6
A General Approach to Assessing Impacts of NSR Rule Changes

INTRODUCTION

In this section, a general approach to considering the impacts of New Source Review (NSR) rule changes on emissions, energy efficiency, innovation regarding pollution prevention and pollution control, and public health is outlined. A key feature of this approach is recognition that future developments in other air-pollution laws and regulations can profoundly influence those impacts and that those impacts can vary from one industry to another. Therefore, the committee plans to assess impacts under alternative scenarios concerning those developments using appropriate methods discussed in Chapter 5 to the extent practicable. This scenario approach is described in the next section. Within each scenario, the effects of the rule changes are addressed by describing possible pathways by which each of the rule changes could affect industry decisions, followed by a screening of those pathways for plausibility and significance of impacts and identification of possible interactions among the rules. Both steps are described briefly in this chapter to present important features of our pending analyses, and both will be developed in greater detail in the committee’s final report. Although our general approach should be considered preliminary, we emphasize two of the most important dimensions needed in a prospective assessment of NSR rule changes: assessing impacts under alternative regulatory scenarios and systematically determining the plausibility and significance of pathways by which rule changes could affect industry decisions.



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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants 6 A General Approach to Assessing Impacts of NSR Rule Changes INTRODUCTION In this section, a general approach to considering the impacts of New Source Review (NSR) rule changes on emissions, energy efficiency, innovation regarding pollution prevention and pollution control, and public health is outlined. A key feature of this approach is recognition that future developments in other air-pollution laws and regulations can profoundly influence those impacts and that those impacts can vary from one industry to another. Therefore, the committee plans to assess impacts under alternative scenarios concerning those developments using appropriate methods discussed in Chapter 5 to the extent practicable. This scenario approach is described in the next section. Within each scenario, the effects of the rule changes are addressed by describing possible pathways by which each of the rule changes could affect industry decisions, followed by a screening of those pathways for plausibility and significance of impacts and identification of possible interactions among the rules. Both steps are described briefly in this chapter to present important features of our pending analyses, and both will be developed in greater detail in the committee’s final report. Although our general approach should be considered preliminary, we emphasize two of the most important dimensions needed in a prospective assessment of NSR rule changes: assessing impacts under alternative regulatory scenarios and systematically determining the plausibility and significance of pathways by which rule changes could affect industry decisions.

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants SCENARIOS OF REGULATORY BACKDROPS AND NSR RULES As discussed in Chapter 2, NSR is not the only Clean Air Act program that affects air emissions by industry. For instance, in the case of sulfur dioxide (SO2) emissions by electric power generators, the Title IV emissions trading system and state implementation plans (SIPs) both impose their own constraints. The incremental effect of NSR rule changes on a particular facility and industry will depend at least in part on how tight these other regulations are. Future developments in those regulations are a major uncertainty in assessing the impact of NSR.1 Another uncertainty is what the effect of the old NSR rules would be if left in place. It is unknown whether the courts would ultimately sanction a stringent interpretation of those NSR rules. Conflicting federal district court decisions, summarized in Chapter 2, mean that the ability of the EPA to use the old NSR rules to force substantial investments in pollution control, at least on the power industry, is unknown at the time of this writing. It is not possible to state with any confidence what would happen with other regulations or with NSR interpretation if the old rules were to remain in place. Because the net impacts of the changes made to the NSR rules of 2002 and 2003 can depend strongly on the scenario, it is important to assess those impacts under each possibility. Furthermore, 1   Continuing with the SO2 example, we point out in Chapter 5 that a reduction in the national SO2 emissions cap for power generators would cause total national emissions to decrease and emissions allowances to have a relatively high price. When allowances have value, power plants that reduce emissions in response to NSR will sell those allowances, if they are permitted to so, to other power plants. In that scenario, the incremental effect of NSR enforcement would then be reduced. Then the health impacts that may result will depend on how those national emissions are rearranged in time and space, perhaps improving or perhaps worsening. On the other hand, if stringent interpretation of the old NSR rules would result in surrenders of allowances in some cases, as has occurred (see Chapter 2), then the national cap (e.g., the present Title IV cap of 8.95 million tons/year) is effectively tightened, and national emissions would fall as a result of NSR enforcement. Whether those surrenders would remain in effect should the Title IV cap be reduced further by Congressional or U.S. Environmental Protection Agency (EPA) action is relevant to an assessment of emissions and health impacts of the new NSR rules. Also, stringent NSR interpretation that yields significant amounts of scrubber installation or coal plant retirements could cause total emissions to fall below the cap.

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants because the effect of other regulations varies across types of sources, these assessments should be done separately for different industries. Table 6-1 outlines the general scenarios that will be considered for each major industry and pollutant.2 The precise scenarios concerning other regulations or NSR interpretation might depend on the pollutant and the industry. For some industries, there may be no relevant non-NSR regulatory changes that have been proposed that would affect their emissions, in which case only Scenarios 1a and 1b would be considered. For other industries, especially the power industry, the strictness and scope of emission caps might be the relevant non-NSR regulation to be considered, whereas, for still other industries, other regulations might be most relevant to consider. For all regulatory scenarios, we will consider the time horizon of the regulation and any secondary effects associated with implementation of the regulation, such as the delayed or accelerated implementation of other air-quality regulations. ASSESSING IMPACTS OF INDIVIDUAL SCENARIOS Given this scenario analysis framework, a formalized approach is needed to articulate and address the significant primary and secondary impacts of the NSR rule changes. Because many of the rule changes provide some incentives that theoretically could increase emissions and others that might decrease them, it is important to systematically determine which incentives will dominate under various policy scenarios. 2   For the case of power-sector nitrogen oxide (NOx) emissions, as an example, the “no-change” scenario would be the present “SIP-call” cap on summer emissions in 19 eastern and midwestern states. A “stricter” scenario might be, for instance, the EPA Clean Air Interstate Rule proposal for a year-round cap in a larger 28-state region, which likely would force additional reductions, or one of the legislative alternatives considered in the 2003-2004 Congress. An intermediate case could be a proposal of intermediate strictness. Meanwhile, the “aggressive enforcement” scenario for old NSR rules could involve assumptions about substantial retrofits of, for instance, selective catalytic reduction or other NOx-control investments as a result of NSR enforcement actions, accompanied by surrenders of allowances, so that total regional emissions fall. On the other hand, less aggressive enforcement might imply few such retrofits. Specification of the scenarios should reasonably consider possible outcomes of court decisions or legislative action.

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants TABLE 6-1 Scenarios to Compare with Revised NSR Rulesa Old NSR Rules Other Regulations Applied to NSR-Affected Facilities 1. No Change 2. Intermediate 3. Stricter a. Stringent interpretation Scenario 1a Scenario 2a Scenario 3a b. Less stringent interpretation Scenario 1b Scenario 2b Scenario 3b aRevised NSR rules will be compared with each scenario about old-rule stringency under a given set of other air-quality regulations. Although the committee does not develop this approach in full in this interim report, we briefly discuss key elements that might be helpful in ultimately determining the net impacts of the rule changes. The amount of quantitative information available varies across sectors. Especially for rule changes that largely affect non-electricity-generation sources, the committee may be limited in its ability to quantify emissions or energy efficiency changes and therefore initially may need a more qualitative approach. If the committee cannot simulate the net impacts on plant or industry behavior via models such as the Integrated Planning Model (IPM) or National Energy Modeling System (see Chapter 5), a logical first step involves articulating all the theoretically possible effects the rule change could have on plant and industry behaviors. These behaviors include maintenance, production, and retirement decisions concerning existing facilities as well as investment in new facilities. Many of these effects would be identified from previous analyses and from knowledge about how similar regulatory programs have operated previously. It is important to consider secondary impacts of the rule changes—for example, if a rule change influences retirement decisions and thus the life expectancy of a subset of facilities, which in turn will affect the market for new facilities (and therefore emissions from the entire industry sector). At this stage, the committee will be as comprehensive as possible, including pathways for which evidence has been only anecdotal or where the impacts are hypothetical, given no prior experience. The purpose of this analytical step would be to ensure that no significant pathways are omitted, with the strength of the evidence to be analyzed subsequently. Then, the committee will evaluate each pathway to determine both its plausibility and the likely direction and magnitude of the emission changes. For the electricity-generation sector, the committee will pro-

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants pose a set of analyses using sector-wide models such as IPM, encompassing a wider range of possible regulatory and technological developments than considered previously.3 For data-limited industries, the committee proposes a qualitative assessment—not likely, possible, and likely accompanied by small, medium, and large emission increases and decreases. Empirical data, to the extent that they are available and pertinent, will be used. These assessments will depend in part on the regulatory landscape outside of NSR, so the committee will consider whether either the emissions change or the likelihood of the pathway varies across the matrix in Table 6-1. Based on this assessment, the committee will focus on those rule changes, industries, and pathways that appear likely to contribute substantially to changes in emissions, pollution prevention, pollution control, and changes in energy efficiency. We will conduct this analysis on a pollutant-by-pollutant basis, evaluating factors such as geographic location, stack height, and proximity to population centers that might, for example, cause an industry sector with lower emissions to have more significant public health impacts. Evaluation of dominant pollutants and source characteristics will help further determine the most significant contributors to emissions, population exposure, and human health impacts and will help the committee focus on data sources that may support additional quantitative analyses. Within this analytical framework, the committee also must consider interactions between the pathways. It is possible that the influence of two simultaneous rule changes will not be equivalent to the sum of the effects of the rule changes taken independently, because the rule changes represent a package that firms and industries will consider when making emission-control decisions. As mentioned previously, the committee will consider the potential for synergy and antagonism across a matrix of regulatory landscapes. Implementing this analytical approach will be complex. Data are limited and the “scenario space” is large; there are numerous uncertain- 3   Additional policy and technology scenarios that could be undertaken include stringent interpretation of the old NSR rules, resulting in reduction of emissions below applicable caps; significant surrender of allowances under NSR settlements; and possible technology and economic developments that could result in a high penetration of renewable generation sources. Moreover, changes in electric power market designs, tax policy, or the relative prices of various technologies could influence the response of the electric utility sector to regulatory policy shifts.

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants ties. However, the committee has concluded that this enumerative approach will help to uncover high-leverage rule changes and the pathways by which they may influence emissions and energy efficiency. This identification will help to structure and scope a more formal analysis.