “commonalities among the controls needed to comply.” Numerical limits would be set for particulate matter, sulfur dioxide, and nitrogen oxides.

Early criticism of the air toxics proposal is focusing on the acid gas limits, which may require even small sources to install scrubbers or other controls. Referring to a “train wreck” of rules, the Utility industry is concerned, too, about the relationship between these proposals, new ambient air standards, and new regulations for combustion residues, cooling water discharges, transport of air pollutants, and climate change. Indeed under a settlement agreement, EPA will be issuing additional proposed new source performance standards for greenhouse gas emissions from power plants by July 26, 2011. On the interaction of the new requirements, the Agency promises only that, to the “full extent” allowed by its “legal obligations,” it “plans to take into account the combined effects” and “allow the industry to make practical integrated compliance decisions that minimize costs.”

A 60-day public comment period will begin when the proposal appears in the Federal Register, and EPA plans to hold three public hearings. Under a consent decree, the Agency must sign a final air toxics rule by November 16, 2011. It bears keeping in mind that the final regulations will apply to any new covered facility for which construction, reconstruction, or modification starts after the proposed rules appear in the Federal Register

For further information, please contact Roger W. Patrick, Kevin Desharnais, or your regular Mayer Brown contact.

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