PADEP Publishes Proposed Clean Air Interstate Rule

May 16, 2007
Client Alert Newsletter May 2007

On May 12, 2005, the U.S. Environmental Protection Agency ("EPA") issued the federal Clean Air Interstate Rule (the "Federal CAIR"), requiring 28 states, including Pennsylvania, to submit revised state implementation plans ("SIPs") with control measures to reduce emissions of nitrogen oxides ("NOx") and/or sulfur dioxide ("SO2") from certain electric generating units ("EGUs"). The Federal CAIR seeks to curb NOx and SO2 emissions that contribute significantly to nonattainment of the National Ambient Air Quality Standards ("NAAQSs") for fine particulate matter ("PM2.5") and 8-hour ozone in downwind areas. In accordance with these SIP obligations, Pennsylvania's Environmental Quality Board ("EQB") proposed, on April 28, to restrict emissions of NOx and SO2 from EGUs of 25 MW or greater. The comment period for the proposal closes on July 2.

The proposal incorporates the model trading rules for annual and ozone season NOx emissions and annual SO2 emissions from the Federal CAIR. According to the CAIR NOx model trading rules, PADEP will allocate NOx allowances to affected EGUs beginning in September. Starting in 2009, affected EGUs will have to retire one NOx allowance for each ton of NOx emissions. The CAIR NOx ozone season trading program will replace Pennsylvania’s existing NOx Budget Trading Program, and affected EGUs may not use NOx Budget Trading Program allowances to comply with the CAIR annual NOx trading program. The CAIR SO2 model rule relies on SO2 allowances previously allocated to sources subject to the Acid Rain program. Beginning in 2010, affected EGUs, including sources exempt from the Acid Rain program, will have to retire SO2 allowances to account for their SO2 emissions.